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Samsung raising price on Apple chips, report claims

updated 09:40 am EST, Mon November 12, 2012

Lack of alternative supplier said to have forced Apple's hand

Samsung is raising the cost of the processors it supplies to Apple by 20 percent, according to MarketWatch, citing the Korean publication Chosun Ilbo. "Samsung Electronics recently asked Apple for a significant price raise in (the mobile processor known as) application processor," a source familiar with the negotiations is quoted as saying. "Apple first disapproved it, but finding no replacement supplier, it accepted the (increase.)" The person adds that the new prices should already be in effect.

Although Apple custom-designs the A-series chips used devices like iPhones and iPads, they're based on ARM templates and manufactured entirely by Samsung. Chosun indicates that Samsung has a contract to supply application processors to Apple until 2014; even then however Apple could choose to stick with Samsung, since few if any other companies may be able to produce chips on the scale Apple demands.

The reason for the price increase hasn't been reported, but is likely Samsung taking advantage of a captive market and/or trying to offset expenses. Earlier this year Apple won a $1.05 billion judgment against Samsung, and that combined with the potential outcomes of other legal battles between the two companies could be incentive for Samsung to try to reclaim money or exert strategic pressure.

by MacNN Staff





  1. Wiskedjak

    Posting Junkie

    Joined: 06-04-02

    Pretty disappointing if Apple didn't see this coming. It doesn't really make sense to try and sue the pants off of the only company capable of supplying your processors over something like rounded corners.

  1. Zanziboy

    Forum Regular

    Joined: 08-27-08

    It's a perfect storm. Samsung will erode Apple's product margins and use the money to directly subsidize their phones. This is why most companies never single-source components.

    Before Apple gave their billions away to investors (for no apparent reason), I would have used the money to build several plants to manufacture parts for the iPhone and iPad. The semiconductor market is so tight, even Apple has difficulty getting second suppliers. Apple should have spent a few billion to buy their own LCD plant, which could be run under contract with Sharp, and a chip fabrication facility, which could have been run under contract by TSMC. This approach would guarantee extra capacity for parts which have only a single vendor.

    I hope Apple knows better than to subsidize Samsung's Tegra development in the future. The new Galaxy will run on Samsung's Exynos 5450 processor clocked at 2.0Ghz. Apple needs to up their processor in the iPhone 5S and iPad Mini (2nd Gen) to keep ahead. In addition, Apple will probably upgrade the iPad Mini to incorporate a Retina display at the same price in the Spring. If all of these moves require more parts from Samsung, it's a bad formula.

  1. Eldernorm

    Fresh-Faced Recruit

    Joined: 09-26-07

    "Rounded corners" well, its pretty clear you have no real idea of the items at stake here.

    Samdung has been copying Apple with pretty much everything since the iPhone and Apple is trying to keep this a clean market. You invent, you sell. We invent, we sell. Or pay us a fee. Samdung was offered a very reasonable fee early on but felt that since they live in "we copy you all time, Korea" and were untouchable, they could do what they want.

    Just a thought there.

  1. Wiskedjak

    Posting Junkie

    Joined: 06-04-02

    Originally Posted by EldernormView Post

    You invent, you sell. We invent, we sell. Or pay us a fee.

    You don't aggravate the parts supplier that is the only company capable of providing the parts you desperately need.

    Yes, protect your inventions as much as reasonably possible. But, consider the full ramifications of your actions ... such as whether or not you need to maintain a cordial relationship with that company you're suing.

  1. pairof9s

    Senior User

    Joined: 01-03-08

    Originally Posted by ZanziboyView Post

    It's a perfect storm. Samsung will erode Apple's product margins and use the money to directly subsidize their phones. This is why most companies never single-source components...

    That may be so, but it's not like Samsung has a bunch of companies lined up to buy 40-50 million of their processors either. They too will feel this in the future once Apple finds or creates alternate supply chains.

    This has deteriorated to a bitter husband-wife divorce in which both are going to suffer loss for the sake of self.

  1. coffeetime

    Senior User

    Joined: 11-15-06

    I don't think Apple is not prepared. They always do things secretly and ahead of time. The last thing Apple wants is to broadcast their chip making plant construction somewhere in Virginia and the next things you know is Samsung threaten to hold A6 chips hostage. I bet the data plants Apple are building are their future chip fabrication plants in disguise. It's the Apple version of Area 51.

  1. Kees

    Junior Member

    Joined: 09-15-01

    I think Apple is pretty happy designing the chip in house, but out sourcing the actual fabrication for now. In the long term I can see them controlling some or all of the fabbing in house.

    Samsung, for the first time, had no involvement in the development of the A6. They're just the tool that produces the thing. However finding a partner that has the ability to supply the volumes Apple requires is not easy. Taiwan Semiconductors, with their experience producing the Tegras for nvidia seems a likely candidate, but I suppose Apple will want more than one fab.
    And Intel is of course more than eager, though that would require a x86 transition ala OS X, which seems unlikely.
    One thing seems pretty clear, though. Apple will avoid Samsung where possible, and is willing to invest heavily in a Samsung-less future. With nearly $120 billion in cash reserves, they have the ability to create options.

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