Apple's Supply Chain Diversification Hitting Samsung's Chip Business Hard

Apple has been expanding its supply chain, bringing in companies like Taiwan Semiconductor Manufacturing to produce components for its iPhone and iPad devices. This supply chain diversification may benefit Apple, but it is having a negative effect on rival Samsung's chip manufacturing business, reports The Wall Street Journal.

Since 2007, Samsung has enjoyed the coveted position of being the only manufacturer of Apple's Ax series of processors and their predecessors. But after several years of negotiations and technical work as the popularity of Apple's iOS devices has soared, Apple has brought TSMC on board to produce A-series chips for the next generation of devices. This transition away from Samsung as the sole supplier of the main chip for iOS devices is cutting into the Korean company's logic chip business.

“Sales and profitability from System LSI (logic chip business) worsened as demand from main customers continued to decline,” Robert Yi, Samsung’s head of investor relations said last week.

Samsung's logic chip division struggled in the just-ended quarter, and the outlook for the business is equally bleak with Samsung acknowledging the continued low demand from customers will remain an issue going forward.

The sharp turnaround has led to analysts such as IBK Securities' Lee Seung-woo predicting losses of approximately 877 billion won ($848.5 million) for the division in 2014, compared to operating profits of 203 billion won ($196.3 million) in 2013 and 1 trillion won ($967.8 million) in 2012.