Friday, December 21, 2012

AAPL ‘Actively Shifting Away’ From Samsung Fabs, Says Bernstein

Bernstein Research‘s Mark Newman late yesterday published a series of slides and a transcript from a conference call he held during the day to discuss a note to clients published December 10th exploring the possibility that Samsung Electronics (005930KS) will lose Apple‘s (AAPL) chip manufacturing business for the “A” series processors Apple designs for the iPhone and�iPad and iPod Touch.

Apple shares today are down $5.11, or 1%, at $528.79, while Samsung stock rose 0.8% to �?1,515,000 in Seoul trading.

Newman, who has an Outperform rating on Samsung stock, and a ?2,100,000 price target,� reiterates a view that Apple is “actively preparing” to move business away from Samsung, most likely to Taiwan Semiconductor Manufacturing (TSM), citing as evidence things such as Apple having designed its own CPU “core” in the most recent versions of the A series, the “A6″ and “A6X,” whereas previously Apple had relied on standard CPU cores from ARM Holdings (ARMH).

We believe Apple is actively shifting away their processor business away from Samsung. As a reminder, Apple purchases 100% their processor needs for iPads and iPhones from Samsung today.

However, it will take time, because chip foundry relationships are “sticky,” writes Newman:

We have seen Apple start to move away from Samsung in both memory and display. However, they�re still locked in 100% for the processors. Why is it taking them so long to move away? We believe that the processor business is a very, very sticky business, firstly due to the business model. Typically, TSMC conducts what is a general foundry model, where they do the wafer manufacturing, with other companies doing other parts of the business. Samsung�s strategic foundry business model actually does the complete service for Apple, including the assembly and test, design service, and also manufacturing [...] On the process technology, the difference between Samsung and TSMC is quite stark at the 32/28nm node with Samsung using a Gate-First technology and TSMC using a Gate-Last technology. Those process technologies are very different and we thus believe it�s unlikely for Apple to move to TSMC on this node. We believe it�s much more likely to happen on the next node (20nm) where both companies will be on a similar Gate-Last technology. That�s why we believe the move of Apple away from Samsung to TSMC will not happen until late 2013, because the 20nm from TSMC will not be available before then

Newman provides the following graphic to support his view that Apple’s hypothetical product roadmap would make a 2014 shift in foundries the most likely outcome (click for larger image):

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