If Samsung doesn't supply Apple's processors, who will?

Switching foundries isn't easy, says an analyst. It's going to take years and cost billions.

FORTUNE -- Samsung, believe it or not, is still the sole supplier of the processors that run every iPhone, iPad and iPod touch that Apple (AAPL) sells.
On the assumption that Tim Cook will not want to be forever dependent on a company that he claims has stolen Apple's intellectual property and as everyone can see is rapidly gobbling up its market shares, RBC Capital's Amit Daryanani took a look Friday at Apple's alternatives.
It's not going to be easy to switch suppliers, he writes. Apple did most of the heavy lifting on the A6 chips in the current generation of iPhones and iPads -- designing the processors in-house and paying Samsung to manufacture them. Nonetheless, moving its business to a different foundry would require, according to Daryanani, "a complete redo" that would take a minimum of 12 to 18 months, cost a fortune and not produce marketable chips before 2014. New fabs start at $1-3 billion. In 2010, TSMC budgeted $9.3 billion to build a massive chip foundry in central Taiwan.
So where might Apple take its business? Daryanani offers four possibilities: (I quote his spec-heavy prose)

• Intel (INTC): According to our Semiconductor analyst (Doug Freedman) Intel has 3 foundry partners including Achronix, Tabula and Netronome. Intel is currently ahead of ARM by 1.5 generations plus FinFET, comparing 22nm x86 SoCs to Apple's ARM-based 32nm. This gap could widen as Intel moves into 14nm production in 2014. Notable dynamic would be by becoming a foundry for AAPL it may dilute its own mobile ambitions. Conversely, this gives INTC a shot at getting AAPL to use x86 based chip down the road.
• TSMC (TSM): Our SemiCap Equipment analyst (Mahesh Sanganeria) believes AAPL may begin using TSMC fabs to manufacture chips starting in 2014 as they transition to 20nm production. TSMC may potentially raise CAPEX by $1-3B as the company starts processing wafers for AAPL. AAPL may co-invest with TSMC much as it does with other suppliers to ease TSMC's capex burden.
• GlobalFoundries: Another possibility would be using GlobalFoundries, who is already working with ARM to build 20nm chips based on ARM-design. AAPL could co-invest to ramp-up dedicated fabs with them for production.
• Go Vertical: A low probability, but AAPL could decide to go vertical and build their own fabs. This is unlikely as AAPL has maintained an asset-light manufacturing model while keeping key design elements inhouse

Written by Arslan Asif

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