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Apple and Qualcomm were denied, according to Bloombergwhen they tried to obtain exclusive chip production rights from Taiwanese Semiconductor Manufacturing Company.

Both put forward more than $1 billion in investments so TSMC would pledge production capacity to them, but the manufacturer rebuffed the bid to keep versatile in chip yielding.

Bloomberg explained:

The two companies are trying to satisfy booming demand for smartphones, a market estimated by to be worth $219.1 billion, according to data compiled by Bloomberg Industries. Any deal would give Apple an alternate supplier to Samsung Electronics Co. (005930), which builds the main chip used in the iPhone and iPad and is also its biggest rival in smartphones. Qualcomm needs to boost supply, since shortages are starting to limit earnings.

As a supplier to Qualcomm, Broadcom Corp. (BRCM), Nvidia Corp. (NVDA) and other companies that no longer operate their own factories, TSMC wants to keep the flexibility to switch its production between customers and products. TSMC ChairmanMorris Chang told investors last month that he was willing to devote one or even two factories to a single customer.

One read of the story is that Apple wants to bail on Samsung and its new Texas foundry for CPU production. Qualcomm, on the other hand, is experiencing an insufficient ability to produce chips, which is starting to affect its earnings. TSMC forewarned that its 28nm mill for Qualcomm’s Snapdragon S4 would not meet demand until 2013, and NVidia’s 23nm Keplar graphic chip, also manufactured by TSMC, has suffered much the same as Qualcomm.

There have been false CPU rumors regarding Apple and TSMC in the past. The Qualcomm and Apple rumor here might actually be for baseband chips, which Qualcomm makes for Apple. With the new iPhone, Apple is probably trying to ramp up those Qualcomm baseband chips in epic numbers (not the A5 processor, as implied by the story). 

Get the full report at Bloomberg.