Taiwan Semiconductor (NYSE:TSM) is the world’s largest contract chip manufacturer, with a diverse customer base including the biggest names in the smartphone industry such as Apple (NASDAQ:AAPL) and Qualcomm (NASDAQ:QCOM). The company’s sales are usually a good barometer of how the semiconductor chip industry is doing. In a good year, TSM receives more than 10% of its sales from selling smartphone chips to Apple. And from the looks of things, 2016 will be a good year for TSM, thanks to an abundance of Apple business.

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TSMC and Samsung frequently compete fiercely for Apple semiconductor chip contracts. In 2015, Apple used TSMC’s 16nm A9 chips as well as Samsung's 14nm A9 chips in the iPhone 6S. Despite being a full node shrink smaller than TSMC’s A9 chips, Samsung’s 14nm A9 chips have been found to lead to a shorter battery life by more than two hours (Apple says the difference in battery life real-life situations is just 2%-3% in favor of TSMC’s chips). TSMC will now become the exclusive supplier of Apple’s A10CPU for iPhone 7. This confirms earlier reports by KGI Research.

Smaller nodes in theory should offer lower power consumption. Whether Apple was simply trying to downplay the issue or not, it’s clear that TSMC’s A9 chips offer a superior enough performance to Samsung’s A9 chips to want to make Apple to take the radical decision of making TSMC its exclusive supplier of its smartphone chips for the upcoming iPhone 7. Apple usually avoids sourcing its components from a single manufacturer due to the obvious underlying risk, but compelling performance specs such as the ones offered by TSMC’s A9 chips can make the company decide to gamble a bit.

TSMC now says that it expects its sales in 2016 to clock in the double-digits, much higher than consensus analysts’ estimate of 6%. Company CEO Mark Liu attributed the strong projection to semiconductor inventories which are expected to normalize towards the end of the current year. After enjoying a strong start in 2015, TSMC’s top line growth was badly depressed during the second half of the year due to inventory buildups by semiconductor chip companies.

2015 Monthly Revenue (In Millions of New Taiwan Dollars)

 Source: Taiwan Semiconductor Manufacturing Company

But of course someone is led to suspect the other big reason why TSMC’s is so confident that 2016 will be a booming year for the company is due to robust business from Apple. Other sources also point to pretty good sales for Apple’s iPhones. TrendForce says that the worldwide smartphone market has generally cooled off with shipments expected to decline 9.7% to 1.286 billion units. Growth is expected to return in 2016 with shipments increasing 7.3% to 1.4 billion units. TrendForce sees Apple closing the gap between it and the company in 2016:

“Double-digit shipment growth is a thing of the past for vendors as the global market has begun to plateau in 2015 after years of growth” said TrendForce smartphone analyst Avril Wu. “While Samsung has kept its shipment title through the year, it is struggling against Apple in the high-end market and being pushed out of the mid-range and low-end segments by Chinese competitors. Facing challenges on two fronts, Samsung’s smartphone business will operate in an increasingly difficult situation in the near future. Closely trailing Samsung in global shipments is Apple, which remains as the dominant and most profitable vendor in the high-end market. As for Chinese brands, they are expanding overseas to gain market share. Huawei’s shipments surpassed 100 million units this year and became the third leading vendor on account of its export efforts. Xiaomi and Lenovo are also branching into the emerging markets.

TrendForce projects that iPhone shipments will hit 260 million units in 2016, a record for Apple and good for 12.5% Y/Y growth, behind #1 Samsung. Apple’s global market share is expected to increase to 18.5% while Samsung’s will fall to 22%.

Takeaway

Investors are currently focused on iPhone sales during the current quarter, which are widely expected to shrink due to difficult comps. But Apple’s outlook in 2016 remains good. Although most other smartphone makers are experiencing slowing growth, people are still buying bucket loads of iPhones. Long-term investors should look beyond the expected Q4 weakness.