Apple Reported to Have Contracted A6, A7 Production to TSMC

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Even as Apple is currently working on the release of the upcoming iPhone 5, the company is looking beyond the short term. Industry sources report that Apple may have already signed a manufacturing contract with Taiwan Semiconductor Manufacturing Co. for the production of the A6 and A7 series processors.

With TSMC earlier reported to be Apple’s leading choice, industry sources now report that Apple has signed a definitive agreement with TSMC for the supply of A6 and A7 chips. Under said agreement, the company will use its 28nm and 20nm fabrication process to produce the mobile processor chips. Reports further say that TSMC supposedly got a good deal from Apple, which will help bolster its profitability moving forward. TSMC’s 2nd quarter 2011 gross margins were at 46%.

The Apple A6 was initially rumored as the processor chip that will power the upcoming iPad 3, although work on the platform was pushed back. As such, earlier reports have indicated that first releases of the iPad 3 will ship with Apple’s current A5 chip instead, until late 2012 when an A6-powered refresh will be released.

Apple’s supply difficulties are compounded by the company’s ongoing patent dispute with Korea’s Samsung Electronics over design patents involving the Samsung Galaxy S and Galaxy Tab. Samsung is a major provider of Flash memory chips to Apple, and likewise supplies about half of the company’s A5 chips that power the current iPhone and iPad. The two firms’ relationship seems to have cooled off due to the patent wars. With this, Apple was said to have been shopping for processor foundries, even going as far as testing the production lines of firms like Intel.

However, Apple and TSMC are still to discuss back-end manufacturing, which is likely to be split with another dedicated packaging and testing firm, due to limitations in TSMC’s facilities for this purpose.

Will Samsung be completely out of the picture, given its love-hate relationship with Apple?