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Source: Apple, Samsung supply relationship near collapse

updated 07:17 am EDT, Mon October 15, 2012

Apple set to source components from alternative supply sources

A Samsung official speaking on the condition of anonimity has told a South Korean newspaper The Korea Times that Apple's parts relationship with Samsung is on the verge of collapse. "Apple...has made it clear it will no longer use its rival's technology, according to a senior Samsung official," the report by the Korea Times said. Late last week, it emerged that Apple is planning to shift its chip fabrication from Samsung to TSMC for the A7 processor, which is thought to be a quad-core design built on a 20nm process.

Although the new dual-core 32nm Apple A6 processor continues to be manufactured by Samsung, Apple completed the new design entirely in-house. "Apple did all the design and we [Samsung] are just producing the chips on a foundry basis." In the past, Apple had worked with Samsung on the chip development and the design. Apple's acquisitions of PA Semi and Intrinsity in recent years further suggest that the company is looking to take its future into its own hands when it comes to the manufacture of its internal components.

With Samsung now firmly established as Apple's biggest competitor in the mobile space and with the two companies locked in court battles, their partnership may be near its end. As Samsung's biggest customer, Apple's parts orders amounted to billions of dollars in business. Flash memory orders from Samsung are also said to be in jeopardy. "It appears that Samsung is losing its multibillion dollar partnership as Apple has been its biggest parts client," Park Hyun, a senior analyst at Tongyang Securities told The Korea Times.

Apple and Samsung have both been embroiled in well-documented court cases around the globe with Samsung suffering the most significant defeat to date in the U.S. where it lost a case, which could cost it at least $1 billion in damages to Apple. Although both companies maintained that their parts and supplier arrangement was separate from their dealings as competitors, the two companies have become increasingly estranged. [via Cnet]

Apple A6 - Apple-designed, manufactured by Samsung

by MacNN Staff




  1. gooser

    Grizzled Veteran

    Joined: 06-23-06

    surprise surprise.

  1. coffeetime

    Senior User

    Joined: 11-15-06

    It's about time. Samsung, you get what you deserve! The consequence of biting the hand who feeds you.

  1. Peter Bonte

    Fresh-Faced Recruit

    Joined: 08-27-01

    I think its not only about the court cases between Apple and Samsung but also to not help Samsung lower there production price, the more chips Apple buys the cheaper Samsung can produce them for there own phones.

  1. iphonerulez

    Dedicated MacNNer

    Joined: 11-28-08

    Samsung's greed will probably cost Samsung plenty in the long run. They had a steady, guaranteed business (contract) with Apple to supply components and it probably would have lasted a long time. Instead, they had to become direct competitors with Apple with mobile devices and now it will cost them a lot of business. It's understandable that Samsung got into the smartphone business since every other company also did. Google and Android made it so easy for even companies whose main products were toasters and air conditioners to go into the smartphone business. I hear that now Amazon wants to go after Texas Instruments mobile chip arm so they'll have a steady supply of processors to challenge Apple. This will be another reason for Wall Street to upgrade Amazon and downgrade Apple as Amazon puts its fingers into more pies. Maybe Apple should get into the chip foundry business as a sideline, but I doubt if it will sell any processors to competitors.

  1. gprovida

    Junior Member

    Joined: 02-14-06

    SAMSUNG made [or internally failed to make] a strategic decision that competing with Apple on smart phones and tablets was more important than its supplier relationship with Apple. This did not have to end up this way. SAMSUNG builds PCs that compete with Apple, but SAMSUNG decided to be copy [or in a more flattering light be a fast follower] rather than doing more innovative, original, and distinct devices and user interface. I think Apple's overtures to SAMSUNG over the years were an effort to reach out to SAMSUNG and define boundaries that permitted competition and supply partnership, but these did not meet SAMSUNG's perception of its strategic interest. So Apple has been diversifying its sources and will continue to do so. I expect that Apple will continue to get some supplies from SAMSUNG, but the parts and production investments and innovations that Apple has fostered with other suppliers will not be part of its relationship with SAMSUNG - this may in the end be the biggest strategic loss for SAMSUNG. As Apple supports [more than buying] Chinese and Japanese suppliers this will make SAMSUNG's competition much stronger. SAMSUNG's biggest competitor is NOT Apple but ironically ZTE and Huawie coming from the bottom.

    I wonder if SAMSUNG really did make a strategic decision or independent units simply did their thing until it was too late due to pride and vanity. It is unlikely that SAMSUNG will be able to do to Apple what it did to Sony, but ZTE, Lenovo, and Huawie may well do to SAMSUNG what it did to Sony! The problem is Apple has a platform and ecosystem, all SAMSUNG has with Galaxy is a device and depends on Google, this is risky since so does or can ZTE, Lenovo, and Huawie. They are starting to build their own OS, Badai, and trying to create an ecosystem by copying Apple, from stores to online music - this is very very hard to do quickly as MS can testify.

  1. chefpastry

    Mac Enthusiast

    Joined: 11-14-05

    About friggin' time!!!

  1. Dave Sidaway

    Registered User

    Joined: 08-09-12

    This is what happens when you shoot yourself in the foot, you go home limping.

  1. James Katt

    Junior Member

    Joined: 03-02-08

    Why, oh why would Apple want any of Samsung's help in the design of the A6 and future processors? Samsung's workers are simply going to spy and steal design ideas from Apple and use it to compete against Apple.

    It is far better for Apple to simply have Samsung produce the chips Apple designs to better protect its intellectual property, relegating Samsung to 3rd world nation company status.

  1. Inkling

    Senior User

    Joined: 07-25-06

    These corporate executives are behaving like grade-school boys on a playground. Someone of importance in the Silicon Valley should arrange 'pissing contest' in which the top male executive of each major high-tech companies to see who can pee the furtherest. The winner of that is the winner of whatever disputes exists between the two companies.

    It'd certainly make more sense than these vindictive parts purchasing policies and expensive lawsuits that settle nothing.

    The real loser in all this is the unfortunate consumer who must settle for second-best parts and pay for all those lawyers.

  1. Geoduck

    Junior Member

    Joined: 01-14-10

    Payback's a b****

  1. slapppy

    Fresh-Faced Recruit

    Joined: 03-23-08

    Good. No more free rides from Apple.

  1. SockRolid

    Forum Regular

    Joined: 01-21-10

    It's also possible that Apple has found lower-cost providers of commodity components. The cost of living in South Korea is gradually increasing over time, and Samsung obviously has quite a few factories in South Korea. The net result: higher Samsung component costs due to higher labor costs. Maybe TSMC and other Taiwanese manufacturers can deliver lower-cost components.

    Yes, it's true that Taiwan has fairly high labor costs too. But Taiwanese companies own and operate many factories in mainland China where labor costs are low. Foxconn is a prime example of such a Taiwanese company.

    So obviously the rampant copying and legal battles don't help the Apple - Samsung relationship one bit. But there could be other reasons why Apple is seeking alternative component suppliers.

  1. Mebsat

    Fresh-Faced Recruit

    Joined: 10-31-07

    This is not a great move long term.

    Samsung will continue to have ample supply capacity, and Apple will have to buy from other producers. Apple may face supply constraints by refusing to buy from one of the biggest out there.

    Samsung will be able to help other customers once Apple is no longer willing to buy from them. This could really change the price points others can deliver, or even drive prices lower in the short term if Samsung has to dump.

    A better strategy would be to move high margin work to others but keep buying from Samsung on the commodity end. Keeping your friends close and enemies closer would suggest you would want to be the customer using up what Samsung produces, and retain a certain leverage. Otherwise you allow them to really supply their own or another's efforts against Apple. This sounds like a decision Samsung might make for themselves.

    Give Tim Cook's supply chain expertise, it would suggest this is a decision Apple is being forced into, because it's a terrible one to make otherwise. Also, Apple may not want Samsung to gain knowledge about its A-series chips by being an OEM and may be willing to take the financial hit to protect itself from that competitive threat.

  1. leonpro

    Fresh-Faced Recruit

    Joined: 05-19-04

    Whether or not Apple found a cheaper supplier, at this point in time even if it costs them more they will make the switch to cut off their ties with their supplier who chose to compete in the same space. I would do the same. Who wouldn't?

  1. Charles Martin

    MacNN Editor

    Joined: 08-04-01

    gprovida: I'm in agreement with your comment, but are you not aware that Samsung is a name, not an acronym? It doesn't stand for anything as far as I am aware, so you don't put it in all caps.

    If I'm mistaken about this, please do let me know.

  1. Zanziboy

    Forum Regular

    Joined: 08-27-08

    It is sad to see that Samsung's management has been so arrogant to believe that Apple would want to continue with a partner that wants to beat them up.

  1. Waragainstsleep

    Addicted to MacNN

    Joined: 03-20-04

    I can't really work out what Samsung were thinking when they decided on their policy of not only stealing IP from their biggest customer, but going after them so publicly in advertising. They must be massively overestimating their own abilities. They simply wouldn't be where they are today without the component orders they've had from Apple over the last decade or so but they seem to have convinced themselves that Apple can't live without them so they can do as they please. Sadly for Samsung, its Apple who is the driving force and they can just as easily help the likes of Hynix or TSMC grow their production capacity and quality and replace Samsung.

    Its all very well Samsung having all this manufacturing capacity but when Apple stops buying from them who are they going to sell it to? Short sighted to the point of imbecilic.

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