Apple, Qualcomm Bids Spurned for Exclusive TSMC Supplies

Apple Inc. (AAPL) and Qualcomm Inc. (QCOM) were rebuffed in separate attempts to invest cash with Taiwan Semiconductor Manufacturing Co. (2330) in a bid to secure exclusive access to smartphone chips, people with knowledge of the matter said.

Both proposals included investments, each of more than $1 billion, for the world’s largest custom maker of chips to set aside production dedicated to making chips exclusively for them, said the people, who declined to be identified because the details are not public.

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 Chairman Morris Chang told investors last month that he was willing to devote one or even two factories to a single customer.

“Currently we believe we still can fund it,” Chief Financial Officer Lora Ho said in an interview on July 19.

TSMC wants to retain control of its plants, doesn’t want to sell part of itself and doesn’t need cash for investments, Ho said in the interview.

Dedicated Fabrication

Qualcomm Chief Executive Officer Paul Jacobs said in June that he was willing to write ‘big checks’ to improve supply shortages that have held back earnings growth this year. The San Diego-based company is working with multiple suppliers to improve output, he said.

TSMC doesn’t comment on negotiations with customers or potential customers, spokeswoman Elizabeth Sun said. Apple spokesman Steve Dowling declined to comment on whether the company had offered cash. Clare Conley, a Qualcomm spokeswoman, declined to comment.

Apple and Qualcomm are trying to improve their position in a supply chain where a shrinking number of companies are capable of churning out the millions of parts needed to meet surging smartphone demand. As they become more like computers, the advanced mobile phones need more sophisticated processors made with the latest production technology.

While TSMC is Qualcomm’s biggest supplier, according to data compiled by Bloomberg, it has been successful because it has worked with multiple customers. Dedicating one facility to a single product or customer creates the risk of a fabrication plant becoming a burden if the product, client or technology changes, said Ho.

“You have to be careful. Once that product migrates, what are going to do with that dedicated fab?” said Ho. “We would like to keep the flexibility.”

Apple’s shares fell 0.2 percent to $673.47 at the close in New York, while Qualcomm gained 0.2 percent to $62.11.

To contact the reporters on this story: Ian King in San Francisco at ianking@bloomberg.net; Tim Culpan in Taipei at tculpan1@bloomberg.net; Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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