TSMC gets Apple's iPad chip production as iPhone 6 plans kick into view

Apple [AAPL] begins its 2013 ramp-up with new processor supplier, TSMC, which has seized the lucrative manufacturing contract for iDevice mobile processor the A6X -- the chip used inside the latest iPads.

[ABOVE: Apple's latest ad features the Williams sisters (good) and iOS's 'Do Not Disturb' feature (sadly flawed).]

Huge chip win for TSMC

The new deal begins with three months of trial production across the current quarter, according to Taiwan's Commercial Times (via AFP).  Neither Apple nor TSMC has confirmed the deal.

The arrangement may extend to iPads today, but there should be little doubt it will later extend to the processors used within iPhone and iPod touch devices, assuming TSMC can meet demand consistently to sufficiently high standard. Logically this means TSMC could be called upon to manufacture as many as 160 million of these new processors in 2013 (based on Apple's historical sales of iOS products).

Samsung currently manufactures Apple's iOS processors at a factory in Austin, Texas. A December report suggested Apple's put a little pressure on TSMC to continue to manufacture its chips in the US, with the foundry considering a new chip fab plant in the US.

Previous episodes of the AAPL component supplier soap operas saw TSMC refuse a billion-dollar Apple investment designed to secure exclusive access to the company's foundries.

Commenting on this, TSMC chairman, Morris Chang, said he believed his company would be able to fund the new factories itself in order to maintain independence and flexibility.

Based on an ARM reference design, Apple's quad core A6X chip delivers a maximum clock speed of 1.4GHz with graphics processing supplied by a PowerVR SGX554MP4 GPU.

Anandtech observes the preceding A6 processor offers: "Better power/performance efficiency than any other currently available ARM chip."

New iPhone in testing

It seems inevitable Apple and its new fabrication partner will be preparing to manufacture processors for the next-generation iPhone. Weekend reports suggest product testing of the new device has begun: new iPhone 5S/6 handsets are reportedly being tested according to The Next Web, citing app usage logs shared by third -party app developers.

These reports claim Apple's been testing hardware which shows on app usage logs as  'iPhone 6.1'. The new devices are apparently running an early build of iOS 7, "which is expected to be released by Apple in the middle part of this year," the report claims.

There's been some speculation Apple intends launching a new edition iPhone as soon as the middle of 2013. There could be sense in the company increasing the frequency of iPhone upgrades as it fights to retain a good slice of the smartphone sector. It is also worth pointing out that many industry watchers predicted a similar release point for the iPhone 5, which didn't emerge until September.

Speculation that Apple may be planning a June-July iPhone launch hasn't dented the product's appeal across the Holiday season. Demand for iPhones and the iPad mini means Foxconn intends keeping its plants open across the Chinese New Year in order to meet demand.

What should be clear is that the decision to move processor production to TSMC is a major strategic shift for the firm. Facing savage competition from former supplier, Samsung, Apple has been forced to pull back on some of its planned innovations while it sought new partners.

Time to change the game

With new component suppliers in place Apple can now move ahead with its plans to continue diversification of its iOS empire, with a little renewed confidence that its plans won't fall into the hands of direct competitors in the space.

The effect of the shake-up across Apple's manufacturing partners should see the company make a range of innovative products -- devices it may have felt unable to make given that one of its biggest manufacturers has also become its biggest competitor. There's no point sharing secret product plans with a litigious enemy.

The effect, at least in product terms, should see new excitement for Apple fans across the coming year. “We’re on the cusp of an enormous product upgrade cycle and we think Apple’s earnings are going to be dynamite in the 4th quarter,” said Channing Smith, co-manager of the Capital Advisors Growth Fund, as reported on Wall Street Pit.

How might the company seize the innovative high ground?

Analysts this morning argue that Apple's plans for diversification will see the production of an iOS-powered wristwatch as a companion device to the iPhone.

"While we are unsure of the ultimate launch timing, we believe that Apple will eventually introduce some type of wearable computing product," said Piper Jaffray analyst, Gene Munster. "As we have previously noted, we believe that wearable computers will ultimately be a major future trend."

He's right of course. The full impact of the Post-PC device trend will inevitably generate a connected future of discreet/wearable devices drawing much of their power and utility from the cloud.

(Apple CEO, Tim Cook, last year called iCloud a "fundamental" element to the company's next decade of product plans).

Apple's long-held Apple television plan may also add a frisson of excitement to a consumer electronics industry that's currently making its regular trip to take a look at iPhone add-ons on exhibit at the annual CES event.

However, plans for an iTunes television still appear delicate as the company faces problems reaching licensing deals with cable and broadcast firms.

The depth of that challenge is evidenced by news regarding Intel's plan to innovate in the sector, efforts toward which have also been delayed by industry intransigence as existing incumbents resist attempts by technology firms to enter their industry.

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Copyright © 2013 IDG Communications, Inc.

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