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Wednesday, March 09, 2011, 05:05 am PT (08:05 am ET)

Apple may partner with TSMC for A5 production in potential blow to Samsung

Apple has allegedly inked a deal with chipmaker Taiwan Semiconductor Manufacturing Co. to produce the A5 chip for the iPad 2, a move that is seen as a potential loss for Samsung.

Apple is rumored to have entered a foundry agreement with TSMC to build the A5 processor, according to EETimes. In addition to powering the new iPad 2 set for release on Friday, Apple's custom dual-core A5 processor is also expected to power the anticipated iPhone 5, expected to debut this summer.

For its current devices, Apple partners with Samsung for production of the A4 processor. Last year's first-generation iPad featured two Samsung dies stacked inside the A4 chip.

Apple is expected to spend $7.8 billion on components from Samsung alone in 2011, for parts including liquid crystal displays, processors and NAND flash memory chips in mobile devices including the iPhone and iPad. The deal would make Apple the largest customer of Samsung.

The EETimes report said Apple is making the switch for three reasons, one of them being the fact that Samsung competes with both the iPhone and the iPad with its own devices. Last year, Samsung released the Galaxy S smartphone to compete with the iPhone 4, and the Galaxy Tab to take on the iPad. Both Android-powered product lines will receive updates this year.

Apple is also said to be exploring TSMC because it has the highest yielding 40 nanometer processor in the world, along with the most 40 nanometer capacity. The report said it is now "unclear" whether Samsung will play any part in building the A5 chip for Apple in the future.