There have been rumblings for some time that Apple Inc. (NASDAQ:AAPL) was taking steps to diversify its supply chain, and now, apparently TSMC has made its first delivery. The Wall Street Journal cites unnamed sources who say Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) (TPE:2330) has shipped off its first processors to Apple.
Apple spurns Samsung
The newspaper’s sources said TSMC started sending its microprocessors to Apple during the second quarter. Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) had been the sole supplier up until last year. The sources also said that Apple and TSMC will be working on chips that are even more advanced next year. The two companies signed a contract for TSMC to start supplying chips to Apple last year. However, some analysts questioned previously whether the company would be able to manufacture the complicated microprocessors.
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Now that Apple has begun working with TSMC, it will not be relying only on Samsung for its chips, which are the most important component because they run all of the apps on tablets and smartphones. The company will likely be able to get better pricing on its components because it now has two suppliers for them. And for TSMC, the company gets a much-coveted customer in the manufacturing industry and may be able to move into more advanced technology. The Taiwanese manufacturer will also likely see an increase in overall revenue thanks to the deal with Apple.
Apple to become a major customer for TSMC
Analysts project that Apple’s orders will make up about 10% of TSMC’s overall revenue this year. Last year, the manufacturer reported $19.96 billion in revenue, an 18% year over year increase.
TSMC reportedly began making Apple’s 20-nanometer chips during the first quarter. So far it’s still unclear just how many the Taiwanese manufacturer has shipped to Apple, although Apple is expected to increase its purchases since TSMC doesn’t compete with it like Samsung does.
Samsung has been struggling of late thanks to slowing smartphone sales. As a result, losing some of Apple’s business is quite a blow. Samsung reported about a 26.5% year over year decline in operating earnings for the second quarter. The Korean company said it had too many unsold smartphones.
Apple reduces reliance on Samsung
The relationship between Apple and Samsung has been deteriorating slowly since 2011. That’s when Apple sued Samsung claiming that the company coped its tablet and smartphone designs. The two companies have duked it out in courts around the world, accusing each other of stealing technology.
Apple has since stopped buying the displays for its iPhones from Samsung and also reduced the number of iPad displays it buys from the Korean company. Since 2012, Apple has gradually been shifting purchases of other components away from Samsung to other manufacturers, according to The Wall Street Journal’s sources.