How Apple stays stuck with Samsung

Samsung's loss is Apple's gain

Apple’s Tim Cook doesn’t like to waste energy on nonsense, when a good deal can be made

Way back when the special relationship between Apple and Samsung went sour on that day when the iPhone maker recognized its long-term supplier had fast follower designs on the smart device market, we first began to hear rumors some Cupertino execs sought a plan to throw the big South Korean manufacturer into the San Andreas fault.

Frenemies with benefits

The great thing about adults is they have this ability to compromise. That gift is what’s kept peace across the planet, even while the child-like and petulant insist everybody else should think like they do. The proven truth is the people on this planet always think different, so it’s no big surprise that truly successful business people figure out how to embrace these differences and seek mutually profitable consensus. (The ones who don’t are probably not that successful). Finding consensus is what stops wars, while building conflict simply creates new ones.

And you can say what you like about Apple business practises, but no one will believe you if you say the top people aren’t smart. They are smart. And smart leaders know how to compromise. Samsung’s people are smart, too. So, the two firms found compromise.

Conflicts are boring, says Cook

What’s the price?

What happens next is that across the last few years we’ve seen Apple seek out new suppliers for many essential device components. It knew it couldn’t rely completely on its competitor for these, and Samsung knew it too – they may compete in some ways, but they still want to do a little business. All the same, no one wants to be completely dependent on one supplier. It’s just not good business.

Right now, Apple still buys a large number of its components from Samsung, to the benefit of both firms.

How much is this business worth?

I’ve done a little digging and found this information:

  • Apple is expected to pay Samsung up to $22 billion for the OLED displays, NAND flash and DRAM chips used in its iPhones this year (2018).
  • That’s a lot of money, it’s a big chunk of the South Korean firm’s total revenue. Samsung hit $195 billion in revenue in 2016 for an operating profit of c.$25.6 billion. 35 percent of that revenue was generated by its component business.

If these figures are accurate, they suggest that Apple’s iPhone business accounts for perhaps a third of Samsung’s component business revenues. Which means Apple also contributes over ten percent of Samsung’s overall revenue.

Dangerous love

Apple continuously nurtures alternative suppliers for all these components. It has too. It makes no sense not to, certainly at the scale of the business the company holds.

The huge success of the iPhone means the company needs to purchase massive quantities of parts – which is why resolving the supply conundrum has been so challenging – there aren’t many firms with the capacity to meet these challenging production targets.

All the same, there are signs Apple is closing in on some alternative suppliers, promising “interesting times” for Samsung.

  • Apple already puts the majority of its A-series processor production through TSMC.
  • Apple was part of the group that acquired Toshiba’s memory chip business for $18 billion in 2017.
  • Apple is expected to begin acquiring OLED displays from LG and possibly another firm (BOE) starting this year. Apple has reportedly invested cash in helping both firms build out OLED production capacity.

We’re also seeing Apple turn to using increasingly proprietary components, processes and materials in its devices, making it increasingly possible for the company to protect its uniqueness in comparison to other devices.

All the same, as smartphone sales continue to climb and the number of mobile device varieties continues to multiply, Apple’s hunger for components seems unlikely to shrink, meaning it’s likely that the two firms will continue to need to work together for some time yet.

Because adults favour compromise over conflict. It’s better business for everyone, after all.

Jonny Evans

Watching Apple since 1999. I don't say what they should do. I say what they might do. They sometimes do.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.