In was in November of 2012, that Supply Chain Matters began making the observation that Apple had begun to actively pursue its own supply chain risk mitigation strategies.  Increased incidents of global supply chain disruption and Apple’s rather public litigation battles with now arch competitor, and strategic supplier Samsung, motivated these needs.

At the end of May, we updated readers to this ongoing strategy as Apple announced plans to dual-source its high volume contract manufacturing needs with the dual use of Pegatron to supplement Foxconn.

Today, the Wall Street Journal, Bloomberg and other traditional business media sources report what we in supply chain social media have been discussing for weeks. Another rather important leg of this strategy has been announced, that being a partnership with Taiwan Semiconductor Manufacturing Co. (TSMC) , for the sourcing of critical applications processor chips. According to these reports, the new supply deal will be for both iPhone and iPad application processor chips but rival Samsung will still provide the bulk of volume processor supply during 2014. According to an estimate from a Credit Suisse analyst quoted in the WSJ, orders from Apple will account for about 8 percent of TSMC’s total revenue in 2014 with the assumption that orders begin to ramp in first quarter of 2014 with 30 percent of needed supply provided by TSMC. More strategically important, this deal provides Apple an all-important second source for one of the most critical components in consumer electronics devices, that being the brains of today’s high tech consumer device.  At one time there was industry speculation that Intel was in the running to be the alternative supplier of processor chips.

TSMC has 10 semiconductor manufacturing plants across Taiwan and the WSJ was astute to point out that this region is very earthquake-prone.  That is another important reason for diversification.

Most of our high tech and consumer electronics industry readers are probably astutely aware of the difficult challenges involved in changing the supplier of applications processors.  Engineering and product design teams are often attached at the hip with needs for deep collaboration along with intellectual property security.  This dual-sourcing of application processor chips was not an easy task, even for Apple’s supply chain supply and management team. There were information leaks that TSMC had its own difficulties in preparing to manufacture Apple’s required chip designs, not to mention that the previously mentioned Apple products are planned for product refreshes later this year. Supply Chain Matters would question why Apple’s efforts were not started earlier, but these are sensitive areas protected by corporate confidentiality agreements.

That, by the way, is a cue to other Apple suppliers who seem to have lost their perspective on protecting Apple’s product design plans and milestones.  Too much information is leaking of late from the Apple supply chain and it is funneling to stock analysts and speculators.

In any case, Apple has now initiated a very important and critical component to its supply chain risk diversification plan.

Bob Ferrari