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Tuesday, January 22, 2013

TMSC Anticipates Big Orders. Is Apple One of Them

Analysts expect Apple to drop Samsung Electronics as a chip supplier, but when

In business, it’s not usually wise to be funding your competition. Unfortunately for Apple, processor chips for iPhones and iPads are made by Samsung, the South Korean company that is its top competitor in smartphones.

Most analysts expect Apple will eventually change suppliers. One potential suitor that keeps popping up in the rumor mill is the Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chip maker, and for good reason.

TSMC is one of the few companies that have the capacity and the technology to meet Apple’s demand. The company had $17.5 billion in revenue in 2012 and its net income rose 32 percent in the fourth quarter. The chairman and chief executive, Morris Chang, is planning a record $9 billion in capital expenditures to expand production in 2013. TSMC makes some of the smallest and most powerful chips, and these chips go into both computers and smartphones.

p>The added incentive is, TSMC solely makes chips by contract, and probably will never compete with Apple in finished consumer electronics as Samsung has.

“This is the reason that companies such as Nvidia and AMD, which actually compete against each other in PCs, both go to TSMC (to make their chips),” Patrick Liao, an analyst at Nomura Securities, said. “They never worry about technology theft.”

For the last year and a half, industry watchers have tried to predict when TSMC will receive its first big order from Apple.

TSMC’s latest 28-nanometer chip was oversubscribed by existing customers to the point of shortage in 2012, and many believe the company does not have enough capacity for a large Apple order in 2013.

However, the 20-nanometer chip, which TSMC expects to go into full production in 2014, looks promising, analysts say. (Connections within a chip are measured in nanometers, or one-billionth of a meter.)

At an earnings conference on Thursday, Mr. Chang! declined to comment on Apple, but he bullishly predicted the 20-nanometer would outsell the 28-nanometer in its first two years.

“Enough discussions have taken place, with enough customers who have large requirements (on 20nm), to lead us to believe that the volume will be very large,” Mr. Chang said.

That bullishness leads analysts to believe that Apple could be a customer involved in these discussions.

“That language makes you feel like the direction is headed where we all expect,” said Steven Pelayo, regional head of technology research at HSBC.

If Samsung cuts capital spending this year, Mr. Pelayo says, that will add another piece to the puzzle of when Apple plans to exit.

“2013 is really a status quo year. Samsung ramps down, TSMC ramps up. We’ll see what happens in 2014.”