Apple & Qualcomm bids for exclusive chip supply rejected by TSMC

Apple and Qualcomm apparently wanted a locked-down spot at the front of the production line with the Taiwan Semiconductor Manufacturing Company (TSMC) but the foundry has turned down their expensive bids for guaranteed capacity for manufacturing smartphone processors, according to reports.

The two companies had bid more than $1 billion (£631 million) each for exclusive deals with TSMC, Bloomberg reported Wednesday, citing unnamed sources.

Apple, which designs its own ARM-based A-Series processors for its iPhones and iPads but farms out the fabrication to third parties, has for the past five years been using Samsung for the production of chips for its iOS devices. But in the midst of a bitter patent infringement feud withe South Korean tech giant, Apple has reportedly been eager to find an alternative chip supplier.

Qualcomm's motivations for getting a guarantee of boosted capacity are more straightforward - the Snapdragon manufacturer has been dealing with a major supply shortage of its products this year.

Qualcomm said it does not comment on industry rumours, while Apple and TSMC did not immediately respond to requests for comment.

TSMC, a semiconductor foundry used by such fabless chip companies as Qualcomm, Broadcom, and Nvidia, has maintained that it needs to remain flexible in its ability to switch production between customers and products. Yet TSMC chairman Morris Change told investors last month that he would be willing to devote an entire factory, or even two, to a single customer, Bloomberg reported.

The company has the means to do just that, according to TSMC CFO Lora Ho. But in July, Ho warned that dedicating an entire TSMC facility to a single customer could create "the risk of a fabrication plant becoming a burden if the product, client, or technology changes."

Retooling state-of-the-art volume semiconductor fabs can be a multi-billion dollar endeavour. The smartphone market is estimated by Bloomberg to be worth $219.1 billion (£138 million), but as the costs of staying in the chip fabrication business have risen, fewer companies now are capable of providing the advanced chips needed to keep up with growing smartphone demand.

In June 2011, Apple was rumoured to be planning on dumping Samsung for TSMC to produce its next-generation mobile processors. Since the launch of the iPhone in 2007, Cupertino has contracted Samsung exclusively to build its iOS processors, according to reports. Apple has not officially said whether its recent entreaty to TSMC is the beginning of a move away from Samsung entirely, or simply a way to supplement its current chip supply arrangement.