Tensions between Apple and Samsung thaw, and the competition should be terrified

“The technology industry’s greatest rivalry may be turning into an unstoppable collaboration. Relations between Apple and Samsung Electronics appear to be thawing since the war waged by Steve Jobs forced these onetime corporate comrades to end lucrative supply contracts and engage in costly legal battles,” Ian King reports for Bloomberg. “In August 2014, Apple Chief Executive Officer Tim Cook agreed to begin winding down the patent suits with Samsung, and the two companies are teaming up again on new products.”

“Samsung will manufacture the main chip for the next iPhone, as well as displays for other Apple products, and it is budgeting $14 billion for new plants and equipment that are expected to accommodate, among other things, its big new client,” King reports. “From this alliance, Apple gets access to one of the biggest, most sophisticated chip manufacturing operations in the world to help it continue outselling the competition. Samsung gets crucial new orders for its core chipmaking group to make up for stagnating profit in mobile phones. Just about all other companies in the industry will suffer, starting with Taiwan Semiconductor Manufacturing and SanDisk.”

“Samsung has every reason to refocus on its roots as a chipmaker. As recently as June 2014, Samsung’s mobile phone division was providing more than 60 percent of the company’s operating profit. That slipped to 37 percent by the end of last year, with the semiconductor division picking up the slack to account for more than half,” King reports. “While Samsung has been losing market share to Apple in high-end smartphones, the South Korean company remained the world’s largest consumer of electronic components at the end of 2014. Apple was second. The two account for 17 percent of worldwide chip purchases, according to research firm Gartner. And they make up 40 percent of the smartphone market by units, according to researcher IDC. In other words, you can’t avoid them.”

Read more in the full article here.

MacDailyNews Take: You have to wonder how difficult it is for Apple brass to continue working with these thieves when they turn out such obviously iPhone-inspired devices like the Galaxy S6, just another in a long line of blatant knockoffs of Apple products. The allure of 14 nm FinFET chip stamping is obviously irresistible.

You know, with Apple’s many tens of billions of dollars accumulating rapidly offshore, you’d have thought that by now Apple could have built themselves quite the state-of-the-art chip fab(s) and amassed a world-class team of unparalleled semiconductor talent and been completely free of having to pay billions to those who, seemingly without an iota of shame, continually rip off your intellectual property and mimic your products with abandon.

We wouldn’t have any problem with doing business with Samsung, if they’d simply admit their wrongdoing, face significant consequences, and just stop ripping off Apple. In fact, Apple should make “stop the knockoffs immediately” a condition of doing future business.

Apple iPhone 6 (left) Samsung Galaxy S6 (right) (photo: GottaBeMobile)
Apple iPhone 6 (left) Samsung Galaxy S6 (right) (photo: GottaBeMobile)

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Nick Cannon tweets his love of Samsung Galaxy S6 camera – from his Apple iPhone – April 17, 2015
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Samsung paid 500 fake fans to attend Galaxy S6 launch event – report – April 6, 2015
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NY Times: Samsung Galaxy S6 and S6 Edge lack compelling software; not enough to pull company out of tailspin – April 2, 2015
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Wired: Samsung’s Galaxy S6 Edge is pointless – March 26, 2015
Significant Android to iPhone switching weakens market for Samsung Galaxy S6 – March 24, 2015
Samsung’s Galaxy S6 design looks like another iPhone knockoff – February 4, 2015

30 Comments

  1. Agree 100% with you take MDN. Don’t forget Samsung copied Apple’s store within a store concept too – at Best Buy for example. I just have to turn and look away when I am in a Best Buy. Samsung makes good componets but I have NO RESPECT for the company’s business practices.

    1. Maybe I’m just too stubborn for my own good, but here’s the way it plays in my mind…

      I have a premium cookie company, with a loyal and growing customer base. I make my own custom cookie dough (iOS), but I buy my chocolate chips, peanut butter chips, and oatmeal and raisins (screens, logic boards, etc.) from a successful supplier. Up to this point, that’s all they’ve ever been, is a supplier.

      As my cookie business really starts taking off, lo and behold, my supplier announces that they, too, are getting into the cookie business. They know, and they make, many of the ingredients of my cookies, and they do their best to duplicate my cookie dough.

      As if that’s not enough, in the marketing of their new cookies, they denigrate my cookies specifically, by name.

      As if THAT’S not enough, they insult, demean, and make fun of the CUSTOMERS that buy my cookies, trying to shame them into buying their cookies instead.

      And I’m going to continue to do business with such people?!?! Hell, no. As long as there are reasonable alternatives… hell, no. Or if I have billions in the bank that would allow me to ramp up my own operation to supply my own parts, or at least shore up the resources of an alternate supplier… hell, no.

      Like a said, maybe I’m just stubborn. But I just don’t get it, and I don’t like it.

        1. I like Apple’s strategy. I like it a lot.

          They don’t let competition distract them from whats most important: They build the best iPhone regardless of where the parts come from.

          1. Yes, the numbers don’t lie about Apple’s strategy working.

            I can’t help but see non-reality creeping into the MacDailyNews take: ‘Apple should make “stop the knockoffs immediately” a condition of doing future business.’

            Apple is forced to work with Samsung, because the current reality is that they cannot supply enough chips for their kit without working with Samsung. Hopefully that will change, but it won’t if the numbers don’t compute. Tim was trained by Steve and learned much from him, but Tim has always been a supply train numbers guy, and if the numbers don’t compute, Apple will not be moving business elsewhere just to hurt a bad player under Tim Cook.

      1. But you forget the big picture.
        Samsung is spending a billion to build a new facility.
        There is now a global competitor to Samsung that Apple fostered.
        Samsung has lost mega face in declining sales in tablets and phones.
        And samsungs actions have made apple move forward to tech advances that do not require patents to protect Apple. SOC systems that Samsung is still trying to badly copy.

        Samsung is paying. Big time. Just not obviously to bloggers. LOL

  2. My guess is that Apple has negotiated an exceedingly good deal in order to award the contract to Samsung. We know that Samsung can make great components in huge quantities, so having them working their butts off making components for Apple while only making a relatively small profit sounds like a good arrangement to me.

    Apple always has the option to later drop them as a supplier and has demonstrated that it can do that, so Samsung knows that it has to keep it’s nose clean in the future. Apple has enabled significant rival suppliers, so Apple now has realistic alternatives to turn to.

    Apple works on a huge scale and it makes a lot of sense for Apple to have more than one manufacturer capable of supplying it’s key components. Recently we saw that problems arose with Haptic Engines from one supplier, but a different supplier was able to provide properly functioning ones.

  3. “Apple should make “stop the knockoffs immediately” a condition of doing future business.”

    NO KIDDING!

    Samsung’s motivation – “Our phone business is tanking. We’d better focus elsewhere, like making chips.”

    Apple’s motivation — ??? Come on. How many hundreds of millions would it take to build the best fab on the planet? Half a billion? Five billion? Whatever it is, Apple could spend it and barely notice.

    1. It would take tens of billions. But the real problem would be a decade of distraction as they try to build one of the most complex types of businesses in a market where companies are already raising them bar every year.

      That would be a massive loss of focus for Apple.

      Maybe Apple will build or buy a fab someday, but if they do it will be at least a decade in the making and for reasons other than competition making them blink.

      1. +100

        Nevermark, you understand what MDN and a great many others do not: Apple does not want to own the means of production. Even the Austin plant that makes Mac Pros is owned by Flextronics, not Apple. It is a smart, winning strategy in multiple ways: 1) It keeps the focus on the product, rather than on the production; 2) It makes other people put up the money for factories and equipment and the IP needed for various production processes; 3) The headcount is somebody else’s problem. 4) It allows for faster changes in direction than if Apple was anchored to obsolete factories (see: US car manufacturers for why this is important).

        It constantly amazes me that these basic business realities elude MDN’s understanding… fortunately for all of us, Tim Cook is the kick-ass master of them.

  4. I have a feeling Apple doesn’t want to invest in its own manufacturing even though they have plenty of cash. Let Samsung lay out the money for that and then if someone else comes along with something better it’s easy for Apple to switch suppliers.

    1. Exactly. No way is Samsung getting Apple’s margin on those chips. It wouldn’t save Apple anything to make their own.

      Apple wins by being a designer of other people’s parts and only strategically designing their own when there is a technological gap to fill.

  5. I remember a few years back when Apple moved the headphone jack to the bottom of their phones that Samsung mocked them in one of their commercials. It showed and Apple “fan” in line for his new iPhone telling other Apple “fans” that the move was mind blowing. It is interesting to see where the headphone jack is on the S6.

    I guess it’s hard to criticize a product when everyone is throwing away your product, to buy it.

  6. “You know, with Apple’s many tens of billions of dollars accumulating rapidly offshore, you’d have thought that by now Apple could have built themselves quite the state-of-the-art chip fab(s) and amassed a world-class team of unparalleled semiconductor talent and been completely free of having to pay billions to those who, seemingly without an iota of shame, continually rip off your intellectual property and mimic your products with abandon.”

    ^ This.

    You have them on the ropes. You don’t back off now. You finish them by taking away the one saving grace they have.

    1. Completely disagree.

      Chip design is Apple’s forté. Mass chip production is Samsung’s.

      MDN’s take is quite naive and ill-informed. It takes YEARS to get such an operating up and running. Like a good decade. Throwing money at it won’t make it happen sooner or better. By that time Samsung will have leapfrogged to advancement.

      They have Samsung right where they want them. Anything else would attract the attention of government regulators.

  7. Many large firms had captive chip operations in the past. IBM being a notable example. Maybe Apple’s sheer volume makes it a more logical business investment, but I don’t think you can underestimate the capital requirements and management attention that having a full fab production in-house would require.

  8. Another advantage to using Samdung is that when Apple does occasionally move a significant chunk of production to another vendor it leaves Samdung with a significant over-capacity, which causes Samdung’s profits to tank as they have to discount the manufacturing to fill capacity. Hopefully Apple will keep doing this occasionally.

  9. By doing a year without placing any orders with Samsung, they made a point. Apple could work well without Samsung.

    I believe they got a real good price for any further orders.

  10. Just a thought… keep doing business with Samsung and other chip makers, make samsung keep investing in bigger plants and tech, keep improving other chip makers, buy said other chip makers and then when Samsung has over invested in plants and tech, Apple says, buh bye and cuts them out. Samsung no longer has it’s biggest customer and sell their plants and tech on the cheap to Apple.

    How long do you think Apple is going to continue to use Sony camera tech after buying other camera tech companies. How much longer will they rely on Intel, they will eventually cut them out too.

    Apple is about vertical integration and they are VERY patient, not many other companies are as patient as Apple.

    Samsung just might find themselves in dire straits once Apple brings chip production in house.

    Just a thought.

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