Apple excludes Samsung from chip development project

The chasm between Samsung Electronics and Apple is expected to widen further as the U.S. electronics giant has excluded its Korean rival from a project to develop A7 application processors, due to be released in the first half of next year.

Samsung, which sees Apple's decision as a negative, plans to maintain growth momentum by expanding its business with NVIDIA through increasing contractual chip orders.

''Apple is sharing confidential data for its next A7 system-on-chip (SoC) with the Taiwan Semiconductor Manufacturing Company (TSMC). TSMC has begun ordering its contractors to supply equipment to produce Apple's next processors using a finer 20-nanometer level processing technology,'' said an executive at one of Samsung's local partners in Korea by telephone, Wednesday.

Unlike conventional memory chips, which are only used to write and store data, application processors are used to power computing devices, and are more profitable and less volatile price-wise.

Apple has been paying billions of dollars to Samsung to use the latter's application processors in its i-devices.

Amid sluggish demand for conventional chips hit by poor sales of personal computers, Apple's orders were a big help in lifting Samsung's semiconductor business.

''Apple is cutting the use of Samsung displays for its products. Now the deterioration of ties has expanded to chips. You should remember that the application business is one of Samsung's new growth engines in which the firm is heavily investing,'' said an official of another top-tier parts supplier to the Korean company.

The recent rift between the companies has widened thanks to ongoing legal battles and fierce rhetoric. The two historically share a deep business relationship, but cracks are beginning to widen.

Sources said Samsung hopes its handset division will fill the gap as the company's Exynos-branded processors will definitely be used in the next line of Galaxy devices.

The company has a dual strength in parts and finished goods. Its displays and semiconductors are used in Samsung TVs, home appliances, smartphones and tablets.

''If Samsung fails to win Apple orders for A7 chips, then some of Samsung's system chip-manufacturing lines will be stopped. That's a scenario Samsung really doesn't want to see,'' said the official, adding the company is injecting more resources to satisfy NVIDIA's stiffer requirements for graphic chips on a contract basis to minimize the impact.

Samsung declined to comment on the issue.