Apple moves supplier relationship status with Samsung from ‘frenemies’ to ‘enemies’

Just before we heard Apple was not using an ARM-designed processor and instead its first custom CPU design for the new iPhone’s A6, we also heard reports that Apple was reducing component orders from Samsung due to the two companies’ ongoing patent disputes. While we knew Samsung was still—at the very least—manufacturing the new chip, a report from KoreaTimes gives more insight into the company’s involvement directly from a Samsung official. According to the report, the A6 is the first of Apple’s iPhone chips where Samsung did not contribute to development of the technology:

According to industry sources, Apple has not collaborated with Samsung in the process to develop its A6 microprocessor used in its latest iPhone 5. Samsung has handled the manufacturing of the processors used in previous iPhones and believed to have contributed in their design to some degree… It now appears that the structure of the deal has been dramatically adjusted…Apple is still relying on the Korean firm to manufacture its chips but has made it clear it will no longer use its rival’s technology.

We heard conflicting reports in September regarding Apple’s decision to reduce component orders from its biggest supplier, Samsung. Reuters claimed the reduction in orders was an attempt to simply “widen its supply chain,” while others reported Apple is actively reducing orders of displays, memory chips, and batteries specifically due to increasing tension between the companies. According to the report’s source, an unnamed senior Samsung official, Samsung is now only manufacturing the A6 chips on a “foundry basis”:

“There are three kinds of chip clients. Some want us to handle everything from chip design, architecture and manufacturing. Some want us to just design and manufacture. Some want us to just make the chips. Apple is now the third type,’’

Related to today’s report: Apple’s recent hiring of Samsung chip designer Jim Mergard. The report claimed the hiring of Mergard, who was working specifically on ARM chip designs at Samsung and prior, increases the “mutual tension”…

“The high-profile hiring of someone like Mergard directly from a big rival no doubt increases mutual tension. Apple wants to internalize its management, even for application processors, and to lower its dependency on Samsung for those logic chips,’’ said the source.

However, according to another Samsung official, Apple is still relying on Samsung for many components:

“Samsung has already acknowledged that Apple has an appetite to carry out its own central processing unit (CPU) design… Apple is threatened by Samsung’s rapid rise. Apple is excluding it from major projects. However, it can’t completely wipe Samsung from its business partner list,’’ he said, adding the U.S. firm is asking Samsung to provide more flash-type memory chips… Although Apple has excluded Samsung from key projects, we’re not too worried as Samsung is selling more custom chips to other major companies such as Qualcomm and Nvidia,’’ said the official.

There is a possibility that Apple will soon move away from Samsung altogether for the A6 chip. The latest in that regard is a report from Citigroup Global Markets analyst J.T. Hsu. He claimed last week that Apple would make the switch to TSMC’s 20nm process for quad-core processors within a couple years. Apple’s switching to TSMC is something we heard several times in the past; but as tensions grow between Apple and Samsung, it is definitely a possibility. Apple has certainly showed interest in the TSMC quad-core chips, and volume production is expected to start by Q4 2013.