Is Apple Coming to Samsung’s Rescue?

November 18th, 2014

It’s a curious world. On the one hand, Samsung has been sued a number of times by Apple for alleged theft of intellectual property. Samsung was charged with slavishly copying Apple’s exclusive designs, mostly the iPhone and various product features, and they fought back claiming Apple had, in fact, illegally used some of their intellectual property.

By and large, Apple won. But Samsung has yet to pay a single dollar for being on the losing side, and appeals will probably keep the cases going till the end of time, or until the two companies decide it’s time to settle and get on with their existences. Supposedly both have tried to negotiate a way out without success, although they have at least agreed to halt the court actions still active outside of the U.S.

Yet, all that nastiness played out at the same time Apple and Samsung were doing lots of business together. Apple pays Samsung billions of dollars year after year to build raw parts, such as A-series chips, and supply flash memory and other components. It’s a major source of income for the South Korean giant, but there have been ongoing reports that Apple was trying to ditch Samsung as a supplier and take its business elsewhere.

After all, why send huge checks to a company that is slavishly coping their most important products? It hardly seems to make a lick of sense.

Until fairly recently, Samsung was on a huge growth curve, seemingly unstoppable. The largest number of mobile handsets had Samsung labels on them, quite a change from the times when Motorola and Nokia ruled the roost. And we all know what happened to them.

But Samsung has succumbed to the same loss of rapid growth, and has shown reduced profits and lower handset sales in the recent quarters. They are being hit at both ends of the market, from Apple on the high-end and several makers of even cheaper gear at the low end.

Of course it’s not as if the media is making such a huge deal about it. I mean if Apple’s sales dipped even a tiny fraction, you’d never heard the end of the fear mongering.

Samsung, however, exists with a different set of rules, and it’s not the only one. So I don’t hear all that much chatter about the near-impossiblity of Amazon making anything close to a decent profit; the last quarter had huge losses. And Amazon also doesn’t say much if anything about the sales of its Kindle gadgets. They seem to be doing well and all I suppose, but the figures you encounter in the media are largely industry estimates that may or not be close to the truth. What is certain, however, is that the Fire Phone, the first Amazon handset sold for a decent amount above the cost of manufacturing, failed so much so quickly that the price was quickly reduced to 99 cents.

In any case, I wonder if the latest news about the role Samsung is rumored to play in supplying components to Apple indicates the potential for a final legal settlement. According to The Korea Times — which doesn’t necessarily have a record of getting such things right — Apple has signed up Samsung to manufacture most of the A-series processors for next year’s iPhones and iPads.

This would presumably mean an A9 chip, and the agreement is reportedly going to include an 80% share of Apple’s chip production in 2016. Samsung also reportedly builds 40% of the A8 chips used in the iPhone 6 and iPhone 6 Plus.

The new deal will include production in Austin, Texas, New York and South Korea. It means that Samsung’s piece of Apple’s chip production pie is actually increasing compared to what Taiwan Semiconductor Manufacturing Company is reported to receive.

To be sure, it’s clear few outside of Apple, Samsung and TSMC know the specifics about any deals, or why component allocations move from one supplier to another. It may be for practical reasons, such as price, timely delivery and component quality. Few dispute the fact that Samsung builds quality hardware, even if their consumer products aren’t terribly inspired.

But this also assumes the report is true, and that may be difficult to confirm regardless. If true, the order increase may not mean that Apple plans to bury the hatchet with Samsung. It could be simply about getting the parts Apple needs for the best terms, and that might present a choice made regardless of any lingering legal issues. It’s not that Apple hasn’t made deals with competitors and former competitors over the years.

Or maybe Samsung is being overly aggressive about attracting business from Apple because consumer products, particularly mobile handsets, aren’t doing as well as hoped. Something has to give, so Apple responds in a proper businesslike fashion. At the end of the day, Samsung simply needs to boost revenue and profits. End of story.

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