“Smartphone titans Apple Inc. and Samsung Electronics Co. are arch rivals in one of the biggest consumer-product arenas,” Timothy W. Martin and Tripp Mickle report for The Wall Street Journal. “But when Apple’s iPhone X debuts next month, both companies will be hoping it succeeds.”
“The twist reflects a love-hate dynamic that is one of the more unusual relationships in business. While each company vies to get consumers to buy its gadgets, Samsung’s giant components operation also stands to make billions of dollars supplying screens and memory chips for the highest-end new iPhone—parts that Apple relies on for its most important product,” Martin and Mickle report. “Indeed, an analysis conducted by Counterpoint Technology Market Research for The Wall Street Journal finds Samsung is likely to earn about $4 billion more in revenue making parts for the iPhone X than from the parts it makes for its own flagship Galaxy S8 handset in the 20 months after the new iPhones go on sale Nov. 3. The majority of sales for a new smartphone occur in the first 20 months after its debut.”
“Counterpoint expects Apple will sell 130 million iPhone X units, earning Samsung $110 on each through the summer of 2019, while Galaxy S8’s global sales are expected to be 50 million, earning Samsung $202 each from components such as displays and chips in its first 20 months of sales, according to estimates based on a projected bill of materials,” Martin and Mickle report. “Samsung needs Apple’s orders to fuel a component business that delivered about 35% of the South Korean firm’s total revenue of about $195 billion last year.”
“Samsung employees often refer to Apple with code names. One of the most popular is ‘LO,’ short for ‘Lovely Opponent,’ people familiar with the matter said. Apple’s descriptor for Samsung, meanwhile, is Samsung, according to people with knowledge of the situation,” Martin and Mickle report. “Apple will look to reduce its supply-chain reliance on Samsung, according to industry analysts, and is working to diversify OLED production by 2019 at the latest.”
Read more in the full article here.
MacDailyNews Take: In May, it was reported that LG Display was planning to invest about $3.56 billion to build a new factory to pump out 6th generation flexible OLED displays. Apple will pay Samsung more than that over the next 20 months.
As we wrote half a decade ago:
You want to know what’s really unbelievable? That, after half a decade, at least, of Samsung’s slavish copying, Apple continues to do billions of dollars of business with Samsung. Apple, which has enough money to build or bankroll anything they want, like a chip fab, or a touch screen display factory, or anything they could ever need.
Something just does not compute here. If you get mugged, do you buy the leather for a new wallet from your mugger while pressing charges? If you’re Tim Cook, you do.
Apple could have – and should have – dropped Samsung like a bad habit years ago. Not one red cent should be going from Apple to Samsung today. It’s a travesty. It’s poor planning. And it’s bad business. The only conclusion we can draw is that Tim Cook, operations genius, boxed Apple in and is now stuck; beholden to a den of thieves. That sort of “decision making” doesn’t bode well for Apple’s future. It really doesn’t.
It’s a good thing Steve Jobs left Apple’s management a gravy train with a built-up full head of steam. It gives them plenty of time to wise up.
SEE ALSO:
Samsung’s profit may top Apple’s for the first time ever – thanks to Apple – July 27, 2017
Apple turns to Samsung for more 3D NAND chip supplies for upcoming iPhones – July 6, 2017
LG Display to invest $3.56 billion in flexible OLED plant – May 30, 2017
OUCH, this is PAINFUL to hear
Manufacturing fabs aren’t as easy as it sounds to get online, while Samsung shouldn’t be making anything off of iPhones or Apple products, it’s unavoidable right now due to their scale of production capabilities. If it were an avoidable situation, they wouldn’t be in it, unfortunately Samsung is the only manufacturer that has the scale to produce Oled panels in the amount that Apple needs. They’ve already shifted the chip business to TSMC, and if LG and Japan Display (Sharp), can match Samsung’s capacity for OLED displays then they’ll shift it over there too.
I also don’t think OLED is the end all be all here, I think it’s the best available right now and that’s why they went with it. But micro-led is supposedly a superior technology without the drawbacks of current OLED, which might be where Apple is headed soon.
You got it completely right. No other company can provide the same capacity as Samsung for high end screens.
Apple will move away from them as soon as it is safe to do so. And by safe I mean when there are absolutely no risks to phone production.
Look at it in another way. If Samsung hadn’t screwed Apple and copied Apple in the phone business, they would have made way more money via component sales.
In the meantime Apple are taking most of the profits and building a long term infrastructure to make the best chips in the world.
There was a time when Samsung made a massive proportion of the components for Apple’s products, but then Samsung got greedy and tried to compete rather than co-operate. As a result Samsung lost immense orders and in the case of TSMC, a new rival was in effect created to provide competition where previously there was none. These days, Samsung only gets orders from Apple when Apple has no alternative.
If Samsung had not been so untrustworthy, they could have continued to be a much valued partner with Apple, just as Foxconn has successfully doing for many years. It would be interesting to compare the theoretical profits from the orders lost to Samsung against the profits they have earned from making all those knock-off phones.
Samsung makes pretty decent components, too. Even if Apple does shift to other manufacturers, they may not be able to easily produce the quality Apple demands. I don’t think Apple dealing with Samsung is bad business. It’s just a practical business. It hasn’t actually hurt Apple’s business in any way. Samsung, in turn, has to rely on Qualcomm for broadband modems and CPUs, and Google for Android OS. Almost no company can go it completely alone. Tim Cook has to get components where the supply will be as steady as possible and quality as high as possible. If Samsung meets those standards, then there’s nothing that can be done about it. Pride can’t get in the way. Supply is what matters.
I think Apple shouldn’t have to keep relying on their iPhone business for revenue as much as they do. Apple has so darn much money that they could have branched out into other businesses such as cloud storage and cloud computing as many other tech companies have done. Move away from that reliance on hardware and depend more on software and services.
I don’t see your logic in wishing that Apple didn’t rely so much on profits from iPhone. The amount of profit that iPhone generates for Apple is incredible, it’s because they have so much money that they are able to invest in developing things like the A series CPU chips, which in turn make iPhones even more compelling.
Apple is using some of it’s cash pile for other non-iPhone projects, such as original entertainment and whatever they’re doing with cars, so there is a reasonable expectation that Apple will be diversifying into other profitable areas in the longer term, but for the moment, there is no better way to make money than by making iPhones and having money in the bank gives Apple the opportunity to do pretty well anything it wants to do on whatever scale it chooses.
I think the assumption macnificentseven was making was a diversification of source of profit assuming profit was equivalent. It’s better to have a variety of products than a handful of related products as your revenue source should a few of them tank for some reason.
How much are they profiting by though? If they’re only making pennies profit on each one then I couldn’t care less how many Apple orders from them.
There must be some people who work at Samsung who are WAY better than anybody else at manufacturing those screens.
That’s a possibility. Another is that Samsung has customized/optimized the machines that produce the displays meaning you can’t buy those machines elsewhere even if you hire away the workers.
And there you have it. The notch is Samsung’s fault. /s