Apple returns to Samsung for 2015 14nm Ax chips, will pay 20% more. Deal shows Sammy’s increasing power, but for how long?

It must be really frustrating to be in Apple management shoes right now.

Samsung has been a major component supplier for iPhone for years. But ever since Sammy began blatantly copying iPhone with its Galaxy S line of smartphones, Apple has been hard at work to distance from Korean company for as much of component supply, as they can. The problem is – for some things, there’s no one else who can make iPhone parts in volumes and quality that Apple needs. Case in point – Apple’s Ax application processors that go into every iPhone and iPad.

Samsung has been the sole manufacturer of Apple’s Ax CPU’s from the very first iPhone that shipped with it. But for several years now, Apple execs have been touring chip foundries around the world to find someone else to produce iPhone brains. Without much success, until recently.

Few weeks ago, Digitimes and WSJ  broke the news that Apple has finally signed a contract with TSMC to produce the next generation iPhone chips, hopefully replacing Samsung as the main CPU supplier.

If only things were that easy.

Even those early reports pegged TSMC only as a supplier of the next generation iPhone CPUs, made with 20nm manufacturing process. Samsung will still produce all A5 and A6 CPUs made with 28-45nm process technologies, that run currently available iPhones and iPads, and is the most likely AP supplier for the upcoming iPhone 5S and new iPads to be released this fall. TSMC only gets to provide chips for the next generation of iPhones and iPads, that Apple will launch in 2014.

And who will be the supplier of the next next generation of Apple CPUs, for products of 2015 based on next next generation 14nm manufacturing process, was up in the air.

Until now. It isn’t anymore.

Apple A6

Yesterday two Korean sites – Korea Economic Daily and Korea Herald reported that Apple had signed a contract with Samsung, for the production of 14nm Ax CPUs from 2015. The contract is said to run for 3 years, the new chips should be 30% faster than previous generation TSCM CPUs, and double the efficiency of currently available 28nm processors. Later, Mobile Review’s Eldar Murtazin chimed in, telling us that, according to his sources, under the new contract, Apple will now pay 20% more per chip to Samsung.

So what can we make from all these Apple chip supplier news?

Not much, beyond the fact that semiconductor fab owners hold the upper hand vs mobile chip designers, for now. The fact that Samsung was able to negotiate 20% price increase for the next generation Apple CPUs, is one good illustration of that. That Apple wasn’t able to boot Sammy from its CPU supplier list despite years of effort, is another.

It takes years and a lot of money to design and build advanced semiconductor fab, perfect the manufacturing process, and achieve good enough yields. Due to unprecedented smartphone growth over the last few years, the demand for ever more advanced chips is outstripping the available supply today, and fab owners are calling all the shots. Especially when it comes to the most advanced Application Processors, that go into the top of the line smartphones. But how long will this last?

From the beginning of the year, there are more and more signs that global smartphone growth is slowing down. The growth slowdown is especially pronounced at the high end, where smartphones with last year’s specs are already good enough for most of the user needs. If this is a start of a new trend, and not a momentary blip, in a few years things in the advanced mobile CPU biz might look very different from today.

The lower the demand for the latest top of the line smartphones, the lower the need for the most advanced and expensive chips. While manufacturing capacities fab owners built during the boom years will have to be utilized to the max anyway.

Samsung may have come on top in this dynamic chip supplier/buyer relationship with Apple, today. The  question is – for how long?

Author: Stasys Bielinis

While I like to play with the latest gadgets, I am even more interested in broad technology trends. With mobile now taking over the world - following the latest technology news, looking for insights, sharing and discussing them with passionate audience - it's hard to imagine a better place for me to be. You can find me on Twitter as @UVStaska'

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