Analysts: A major shift away from Samsung could be complicated and costly for Apple

“Apple Inc will struggle to cut its reliance on rival Samsung Electronics for component supplies, analysts and industry sources said on Thursday, despite speculation that it has begun reducing its use of Samsung memory chips,” Miyoung Kim reports for Reuters.

“Samsung has lost 6 percent of its value, or $11 billion, since a Taiwanese trade news outlet reported on Wednesday that Apple had placed big new orders with Japanese chipmaker Elpida for dynamic random access memory (DRAM) chips,” Kim reports. “The report has stoked concerns among Samsung investors that Apple wants to help turn the struggling Elpida, now in bankruptcy protection, into a much bigger supplier to the U.S. tech giant, partly at the expense of South Korea’s Samsung.”

Kim reports, “U.S.-based Micron Technology Corp is in talks to acquire Elpida’s business as the Japanese firm tries to restructure after tough market conditions and global competition drove it into bankruptcy protection… ‘No company wants to have just one supplier. Just on that basis I think they’re probably just shifting the (DRAM) balance, looking for equilibrium between two or three suppliers,’ said Monika Garg, an analyst at Pacific Crest”

“A major shift away from Samsung could also be complicated and costly for Apple, analysts said, adding that Samsung currently supplied Apple with high-end DRAM chips which were faster and more power-efficient than Elpida’s main chips,” Kim reports. “Samsung and fellow South Korean chipmaker SK hynix, whose shares were also hit on Wednesday by the Apple-Elpida news, make chips with transistors that are 20 to 30 nanometers apart, giving them superior performance to Elpida’s 40-nanometer class, according to analysts.”

Read more in the full article here.

MacDailyNews Take: As if Apple isn’t known for taking complicated things and making them simple or isn’t sitting on a $100+ billion mountain of cash.

You know what seems really costly for Apple? Samsung stealing their iPhone designs and mimicking their OS to the tune of 86.6 million units, or 2.6 times more units than Apple moved in the first quarter of this year alone.*

What’s actually quite complicated about this situation is that Apple has for years been helping and continue to help Samsung to finance the theft.

Continuing to pump billions into Samsung’s coffers each and every quarter while suing them to no great effect makes us wonder WTF is really going on here. Maybe Apple actually wants Android around to help kill off Microsoft et al. and all of the court cases and biography quotes are just hot air? Or perhaps Apple is just continuing their grand, decades-long tradition of hiring lawyers who suck and can’t manage to prevent the copycats of world from blatantly stealing and capitalizing royally on Apple’s innovations?

*We know that Apple rules in profit share, for now. We also know that losing 85+ million people per quarter (that’s over a third of a billion per year!) and seeing them fall into a much more difficult to acquire category than if you’d simply acquired them with their first smartphone could prove rather costly in the long run.

Apple’s products came first, then Samsung’s and all the while Apple keeps doing billions of dollars worth of business with Samsung:

Samsung Galaxy and Galaxy Tab Trade Dress Infringement

Related article:
Samsung value drops $10 billion over fears of being cut out of Apple supply chain – May 16, 2012

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22 Comments

  1. Let’s see:
    1-Apple needs to drop SameSong like a bad habit.
    2-Apple has over $100 Billion sitting around in a world of high unemployment and strapped governments.

    I say Apple should negotiate a couple of deals to finance factories in areas of high unemployment that have a good workforce with a nice tax abatement and tell SameSong to go suck on it. Apple does not even need to own the factories, just set up partnerships with companies that know how to do the work.

  2. Yea, like working with Samsung while they use your ideas to take away your customers. Oh, don’t forget to include those pesky legal cost used to defend your idea(s) that they have advanced viewing of. Seriously, think Total Cost of doing Business!

  3. These analysts just slay me……if they REALLY understood business, they’d be out there actually creating something instead of writing inane, mundane drivel. But, NOOOOO, they know how to run Apple so much better than the people who are doing it. Perhaps if they were paid by their “success” rate we’d some more cogent, coherent thinking & writing.

    1. MDN sure seems to think they can run Apple far better than the folks currently in charge, judging by their increasingly tiresome drum-banging on this subject. Odd how we don’t see MDN hammering this same point when it comes to, say, Apple doing business with Google.

      1. “MDN sure seems to think they can run Apple far better than the folks currently in charge…”

        Where do they say that?

        “…judging by their increasingly tiresome drum-banging on this subject.”

        That is your flawed judgement, not an absolute. “Tiresome” to whom? Tim Cook, I would imagine. Not to AAPL shareholders like me. Please keep banging the drum, MDN!

        MDN, most of all, seems to abhor flaws in logic. MDN simply wants to know why Apple is “continuing to pump billions into Samsung’s coffers each and every quarter while suing them to no great effect.”

        Anybody with a logical mind would ask the same question. If they were persistent, they’d keep asking it until they got an acceptable answer.

        “Odd how we don’t see MDN hammering this same point when it comes to, say, Apple doing business with Google.”

        How much business does Apple actually send directly to Google? (Don’t forget, Google pays Apple for searches due to being the default search engine in Safari, Apple doesn’t pay Google.) Whatever Apple pays Google for Maps (until they dump it for their own solution) is a tiny fraction of the billions they send to Samsung.

  4. the more work apple sends samsung, the bigger they get and the weaker competition gets. its a self fulfiling prophesy. same goes with manufacturing in china. if everything is manufactured there, of course they will have a better manufacturing infrustructure, and the more difficult it makes anyone to compete.

    the cycle has to be broken. short term convenience, but long term self mutilation.

    1. a self fulfilling prophecy? So you consider Apple projecting toward its own doom.

      That model of business was America’s choice, to find cheaper labour in exchange to earn higher profits.
      China ‘s grow has been the same. America has been losing industries to the other nations and the companies taking the manufacturing overseas are pumping money to them not the homeland. Yet, look how those immigrants shop in America. And what they do with their savings. They send it home to their country and they buy products made from their country.

      For me, when business does this – the company has betrayed the homeland – making them traitors.

      1. Not so much traitors for me, but it all comes full circle.
        When companies head overseas to exploit cheap labor it all comes back. Our economy suffers. Our workforce/their consumer suffers.

        When products are made overseas to exploit cheap labor, everyone has to follow suit and it’s a race to the bottom for everyone.
        We built a manufacturing economy and infrastructure overseas that we then say we cannot compete with. A short sightedness that eventually bites us in the ass….like it did in 2008. Everyone wants immediate unsustainable gains and turn a blind eye the inevitable comeuppance any ponzi scheme inevitably incurs.

  5. MDN Take: +∞

    “Apple’s products came first, then Samsung’s and all the while Apple keeps doing billions of dollars worth of business with Samsung.”

    It truly is inexplicable.

  6. it wasn’t long ago when we wondered if Apple would create a cell phone. we could not figure out why there was nothing but silence. fast forward to the present day when we wonder what Steve meant by “we nailed it” regarding television. I believe Tim and Steve knew about the supply chain and mapped strategies.

  7. I am not sure what it is that MDN and the other clueless posters on this forum do not understand and that leads them to the absurd comments they make about Apple and its leadership.

    First, Samsung’s role as an Apple supplier and its repetitive copying of Apple products are two separate issues; they are only linked in the minds of people who do not understand global sourcing.

    Second, supply chains like the ones that feed Apple require YEARS to build. You don’t source literally billions of components overnight, or even in a few years.

    Third, an infantile and reflexive change to different suppliers can have disastrous consequences to product quality (and quantity), both of which are highly critical to Apple. I am constantly amazed that the same people who extol Apple quality are so willing to put it at risk by switching suppliers. This is the essence of cutting off your nose to spite your face.

    Fourth – and extension of the third: Not all suppliers are the same. The harsh reality is that Samsung makes better chips and display panels, at a better cost, than ANY of its competitors. Deal with it. Apple has made multi-billion dollar investments with other suppliers (most notably Sharp for displays) to diversify its component sources, but the blunt truth is that they have yet to match Samsung’s quality and price point.

    Fifth, there is no reason to believe that switching to other suppliers will have ANY impact on Samsung’s copying of consumer products (and it is worth mentioning, Apple isn’t the only company that Samsung has copied). The only thing that is likely to stop the copying are the legal efforts to enforce patents and trade dress. And I’ve noticed that MDN is hardly consistent about how it reports Apple’s successes in court and with regulatory agencies. When Apple has a victory, MDN chortles its pleasure; when the subject is the supply chain, it bashes Apple for its lack of success. Again, no matter how you cut it, MDN’s need for immediate gratification is infantile: It takes YEARS to win conclusive victories in court on patent issues. That sucks, but it is the reality. Deal with it.

    Finally, Apple’s current posture was clearly blessed by Steve Jobs himself. The constant effort to paint Tim Cook – a certifiable genius when it comes to supply chain logistics – as incompetent is comically absurd. If there was something Jobs never tolerated for a moment – not a nanosecond – it was incompetence. The fact that Jobs trusted Cook to assume control of his company says everything you need to know – the two were, and still are, on the same page on this issue.

    I am sorry that these twin issues aren’t – in the real world – black-and-white and solvable with solutions you can put on a bumper sticker. Sadly, the world is more complex than that. Fortunately, Apple is run by grown-ups like Tim Cook who, I have every confidence, will resolve this in Apple’s favor, in due time.

    1. Samsung has been ripping Apple off for half a decade now, starting with the Samsung Instinct.

      Jobs and Cook should have sent a strong message years ago. Pump cash into Micron and give them all your business. That’s what should have been done, IMO.

      Neither Jobs or Cook were/are infallible. Not everyone in Apple Inc. is in complete agreement with Cook vis-à-vis continuing at this late date to conduct major business with Samsung.

      Micron is an American company, by the way. Not a foreign company that basically owns South Korea and does whatever it damn well pleases.

      1. Cook loves asians, that’s fer sure!

        Doesn’t matter if they’re Chinese, Korean or Japanese.

        As long as they’ll work long hours for very little pay, Cookie love them long time!

      2. A few factoids:

        First, the Samsung Instinct was first imported into North America in mid-summer of 2008; that is three years and ten months ago, not “half a decade.”

        Second, it appears that Apple that is doing exactly what you suggest – heck, the whole reason for this forum discussion is the revelation that Apple is making an effort to financially bolster the Micron/Elpida alternative. What’s the problem?

        Third, memory chips are perhaps the simplest solid state device to re-source, and even they are tough. In comparison, display panels or CPU fabbing – both of which are major things Samsung supplies for Apple – are total nightmares. And Apple’s ongoing efforts to source panels – especially the new Retina displays – from alternative sources have not gone well, both with respect to quality and quantity. Again, Samsung is working from a strong position of quality and price, and it takes time to develop alternatives that are competitive. It is a blunt reality; deal with it (Tim Cook does).

        I am sorry that I keep trying to make this discussion reality- and fact-based. As somebody who is working professionally in an international supply chain, I just think it is important for the forum members to appreciate that this is a VERY BIG challenge that Apple faces and it isn’t something you do based on whim.

        1. What do you do exactly? It’s easy to make stuff up on the interwebs. Much harder to be able to back up words with facts.

          You seem credible, how can we know for sure tho.

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