Apple and Samsung: Here are the Chip Makers We Love

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The disagreements between Apple (NASDAQ:AAPL) and Samsung (SSNLF.PK) have begun to leak out of the courtroom. While Samsung manufacturers the iPhone 5’s A6 processor chip, a report published in the Korean Times indicates that the two companies’ working relationship may be ending.

Until the lawsuits began, they had a carefully balanced relationship, oscillating between rivals and partners. Apple and Samsung both vie for larger shares in the smartphone market estimated by Bloomberg to be worth $219 billion last year. Based on rankings compiled by CNET, as of August Samsung held a 25.7 percent market share compared to Apple’s 17.1 percent share. However, the two competitors also work as business partners; approximately 4 percent of Samsung’s annual revenue comes from selling chips and displays used by Apple devices.

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Samsung and Apple have been engaged in lawsuits against each other over patent infringements for more than one year and across four continents. The intensifying intellectual property dispute between the two companies, as well as their rivalry in the smartphone market, has prompted Apple to reduce its reliance on Samsung’s semiconductor capabilities.

Apple has already reduced its memory chip orders from Samsung, and while the California-based company is still relying on the Korean firm to manufactures the chips, it will not longer use their technology.

“Samsung’s agreement with Apple is limited to manufacturing the A6 processors. Apple did all the design and we are just producing the chips on a foundry basis,” a senior Samsung official said at a technology fair in South Korea’s most populous province, Gyeonggi.

Since the early 2000s, Samsung has designed Apple’s A-line of processors, including the A5 and the A5X, but the arrangement could be poised to change. One of the South Korean company’s best semiconductor designers, Jim Mergard, moved to Apple last week, the Wall Street Journal reported, hinting that the riff between the two companies is growing.

“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,” said a Samsung source to the Korean Times.

Recently, Apple signed a deal with Taiwan Semiconductor Manufacturing (NYSE:TSM), for the production of quad-core processors. While Apple has yet to confirm, that company could eventually fulfill the role Samsung plays in building Apple’s computers, tablets, and smartphones. A report issued by Barclays (NYSE:BCS) revealed that TSMC will begin producing Apple’s A7 processor, free of Samsung patents, in the first quarter of 2014.

But Samsung has other business. A Samsung official told the Korean Times that the company has been selling more custom chips to other major companies, like Qualcomm (NASDAQ:QCOM) and Nvidia (NASDAQ:NVDA).

“Apple is threatened by Samsung’s rapid rise,” said a Samsung official in the report. “Apple is excluding it from major projects.”

Even though the company will still  provide Apple with flash-type memory chips, as Tongyang Securities senior analyst Park Hyun told the Korean Times, “It appears that Samsung is losing its multi-billion dollar partnership.”

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