Apple ready to shift iPhone and iPad chip contract from Samsung to TMSC

Apple is getting ready to shift production of at least part of its processor production from Samsung to Taiwanese supplier TMSC after falling out with its former partner.

Samsung is currently the sole supplier of the A5 chips that power the iPad 2 and other Apple hardware, but the two companies have an increasingly fractious relationship.

Apple decided to sue Samsung in April, claiming that its Galaxy tablets infringed on iPad patents, and the Korean firm has countersued and taken its case to the International Trade Commission.

"TSMC has got all the authorisation and details ready. Whether Apple puts in a formal order will depend on the yield rate," an unnamed source told Reuters.

The yield rate reflects the number of processors on a wafer which are free from flaws and ready for use in final products. That negotiations have reached such a stage is a strong indication that Apple is serious about shifting production, which had been expected since it began action against Samsung.

"Apple is trying to diversify its orders but it will still maintain some kind of relationship with Samsung," said Fubon Securities analyst William Wang.

"I think TSMC will get the new chip orders, but the issue is allocation. Apple won't give the whole 100 per cent to TSMC. Maybe it'll allocate only 20 to 30 per cent."

Apple's importance to the chip market was reinforced by the latest data from IHS iSuppli on the NAND market. Apple buys more NAND than any other company, roughly 30 per cent in the past year, and will still be buying a quarter of the world's supply in 2015.

"Apple has contributed greatly to the growth of the NAND business in recent years," said Dee Nguyen, memory analyst at IHS iSuppli.

"However, the company's adoption of cloud storage could have significant implications because the fastest-growing segment of the NAND flash market lies in the storage component of smartphones and tablets.

"With Apple products like the iPhone and iPad accounting for a disproportionate share of NAND flash demand, any move among Apple users to offload storage to the company's iCloud service could mean a corresponding decrease in demand for physical NAND flash memory in the future."