Text size

Analysts Steve Mullane and Paul Peterson today offer an update to their reports on how things are going at the Austin, Texas chip fab of Samsung Electronics (005930KS) where they believe there has been a winding down of activity in the manufacture of Apple's (AAPL) custom processors for its iPhone and iPad and iPod Touch, chips Samsung manufacturers for a fee.

Back on June 18th, they had cited a "sudden stoppage" of 28-nanometer and 32-nanometer parts. Today they reiterate that original observation that 32-nanometer production has slowed to 5,000 to 10,000 wafer starts per month, and that original forecasts for 28-nanometer production have been dramatically cut.

Back in the original note, Mullane and Peterson speculated that the cut in production was a sign of Apple switching to using Taiwan Semiconductor Manufacturing's (TSM) facilities, among other possible explanations.

Then came Monday's article by The Wall Street Journal stating Apple has, in fact, decided to contract with Taiwan Semi for some chip production.

Mullane and Peterson, though, don't think TSM is the cause of the current slowdown.

Instead, they write, "TSM senior management confirmed the AAPL relationship recently, indicating the first products will be produced on their 20 nm node, as expected," rather than 28-nanometer or 32-nanometer that is the subject of the slowdown.

Rather, the analysts argue some of the cuts are a result of a build-up in inventory of Apple devices, and some of it may be a simple shifting of production to Samsung's Korea operations:

Our material checks in Asia indicate that the Korean fab dedicated to AAPL has also cut their 32nm production levels in half. We believe this is suggesting that inventories of these devices are too high and the void due to this sudden drop at the Korean fab is now being replaced with the next generation 28nm technology designs to get ready for the next generation iPhone launch that is expected in the September timeframe. The increased capacity to produce the 28nm AAPL designs in the Korean Fab possibly explains the recently lowered target ramp plans for these devices in Austin […] The sharp reductions in 32 nm output at both the Korea and Austin fabs likely indicates a major adjustment in production output to align with weaker demand, and the severity of the cuts suggests that inventories are elevated. The 32 nm cuts in Korea could also explain why 28 nm is not ramping in Austin, since there is now plenty of 28 nm capacity in the Korea fab and Austin historically has served as a 'spillover' fab for Korea.

Apple shares ended today's abbreviated session on Wall Street up $2.31, or 0.6%, at $420.80.