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.