Apple Needs Samsung -- and the Feeling's Mutual

Apple (NASDAQ: AAPL  ) just can't seem to get away from Samsung. The company reportedly made a deal with Samsung this week for the Korean company to provide A9 chips for the future iterations of the iPhone starting in 2015.

The Cupertino company reportedly made a three-year deal with Taiwan Semiconductor (NYSE: TSM  )  just weeks ago for the upcoming A8, A9, and A9X chips -- a deal that seemed to show Apple was moving even further away from Samsung. But Apple is apparently choosing Samsung for future 14-nanometer chips -- beating out Taiwan Semi and other companies to the14-nanometer chip future standard.

The deal shows Apple's dependence on Samsung's stellar chip technology, and further complicates the iMaker's desire to distance itself from its Korean rival. Over the years, Apple has begun to move away from from Samsung components, by ceasing to use iPhone displays and certain types of memory components made by the company.

But Samsung is the largest supplier of processors, screens, and memory chips, and it's difficult for Apple to give up its relationship with Samsung, which builds custom iOS chips for Apple.

Hiring Samsung as the main supplier of its iOS chips gives the Korean conglomerate insight into Apple's device release dates and manufacturing capacity. Apple is Samsung's largest customer and provides a nice chunk of change to Samsung -- in the tune of $10 billion in component orders last year. The other advantage for Samsung is that it makes components for its own Galaxy S4, the iPhone's top competition. The S4 costs $236 to manufacture -- compared to $207 for the iPhone -- but $149 of S4 parts goes right back to Samsung. Samsung benefits from being both the S4 maker and S4 component supplier.

Regardless of Samsung's possible component advantage, it's clear that both companies benefit from their relationship -- even if it's a difficult one. The thing for investors to keep an eye on is whether or not Apple can continue to maintain the delicate balance between component buyer and fierce competitor. The company has made some headway moving away from Samsung, but if the latest report is true, then Apple still has a long way to go. 

Apple shipped far fewer smartphones than Samsung in the first quarter of this year, and Samsung's mobile dominance is only growing. At this point, it seems that Apple doesn't have much of a choice in working with Samsung, but if the iPhone maker wants to get out ahead of Samsung, it may have to work harder in the future to break the ties that bind the two.

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Read/Post Comments (5) | Recommend This Article (1)

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  • Report this Comment On July 17, 2013, at 6:43 PM, PaulApp wrote:

    That's right on target! Major Apple's innovation in the past depended mainly on Samsung's research and development. This allowed Apple to focus mainly on innovation and design. That has changed that put Apple in disadvantage trying to do its own R&D such as MAP.

  • Report this Comment On July 17, 2013, at 6:49 PM, GaryDMN wrote:

    Apple bought the company that designed the Samsung ARM processor in their phones and the A series processors in the iPhone and iPad. Apple only needs Samsung until it switches foundries. Samsung, on the other hand will be losing their largest customer.

  • Report this Comment On July 17, 2013, at 7:53 PM, mdl00 wrote:

    Preposterous. Samdung keeps ripping off the iPhone, there will come a point when Apple has had enough and will cease doing business with Samdung. Apple would be stupid not to have a backup plan already.

  • Report this Comment On July 17, 2013, at 7:55 PM, mdl00 wrote:

    Preposterous. As long as Samdung keeps ripping off the iPhone, there will come a point when Apple has had enough and will quit doing business with Samdung. Apple would be foolish not to already have a backup plan.

  • Report this Comment On July 18, 2013, at 1:26 AM, yippieda wrote:

    PaulApp: This is flat wrong Paul, Apple never used Samsung R&D, Apple designs the chip 100%, Samsung fabricates the chip, always been that way. But as the author said, this gives Samsung too much information.

    If your talking about other Samsung components like screens and the like, here again Samsung fabs to Apples design criteria. Samsung has the best fabrication facilities in the world....just ask Sony they could explain exactly how this happened ;)

    Samsung made a conscience decision to compete with their largest customer, a rare move for any company but one in which as it turns out has worked well for them. Samsung knows Apple is gone, its just a matter of time.

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