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Apple Finds It Difficult to Divorce Samsung .

wsj.com  2013-06-29 12:15:17 

Apple AAPL +0.70%is finding that breaking up with Samsung 005930.SE +0.22%is hard to do.

For evidence, look no further than Apple Inc.'s effort to find a company other than ferocious rival Samsung Electronics Co. to make the sophisticated chip brains used in Apple's iPads and iPhones. This month, after years of technical delays, Apple finally signed a deal with Taiwan Semiconductor Manufacturing Co. 2330.TW +6.22%to make some of the chips starting in 2014, according to a TSMC executive. The process had been beset by glitches preventing the chips from meeting Apple's speed and power standards, TSMC officials said.

SanDisk Corp., SNDK +1.04%which sells memory chips to Apple. Plus, the maturing tech business has left fewer big players to partner with. "That's forced more of these strange bedfellows, because the choices are limited."

Apple's deal this month to start buying chips from TSMC is a milestone. Apple long wanted to build its own processors, and it bought a chip company in 2008 to begin designing the chips itself. But it continued to rely on Samsung to make them.

As early as 2010, Apple and TSMC started discussing working together to build the chips, say the TSMC executives. In 2011, TSMC senior executive Chiang Shang-yi met Apple officials to discuss collaborating on the complex process.

Intel Corp. INTC +0.75%agreed to share technology with Advanced Micro Devices Inc. AMD 0.00%Later, AMD became a major rival, and Intel spent years trying to undo the agreement.

Samsung has reason to keep the Apple relationship alive. Apple is still Samsung's biggest customer for components, and a complete retreat by Apple from Samsung would hurt Samsung's earnings, analysts say.

Nvidia Corp., NVDA +0.21%which bought PortalPlayer, declined to comment.

Samsung won some of the business. When Apple's iPhone hit the market in 2007, its brains were Samsung-made, too.

Toshiba Corp. 6502.TO +1.92%for future supply of flash memory. At the time, Apple relied heavily on Samsung for a type of flash memory called NAND, because it was one of few big companies that could deliver large quantities of the latest technologies.

Sharp Corp. 6753.TO +8.11%and Toshiba Corp. expand their factories, according to people with knowledge of the situation.

A representative for Japan Display Inc., formed from the mobile-display businesses of Toshiba, Sony Corp. 6758.TO +2.11%and Hitachi Ltd., 6501.TO +2.58%declined to comment.

But other efforts to ditch Samsung have faltered. In 2011, when Apple was designing its third-generation iPad, the company asked Sharp, which was already supplying iPhone screens, to produce the new iPad's high-resolution displays, says a person close to the supplier. But when Apple launched the third-generation iPad in March 2012, it came mainly with Samsung displays. Sharp had missed the launch deadline as it struggled to mass-produce displays using a new technology, says another person close to the supplier.

In March, Samsung agreed to buy a 3% stake in Sharp and to buy more LCD panels from it. The deal would make Samsung not only Sharp's fifth-largest shareholder but its key client, potentially preventing Apple from gaining more bargaining power with Sharp.

—Yun-Hee Kim contributed to this article.