Apple won’t divorce Samsung anytime soon, and here’s why!

August 21, 2012
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apple-vs-samsung-war

As Apple and Samsung lawyers are preparing their closing statements for today in the tech world’s biggest trial ever, research firm IC Insights has recently published its forecasts regarding the top 12 IC foundries in the world. And the reason why such timing is interesting, to say the least, is because Samsung ranks in at the fourth position overall for the second year in the row and is deemed destined to battle UMC for the third position at some point next year.

All in all, the IC Insights report points out plenty of reasons why Apple’s marriage of convenience with Samsung is most likely to continue independent of the verdict of the Apple vs Samsung trial, as both these companies seem to be highly dependent on each other for, at least the next few years.

Some Numbers

Starting off with some numbers that are not tied to Apple in any way, it is worth noting that the top 12 IC foundries are expected to represent 89% of total foundry sales in 2012, up 8 points since 2009. This is a rising trend that is expected to continue in the next few years, mainly due to the very high entry barriers to the foundry business. Taiwan Semiconductor Manufacturing Company (TSMC) is still comfortably ahead of everyone else in the game, with 2012 sales expected to be four times that of GlobalFoundries, the occupant of the second position.

Samsung, forecasted to rank fourth in 2012, was deemed the fastest rising IC foundry (by sales) for the second year in a row, jumping 82% in 2011 and estimated to jump another 54% in 2012. IC Insights suggests that Samsung has both the intention, as well as the budget to become a major force in the IC foundry business. According to the report, Samsung is now ramping up 130,000 300mm wafers per month and has the potential to produce annual IC foundry sales of almost $4 billion. Before we move on to the Apple-Samsung connection, you should also take note of the fact that Samsung is also currently the biggest memory manufacturer in the world.

The Apple-Samsung dependency

According to the IC Insights report, 168 million smartphones were shipped in the second quarter of 2012. Samsung is also responsible for 54 million handsets, meaning roughly a third of all smartphones shipped during Q2 were manufactuered by the South Korean giant. Apple has managed to sell 26 million iPhones in the same time period. Basically, one out of every two smartphones in the world is either an iPhone or a Samsung smartphone. Add the fact that Samsung makes the processors, the flash memory and the DRAM used by Apple in its iPhones and iPads, and Samsung really makes a whole lotta chips (here’s hoping that Led Zeppelin won’t sue me for any copyright issues :) ).

But what’s probably the main advantage of Samsung’s IC foundry business is the fact that it isn’t dealing with too many customers. In fact, besides the semiconductor that Samsung uses in its own devices, IC Insights reports that Apple buys 85% of the silicon made by Samsung’s foundries. Given that it is almost impossible for Apple to stop its partnership with Samsung at this very moment, Samsung should be in the safe zone for at least a year or so, but what could the South Korean giant do in order to prevent sale numbers dropping?

Well, we’ve seen rumors that they are getting ready to sell their Exynos chips to other OEMs, and although at that time I argued such a move did not seem probable, in the eventuality of a divorce with Apple, manufacturing and selling Exynos chips to other vendors such as HTC or LG could be a milking-cow that Samsung would want to tap into. Such a move would place them in direct competition with the likes of Qualcomm and Nvidia, the two biggest mobile processor manufacturers.

However, Samsung would still have a very shiny ace up its sleeves: unlike Nvidia and Qualcomm, Samsung has an IC foundry business (and a blooming one at that) that they could use to bring the shipping price down. Samsung could also draw in other major customers, so they still have a few options remaining.

But if Apple decided to stop buying silicon from Samsung, it would certainly be a lot harder for the Cupertino-based company to keep the overall prices down. Remember that Samsung is not only selling Apple a lot of components by number, but also by type, so they are surely getting a discount for a ton of DRAM plus a ton of flash memory plus a ton of A5 chips (please note that throughout this article I’m strictly referring to integrated circuits, leaving the Samsung-manufactured Retina display issue untouched).

If Apple were to purchase the memory chips from another vendor — assuming they ever find a single memory manufacturer that can meet their quantity demands — they would end up paying more. They would also probably pay Texas Instruments, or any other processor manufacturer that Apple could choose,  more for each A6 chip. Apple is really into gaining as much of a profit as possible, and a divorce with Samsung would raise a major issue on that front.

Conclusion

While it may look like Samsung has more ways of overcoming any possible divorce issue, I’m willing to bet that neither Apple or Samsung will stop playing nice outside the courtroom for at least another year or so. Apple can’t just change your entire supply chain in a few months and still expect the same profit and availability numbers, while Samsung surely doesn’t want to lose its biggest client.

Thoughts, Apple disses, iOS fanboyism and other meaningful ideas should be shared in the comment section below!

Comments

  • Hikari0307

    The two would still do business in the near future no matter what the court decides. Companies like these usually enter into a long term contracts so they can negotiate lower prices and higher priority in getting huge volumes and dependency on such levels of supply chains take a very long time to adjust to and for both companies to adapt to such changes. Drastic measures as terminating the supply contract etc. in the near future would spell disaster for both companies and possible hundred of millions of dollars in loses. If Apple were to move away from Samsung, it’ll be a slow noticeable process where both sides would have enough time to adjust to such changes.

  • Arthuranswers

    Having such big giants in the industry makes you wonder if the innovation is still coming from the silicon valley or if it’s moved on. There’s going to be a conference in San Francisco that covers the topic of innovation in the Silicon Valley. The event will be hosted by Orange (French telecom) and eCairn. There will also be international bloggers who will be there to see a few tech demos. If you’d like to learn more about the event, please emailed me at arthurh(at)ecairn(dot)com

  • tBs_Battousai

    whats IC stand for??

  • IFTLE

    Your comment on rumors that Apple has already signed an agreemnt with TSMC to manufacture A6 and A7 processors at 28 and 20 nm with 3DIC stacking tech. If this is true the migration away from Samsung has started.

  • Guest

    all hail lord apple

  • tehjoker

    Time for Sammy to double the prices for apple and hand them back their own isheep’s money…

  • http://www.facebook.com/people/Ted-Cantrell/689465336 Ted Cantrell

    It’s time for Samsung to stop supplying Apple with parts now that Apple sued them!

  • tendoboy1984

    Maybe Apple should stop being a hypocrite and find someone else to design the iPhone parts (Sharp, Qualcomm, etc.). Apple and Samsung hate each other, so why don’t they just move on?

  • tendoboy1984

    Maybe Apple should stop being a hypocrite and find someone else to design the iPhone parts (Sharp, Qualcomm, etc.). Apple and Samsung hate each other, so why don’t they just move on?