TSMC (Taiwan facility 001)

It’s been long rumored that Apple for years has been working with Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest independent chip foundry, on building its in-house designed processors that power the iPhone, iPod touch, iPad and Apple TV devices.

Thus far, several conflicting reports have indicated that TSMC has been running test production of the upcoming A8 processor for months now, with other sources insisting that the Taiwanese chip foundry was unsuccessful kickstarting mass-production over ongoing yield issues.

A report Thursday by The Wall Street Journal has it on good authority that TSMC finally began shipping its first batch of microprocessors to Apple in the second quarter…

Lorraine Luk, reporting for WSJ, writes that TSMC has now supplanted Samsung, which had a lock on the Apple chip orders until last year.

Chip giant Taiwan Semiconductor Manufacturing Co. has begun shipping the computing brains used in smartphones and tablets to Apple Inc., highlighting the U.S. company’s continued push to diversify its suppliers.

The report adds that TSMC and Apple are working together on “more advanced chips” next year, presumably the 14-nanometer A9 processor that should power 2015 iPhones and iPads.

As part of their long-term partnership, Apple and TSMC have also collaborated on testing next-generation microprocessors using the more advanced 16-nanometer chip manufacturing technology that the chip maker plans to use in large scale next year, the people said.

Such advanced technology will allow the production of more powerful and energy-efficient chips to support increasingly sophisticated functions of sleek mobile devices.

TSMC started making A9 chips using its 20-nanometer process technology in the first quarter in close collaboration with Apple, the article explains:

To ensure the quality of the microprocessors, hundreds of TSMC engineers were sent to Apple’s headquarters last year to work on the project, these people said. “Apple’s order is a big deal to the company.

TSMC has assigned a large team to support Apple as you know this client is very picky,” said one of the people.

Adding TSMC to its supply chain for mobile chips gives Apple more leverage when it comes to future price negotiations with chip suppliers.

Through the deal, TSMC adds “a high-profile customer that could help support expensive research investments the manufacturer needs to move to advanced technology,” analysts told WSJ.

Previously, Chinese sources confirmed that TSMC will account for the bulk of A9 chips in 2015, with Samsung reportedly having secured A9 orders as well.

By all accounts, Samsung already lost exclusivity last year as TSMC started churning out first batches of Apple chips in limited volume.

In this regard, today’s report suggests that TSMC will be picking up more orders as Apple continue to distance itself away from Samsung for component production, although WSJ cautions that the iPhone maker will in fact continue to rely on Samsung for some of its chip needs.

According to suppliers who spoke to the publication, Apple no longer buys iPhone screens from Samsung and has reduced iPad-screen purchases as well. Also, Apple is said to have shifted some memory-chip orders from Samsung to other suppliers like SK Hynix and Toshiba.