Taiwan Semiconductor (NYSE:TSM) is the world’s largest contract chip manufacturer, with a diverse customer base including the biggest names in the smartphone industry such as Apple (NASDAQ:AAPL) and Qualcomm (NASDAQ:QCOM). The company’s sales are usually a good barometer of how the semiconductor chip industry is doing. In a good year, TSM receives more than 10% of its sales from selling smartphone chips to Apple. And from the looks of things, 2016 will be a good year for TSM, thanks to an abundance of Apple business.

TSMC Predicts Strong 2016 Sales - Record iPhone Sales for Apple

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TSMC and Samsung frequently compete fiercely for Apple semiconductor chip contracts. In 2015, Apple used TSMC’s 16nm A9 chips as well as Samsung’s 14nm A9 chips in the iPhone 6S. Despite being a full node shrink smaller than TSMC’s A9 chips, Samsung’s 14nm A9 chips have been found to lead to a shorter battery life by more than two hours (Apple says the difference in battery life real-life situations is just 2%-3% in favor of TSMC’s chips). TSMC will now become the exclusive supplier of Apple’s A10CPU for iPhone 7. This confirms earlier reports by KGI Research.

TSM-15

Smaller nodes in theory should offer lower power consumption. Whether Apple was simply trying to downplay the issue or not, it’s clear that TSMC’s A9 chips offer a superior enough performance to Samsung’s A9 chips to want to make Apple to take the radical decision of making TSMC its exclusive supplier of its smartphone chips for the upcoming iPhone 7. Apple usually avoids sourcing its components from a single manufacturer due to the obvious underlying risk, but compelling performance specs such as the ones offered by TSMC’s A9 chips can make the company decide to gamble a bit.

TSMC now says that it expects its sales in 2016 to clock in the double-digits, much higher than consensus analysts’ estimate of 6%. Company CEO Mark Liu attributed the strong projection to semiconductor inventories which are expected to normalize towards the end of the current year. After enjoying a strong start in 2015, TSMC’s top line growth was badly depressed during the second half of the year due to inventory buildups by semiconductor chip companies.

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