We’ve been hearing little snippets about Apple and TSMC for a while. In October, chip analysts in Asia said Apple was moving to TSMC. That followed earlier reports that Apple had made overtures to TSMC for exclusive access to a particular product line (typical Apple m.o.) in exchange for a massive investment from Cupertino.

If Apple does switch away from, or even lessen its reliance on Samsung, it’s pretty unfortunate timing for the Korean chipmaker, which recently made massive investments of its own in its Austin, Texas-based chip manufacturing plant, believed to be for Apple’s A6 line. Obviously Samsung and Apple are on pretty strained terms these days in the aftermath of the $1 billion patent verdict and ongoing appeals process in U.S. federal court. As a result, the companies have eased back on some of their partnerships, such as with the displays for iPhones and iPads. So a change in the chipmaking relationship wouldn’t come as a huge shock; plus, as with the display side of Samsung’s house, Samsung already has a major potential buyer of smartphone and tablet chips built in Austin: itself.

For Apple, there’s the question about what a switch away from Samsung and its Austin-based production lines would mean for Apple’s role as an American job creator: CEO Tim Cook has been very quick to point out lately that “the engine for the iPhone and iPad is made in the U.S.” and not overseas. Right now, TSMC does not have the capacity to build Apple’s latest chips in the U.S.

But that could change. Rumors about a company taking bids for a “Project Azalea,” said to be a plan to set up a new chipmaking factory in the U.S. These have floated around for the last month, with reports tying it to places like upstate New York or Oregon. It could be part of a deal with Apple; that TSMC get a U.S. production foothold in order to land Apple’s likely extremely lucrative mobile processor contract.

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“Selling finished goods with good pricing is an old strategy.”

Korea Times has inside word that LG will show off its own ARM-based chip at next month’s Consumer Electronics Show. The first such chip is anticipated for web-based television sets and future chips could be used for LG smartphones and tablets. LG reportedly has 550 engineers working chip designs for mobile devices. Engadget notes that TSMC is reportedly making the chips for LG; good for the chip-maker, which could also make Apple’s mobile chips soon.

LG has long been a licensee of ARM chips and last year re-affirmed its use of such silicon with licenses for the latest ARM designs. Of particular note is a license for the Cortex-A15 design, which is just now rolling out: The next generation system-on-a-chip is used by Samsung for its $249 Chromebook.

Why design chips and have someone else build them? It’s too much of an investment to build your own chip fabrication plant for starters. And by customizing a base ARM design, companies can create silicon that’s optimized for specific product features. Apple and Samsung both do this today and even HTC has gotten a little “chippy,” designing its ImageSense digital processing solution for its smartphone cameras.

While these custom chips are kept to in-house products for Apple and HTC, Samsung is generating revenue through sales of its chips; something that LG may smartly be considering in the future.

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According to the report:

Both proposals included investments, each of more than $1 billion, for the world’s largest custom maker of chips to set aside production dedicated to making chips exclusively for them, said the people, who declined to be identified because the details are not public.

Why is Apple shopping around? It could use an alternative to Samsung. Currently iPhone and iPad logic chips are supplied by Samsung; but the relationship between the two competitors and partners is, shall we say, a bit complicated lately. But more important than that is probably Apple landing an exclusive deal so that its chips are always prioritized before any of its competitors. Looking for an alternative doesn’t mean Apple would dump Samsung — Samsung has been very clear it wants to keep Apple’s chip business – but options to ensure its own supply and not being tied to a direct competitor are both good things for Apple to have.

It’s clear TSMC doesn’t want to be beholden to a particular customer or inspire other customers to come asking for exclusive deals. But it’s always surprising to hear a company so deeply invested in the mobile market rebuff the most cash-rich tech company, and also the king of all chip buyers. Apple spends about $28 billion on chips each year, according to IHS iSuppli, and this year is expected to buy almost one of every 10 chips sold in the world.

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GE announced Thursday night that it will build the new factory in Aurora, Colo., close to its solar research center and a small, existing factory of 30 MW that it inherited from buying PrimeStar earlier this year. GE was an early investor in PrimeStar, whose cadmium-telluride technology initially came from the National Renewable Energy Lab in 2007. GE became PrimeStar’s majority owner in 2008.

GE plans to start installing factory equipment in January 2012, but it will need time to test-run the equipment and bring the production lines online, as well as to get certification for the panels. Shipment is set to begin in “early 2013,” said Victor Abate, VP of GE’s renewable energy business. The company plans to make a customer announcement at Solar Power International in Dallas next week, Abate added.

GE said it picked Colorado, apparently over New York, because being closer to its solar research team in Colorado will help speed up its technology development and deployment. Indeed, rolling out its manufacturing plan quickly will be crucial for the company to compete in a market that has changed substantially since it formally announced it would do all it can to commercialize PrimeStar’s technology.

Falling solar prices

The prices for solar panels have fallen dramatically in the past year, to the surprise of many companies in the solar industry. The prices have fallen by 30 to 40 percent because of a pileup of solar panels in warehouses after government incentives in Europe — the largest solar market in the world — fell earlier this year.

Many manufacturers have suffered declining profits or widening losses this year, and several American companies have gone bankrupt, including Solyndra, SpectraWatt and Evergreen Solar. Even First Solar, which is the largest manufacturer of non-silicon solar panels in the world and known for its low-cost production ability, posted a big drop in earnings during the first half of this year.

Meanwhile, a host of companies are working on technologies that promise to beat cadmium-telluride solar panels in efficiencies if not price. A 400 MW factory is large but not nearly the size of manufacturing fleet of many top manufacturers today. First Solar runs factories totaling at least 1.4 GW, and it plans to expand that to 2.7 GW next year.

Others are building similar or larger manufacturing operations, including Abound Solar, which is adding 775 MW to produce cadmium-telluride solar panels, and Stion, which is building a factory that will reach 500 MW and produce solar panels using copper-indium-gallium-selenide. Taiwan Semiconductor Manufacturing Corp. just opened a 100 MW CIGS solar panel factory and plans to increase that production capacity to 1 GW by 2015.

GE understands it needs to roll out better, more efficient solar panels to attract buyers. In April of this year, the company boasted of having produced cadmium-telluride panels with 12.8 percent efficiency that appeared to exceed the cadmium-telluride solar panels from First Solar. First Solar then announced in July it had set a world record for cadmium-telluride cells by producing a 17.3 percent cell. The Arizona company also said it already could produce panels with 13.4 percent efficiency and expects to roll out panels in 13.5-14.5 percent efficiencies by the end of 2014 (panel efficiency tends to be lower than cell efficiency).

Abate said GE aims to produce panels with 14 percent efficiency when it begins shipping from the new 400 MW factory.

Abate said GE understands the changing competitive landscape and believes its expertise in developing and manufacturing a variety of technologies, along with its financial muscles, will enable GE to outshine rivals. GE already is a big wind turbine maker and power plant builder, and it just bought a maker of power conversion electronics and motors, Converteam, for $3.2 billion.

“When you put all that together, we have a clear, differentiating strategy to be the most cost-effective solar provider,” Abate said.

Photo courtesy of GE

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San Jose-based Stion makes solar panels that use copper, indium, gallium and selenium (CIGS) instead of conventional silicon to convert sunlight into electricity. In January this year, the company announced the plan to build the Mississippi factory, which the company expects to eventually reach 500 MW of production capacity and require $500 million in investment. Stion completed a 10 MW pilot line at its headquarters last year.

The factory represents a nice coup for Mississippi lawmakers, who offered Stion a $75 million loan plus tax and job training incentives to build and run the factory. Legislator and Gov. Haley Barbour recently lured another Silicon Valley startup, Calisolar, by offering the solar silicon producer a $75.25 million package to build a factory there.

Stion plans to expand its production in Mississippi in phases. The first phase is supposed to reach 100 MW of production capacity. The company held a grand opening ceremony for the factory on Friday, but it won’t start producing solar panels until later this year, Stion said. Manufacturers need time to test-run equipment and train employees before rolling out products.

Stion hopes to mass-produce solar panels at much lower costs than its rivals, a goal that is shared by many startups and is increasingly difficult to accomplish. Wholesale prices of solar panels have plummeted in the past three years as manufacturers in the U.S., Asia and Europe built many factories.

Chinese manufacturers, in particular, have expanded production rapidly thanks in part to the huge loans they received from government-run banks. The stiffened competition already has forced three American companies, including CIGS solar panel maker Solyndra, to file for bankruptcy in the last two months.

Stion raised a Series D round of $70 million as of June 2010, including $50 million from Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chip manufacturer. Before that, it had raised $44.6 million in equity from investors including Khosla Ventures, VentureTech Alliance and Lightspeed Venture Partners.

To expand the Mississippi factory to 500 MW, Stion plans to raise at least another round of funding and will consider an initial public offering, the company’s CEO, Chet Farris, told us earlier this year.

Image courtesy of Stion

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Taiwan Semiconductor Manufacturing Co, Ltd. (TSMC)   is the company that will be supplying the A6 to Apple, according to the report. Reuters reported last month that the chipmaker was getting underway with trial production, but this latest report seems to suggest that trial production hadn’t yet begun in earnest until now.

The current A5 chip that powers the iPad 2, and is rumored to power the upcoming iPhone 5, is supplied by Samsung, but reports have long suggested that Apple was considering moving their chip production to TSMC, which is the world’s largest semiconductor foundry as measured by market share. Apple is also thought to be looking to move some of its business away from Samsung, since the two companies are involved in a complicated and volatile legal battle in various courts worldwide.

The A6, based on the ARM chip architecture, will use TSMC’s new 28-nanometer process, along with 3D stacking technologies. That will make for an extremely low-powered chip that’s also capable of blowing away the A4 and A5 in terms of processing ability, since those designs both use layered instead of 3D designs. The 3D stacking tech will allow layers to be integrated vertically and horizontally into one single circuit. Computerworld’s Jonny Evans suggested in July that such a design could make for a processor powerful enough, in theory, to replace Intel chips in future MacBook Airs, so they should extend the iPad’s capabilities considerably.

Taiwan Economic News says TSMC and Apple had discussed working together on past chips, but the chipmaker didn’t have the spare production capacity to take on the iPad maker as a customer. Owing to a downturn in the industry this year, the publication says TSMC now has room to fill Apple’s orders.

While it may be disappointing to some that it’s looking less likely we’ll see an iPad 3 this year, an iPad 2 and an iPad 3 released so close together isn’t a smart play for Apple anyway, as I noted earlier this year. The iPad continues to dominate the tablet space, and Apple is currently doing a good job of keeping its competition from even being able to sell their products. Even if we won’t get to see a new iPad product before 2012, the news that TSMC is getting underway with its chipmaking plans ahead of ramping up for full production in the first quarter of 2011 is still an exciting prospect for fans eager to see what’s coming next from Apple.

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If Apple does change chip suppliers, it may not be an easy nor a fast process. According to an analyst at NH Investment and Securities, Seo Won-seok, Samsung has deep roots in the chip design and using another supplier could mean more research and development from Apple:

“It won’t be easy for Apple to dramatically change its chip provider from Samsung. It has to redesign the chipset, which Samsung has been deeply involved from the beginning and has some intellectual property. Apple could try various suppliers but they (Samsung and Apple) need each other and the relationship will continue.”

This scenario could be Apple’s standard component diversification strategy; companies often don’t want to rely on a single supplier for any one part, let alone the primary CPU of a mobile device. Up to now, Samsung has appeared to have enough capability to produce Apple’s A5 chip as needed, but if that silicon is meant to power a new generation of iPhones, and possibly iPod touch devices — meaning tens of millions of devices — Samsung could be hard-pressed to keep up with demand. Samsung builds chips for its own handsets and has already had to use Nvidia’s Tegra 2 for the Samsung Galaxy Tab 10.1 tablet as well as some of the Galaxy S II smartphones. For both Samsung and Apple’s sake then, it’s possible that another chip-maker could be testing production to limit the potential for component shortages.

Samsung and Apple have been dealing with the patent disagreements for more than year, however, and are now involved in the courts over similarities between Samsung’s Galaxy line of handsets and Apple’s iPhone. Apple was hoping to fast-track the case, but at least one part of it, the briefing process, won’t be accelerated, said a judge this week. Although there are good business reasons for Apple to seek out another CPU fabricator, these two hardware partners can’t be getting along as well as they once did.

Obviously we won’t know if TSMC has won any Apple CPU contracts until new devices arrive and are torn apart, but even without the current lawsuit situation, it simply makes sense for Apple to seek alternative component suppliers as consumers snap up iOS devices in growing numbers.

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Consider this: The biggest news announced around Solar Power International in Los Angeles this week has come from the likes of General Electric and LG. GE has been vocal about its interest in the solar market, and on Tuesday, it outlined precisely when it can offer products and services and what they will be. It plans to start rolling out cadmium-telluride solar panels via Colorado-based PrimeStar Solar (GE is its biggest investor) in 2011, and it’s now offering copper-indium-gallium-selenide (CIGS) panels from Solar Frontier of Japan. Don’t forget GE is also selling inverters and its project engineering expertise.

LG also announced Tuesday that it’s coming to America to sell its several lines of silicon-based solar panels. It plans to invest $820 million in research and manufacturing over the next five years to generate billions of dollars in revenue during the same period. Meanwhile, Hyundai Heavy Industries, the big shipbuilder in Korea, said Monday it would build a 400-megawatt CIGS solar cell factory in its homeland with a French partner, Compagnie de Saint-Gobain, through a joint venture called Hyundai Avancis.

The encroachment of the conglomerates, combined with the rapid growth of the Chinese solar companies in recent years, has made venture capitalists and Silicon Valley startups rethink their strategies. In manufacturing, there really isn’t much room for new comers who dream of building massive factories. The days of new Nanosolars and Miasoles emerging in 2010 are over. Private investors aren’t so willing to part with their money, and too many manufactures are vying for government subsidies.

Damoder Reddy, co-founder and CEO of venture-backed Solexant, said investors are “extremely shy” about investing in solar manufacturers, particularly since many of their solar investments haven’t paid off. Reddy is still on a march to build his first full-scale factory. Solexant, which prints nanocrystal form of cadmium-telluride compound on metal foil and then sandwiches the cells in glass, is planning a $40 million, 100-megawatt factory in Oregon.

Contract manufacturing and intellectual property licensing will increasingly become an important part of the business models for Silicon Valley technology developers, just as they did for semiconductor startups in the last 20 years. Some solar startups already are moving in that direction. Stion, while building its own factory, also has signed a deal with Taiwan Semiconductor Manufacturing Co. to make its CIGS panels. (TSMC rose to prominence because chip startups could no longer afford to build their own factories.) Innovalight ditched its solar cell manufacturing plan and began selling silicon ink that can boost power generation of solar panels made by the likes of JA Solar and Yingli Green Energy.

Manufacturers that are already producing lighter-weight solar panels that can carpet flat roofs without racks or be built into roofs and other construction materials can still gain a first-move advantage, mainly because it’s a space that many larger manufacturers don’t want to invest in right now. State incentives that encourage adding solar to new homes help to promote these building-integrated photovoltaic (BIPV) products, which don’t stand out nearly as much as conventional solar electric system erected on the rooftops. Success in this field will depend largely on the interest of builders and roofing and other building material companies.

A change in California’s solar incentive program earlier this year allowed builders to bring in a partner who can finance and own solar electric systems on new homes, and that opened up new opportunities for BIPV offerings, said Tom Harvey, director of sales and marketing for SunRun, which has financed solar shingle installations in a new Southern California community built by Toll Brothers. SunRun charges homeowners a monthly fee for using the solar electricity.

The builders “are more concerned about aesthetics. Price isn’t as important as ensuring that their homes look a certain way,” Harvey said.

SunRun also offers an example of the opportunities that haven’t been fully explored. Solar, unlike the chip industry, sells not just goods but also services. Companies like SolarCity are expanding their services to include energy auditing and installation of solar water heaters and other equipment to make homes and businesses use energy more efficiently. Hybrid systems that can generate solar electricity and thermal energy to heat and cool buildings also seem promising.

Valuable services will require innovative software for everything from engineering and installing to monitoring and maintaining solar electric systems. There’s room for companies that can develop good software to help consumers and businesses manage their solar electric systems and overall, monthly energy consumption and expenditures. Some companies developing home energy monitoring gadgets and software are already eyeing this opportunity, but the market is too new to have created clear winners.

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Samsung and Nanosys companies offered no details about their product development plan, except to say that they want to roll out goods in markets such as solar, light-emitting diodes, semiconductors and displays. Samsung already is a major manufacturer of semiconductor and consumer electronics that feature LEDs, including TVs with LED backlighting, as well as LED lighting — a technology that will one day dominate the lighting industry. Samsung also has made big bets in crystalline silicon solar cell production.

The Korean company joins a growing roster of corporate giants that are seeing profit-making potentials in technologies that can save energy and reduce greenhouse gas emissions. Earlier this week, Chevron contributed to a $52 million round for Solazyme, which aims to make fuel from algae. Last week, General Motors announced its first, $5 million investment from a $100 million venture fund, into Bright Automotive, a startup developing a plug-in hybrid electric car.

GE has some $175 million into 21 greentech companies over the past few years, and earlier this year announced that it has teamed up with venture capital firms to launch a $200 million smart grid fund.

Solar firms are finding corporate investors, too. Stion, a solar thin-film startup backed by Khosla Ventures, lined up the Taiwan Semiconductor Manufacturing Co. earlier this year, and the deal includes not only $50 million in equity but also a plan to license technology to chipmaker TSMC. Intel has invested in and spun out crystalline silicon solar cell maker SpectraWatt.

The entrance of more corporate investors is, of course, good news for greentech companies. Private equity investors have vowed to be more selective since the recession took hold and some of the once promising and well-funded greentech companies went bust (think OptiSolar) or delayed product launches. Corporate investors bring not just money but also their experience in production and sales, so winning their favors could help kick-start technology commercialization.

Corporate VCs were instrumental in pushing up venture investments in the last quarter. In fact, the top 10 greentech deals during the quarter came from players such as Intel Capital, GE Capital, Shell, Alstom (French power company) and Cargill Ventures, according to the Cleantech Group. Total investments during the quarter shot up 43 percent to reach $2.02 billion, spread among 140 recipients, from a year ago. Overall, the $4.04 billion from the first half of this year was up 65 percent from the first half of 2009 and slightly beat the record number in the first half of 2008.

Image courtesy of Aresauburn Flickr Creative Commons.

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The deal represents a big cash injection for Stion, which raised $6 million in 2006 and in 2007 raised $15 million from investors including Lightspeed Venture Partners, General Catalyst Partners, Khosla Ventures, Braemar Energy Ventures and Moser Baer Photovoltaic. It’s also the second big investment for TSMC in solar power since it announced in mid-2009 that it would be shopping in the space. In December, TMSC announced plans to take a 20-percent stake in Taiwanese silicon solar cell and wafer maker Motech Industries for an estimated $193 million.

TSMC is far from the first semiconductor giant to move into solar photovoltaic technology. Indeed, the high-volume, cost-focused world of chip manufacturing offers a lot of important expertise for solar startups trying to take innovative new technologies to mass production.

Late last year MEMC Electronic Materials, a company that makes silicon wafers for the solar industry, announced that it would buy up SunEdison, and National Semiconductor acquired power monitoring software maker Energy Recommerce. Applied Materials has put a lot of money into its thin-film amorphous silicon fabrication systems, which have been bought by a dozen or so would-be thin-film solar panel makers. Intel spinout SpectraWatt, after a few years of delay, said in March that it raised $41.4 million to ramp up production and get its first customer shipments out this year.

The move also indicates that Stion, like many of its would-be next-generation solar power technology startups, is looking for deep-pocketed partners to get them from laboratory to factory-scale production. The solar industry is expected to see the oversupply situation it faced in 2009 continue well into this year, according to a May report from Pike Research. That, along with the general economic downturn and more challenging environment for raising capital, has led solar industry analysts to predict that many startups will falter or be snapped up by larger competitors.

The world of CIGS (copper, indium, gallium, selenium) solar panels is seen as particularly open to mergers and acquisitions, since the lower-cost, yet lower-efficiency panels are just beginning to be deployed in significant scale, unlike the competing cadmium telluride thin-film panels developed by First Solar. CIGS developers such as Miasole and Nanosolar have taken in billions of dollars of venture capital financing, leaving investors and industry watchers eager to see commercial scale production.

Solyndra, a CIGS developer that’s ramped up production backed with a $535 million Department of Energy loan guarantee, has disclosed that its manufacturing costs are far higher than industry standards. In the meantime, high prices for silicon that made thin-film alternatives seem attractive have fallen steeply over the past year or so, making the advantages of lower-efficiency thin film panels less obvious.

Stion’s CIGSS technology adds sulfur to the CIGS mix, though the company doesn’t go into any detail on the different chemistry on its Web site, and has remained quite stealthy about how its panels are made (we’re expecting a call with Stion CEO and former Shell Solar Industries president Chet Farris shortly to provide more details). The company does claim efficiencies of 10 percent to 11.8 percent for its panels, which are aimed at residential, commercial, utility-scale and off-grid applications.

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