Competition in chipland is getting hotter than a deep fryer.
Confirming what had long been speculated, Qualcomm Inc. late Thursday announced that it would be contracting Samsung Electronics Co. to make Snapdragon processors at 10-nanometer geometry. Those semiconductors will be in products early next year.
That's bad news for the world's largest chip foundry, Taiwan Semiconductor Manufacturing Co., but probably music to the ears of Apple Inc. Using the smaller manufacturing technology, compared with the previous 14-nanometer, allows Qualcomm to sell chips with a tinier footprint and up to 40 percent lower power consumption, the two holy grails of mobile electronics.
TSMC and Samsung wage a battle to shrink chips in approximately two-year cycles, with the quickest to the next milestone gaining a first-mover advantage in shopping that offering to clients. In this round, the timing is roughly equal.
Winning the gig for Qualcomm's next batch likely means that TSMC loses out, and that means one less client ready to spend the billions of dollars the Taiwanese chipmaker needs to fund the exorbitant costs of equipping its factories.
TSMC says it already has five products being readied for production (called tape out) at 10-nanometer, yet independent semiconductor analyst Andrew Lu recently noted a change of tone in the company's outlook for expansion of the technology (called ramp up).
From "steep ramp" in its second-quarter analyst conference, TSMC in its latest investor chat referred to "ramp up based on the customers' demand," Lu wrote in a report published by Smartkarma. Lu also estimates that 20 percent of TSMC's sales in the second half of 2016 will come from Apple, using an older technology. That's a lot, and with a less enthusiastic tone being struck for the next product lineup, such dependence is likely to remain high.
To be sure, don't be surprised to see TSMC strike back with a few product announcements of its own, trumpeting a client or two that's collaborating with it for 10-nanometer -- replete with warm statements about what a great partner the Taiwan company is. Yet as I have previously argued, the list of clients needing the latest and greatest manufacturing technology is shrinking, and that makes each salvo fired in this foundry death match all the more deadly.
Knowing this, Apple enjoys an increasingly strong bargaining position when it comes to negotiating the next supply deal. With its own business under assault, any chance to gain an upper hand should be welcome in Cupertino.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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Tim Culpan in Taipei at firstname.lastname@example.org
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