Wed, Feb 18, 2015 - Page 14 News List

TSMC, Samsung eye Apple chip

CHIP CHALLENGE:TSMC outjockeyed Samsung to supply the most important chip in the iPhone 6, but Samsung has ‘bet the farm’ in an attempt to win the next round

Bloomberg

Taiwan Semiconductor Manufacturing Co chairman and founder Morris Chang speaks at the Cross-Strait Chief Executive Officer Summit in Taipei, on Dec. 15 last year.

Photo: Bloomberg

Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) is locked in an investment duel with Samsung Electronics Co to meet booming US demand for Apple Inc’s iPhone and other smartphones, benefiting electronics suppliers around the globe.

TSMC, the world’s biggest custom-chip maker, plans record spending on plants and equipment this year. It is spending US$12 billion on factories — more than Intel Corp has ever spent in one year — to counter investments that Samsung is making to win chip orders from Apple, Qualcomm Inc and its own handset division.

The spending is a boon for suppliers such as US firms Applied Materials Inc and Lam Research Corp and Dutch company ASML Holding NV, according to supply-chain data compiled by Bloomberg. Applied Materials, the largest maker of chip equipment, receives a third of its revenue from TSMC and Samsung. Globally, suppliers’ sales rose 19 percent last year to US$38 billion and might jump 15 percent this year, estimates from industry group SEMI show.

The rush for smartphones, and the tools to make parts for them, is one reflection of economic growth prospects in the US — forecast to lead the G7 countries for the next two years — and in China, where even reduced estimates of 7 percent expansion is about five times that of the eurozone. For the fourth quarter of last year, Apple reported iPhone sales rose 46 percent to 74.5 million units, putting it just behind Samsung’s 75.1 million units, according to research firm International Data Corp (IDC).

“That’s the No. 1 thing that drives our business, and it’s the key competitive battleground for our customers,” Applied Materials chief executive officer Gary Dickerson said in an interview. “That battle is still playing itself out.”

To keep enticing consumers, new phones need more powerful and more power-efficient “brains.” That is where chipmakers come in, and why TSMC and Samsung are locked in an increasingly expensive battle to be first with new production technology.

By shrinking the circuit lines on semiconductors — measured in nanometers — manufacturers can improve chip capabilities or get more out of a production run. Modern plants cost more than US$5 billion to build and equip and are obsolete in five years or less, so they need to operate 24 hours a day.

The tables can turn quickly. Samsung had been the supplier of the most important chip in Apple’s iPhone since its debut in 1997. That changed in the iPhone 6 with Apple’s A8 chips, which are manufactured by TSMC.

Now the South Korean chipmaker is trying to leapfrog TSMC in production technology to win the next round. UBS AG estimates Samsung made US$3.7 billion in capital expenditures on its processor business alone last year and might raise that to US$4.9 billion this year. Samsung does not disclose such numbers, but executives on a Jan. 29 conference call confirmed they would boost spending this year.

“Samsung is in the lead because they’ve bet the farm on it,” IHS Corp analyst Len Jelinek said. “They’ve had to.”

Founded in 1987, TSMC forged a business model that lets chipmakers like Qualcomm and Broadcom Corp forgo expensive factories and outsource production of chips using their designs to facilities in Taiwan. Its annual revenue from the communications category more than doubled to US$14 billion in five years, now accounting for more than half of sales.

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