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Apple-Samsung: How Far Is Too Far?

{complink 379|Apple Inc.} is reportedly cutting back on its purchases of {complink 4750|Samsung Corp.} memory chips in the wake of an ongoing patent battle between the two companies. This isn’t a big surprise, given the rancor between the consumer electronics giants.

At first glance, it looks as if Samsung will be the victim in this move. Apple is shipping iPhones and iPads as quickly as they can be built, and even in the low-margin memory business, volume is volume. Any cutback on Apple’s part will have a negative impact on Samsung. As long as memory is flush and prices are low, Apple has plenty of places to shop for memory chips.

But I think Apple and analysts watching the Apple-Samsung feud are missing the bigger picture. How far can any company — even Apple — go before alienating its suppliers?

In addition to memory chips, Samsung is the leading supplier of displays to Apple. Although recent reports suggest Apple is cementing its ties with LG Display, Samsung is the world’s biggest manufacturer of displays. Like memory, certain types of displays are in oversupply: active matrix LCD (AMLCD) prices have been in steady decline and display makers are scrambling to make a buck in display sales.

But Samsung is also a leader in the development of organic light-emitting diode (OLED) displays, a technology that will revolutionize the display market once prices come down. OLED uses less power than conventional displays; can be manufactured on paper-thin substrates; and can be used to make flexible screens. OLED TVs someday could take up no more space on a wall than a large poster. Is it feasible, by any stretch of the imagination, that Samsung would tell Apple to take a hike?

So far, there’s no indication that Apple is cutting back its display orders from Samsung. If it does, it will be another blow to the supplier — at least for the short term. In addition to LG, Apple has a solid relationship with Sharp Electronics, a display maker now with close ties to Foxconn, Apple’s leading EMS provider. Any hiccup in display supplies to Apple will be short-lived.

So Apple is holding all the cards. Not only has it “beat” Samsung in the US courts, but it is likely one of Samsung’s biggest customers. Logic and self-preservation would dictate that Samsung take its lumps without protest.

There is also little chance that Apple will ultimately drive Samsung out of business. Samsung is a huge conglomerate, a major consumer electronics OEM in its own right, with $247.5 billion (in 2011) in revenue.

But the electronics market, as we have seen again and again, is highly cyclical. The DRAM market is the worst offender. Although DRAM has been flush, it seems, for years now, when demand spikes there is always a scramble for memory chips. Prices skyrocket and small customers — even if they are “strategic” — go to the end of the line when shortages strike.

The display market is beginning to look a lot like the DRAM market did not long ago. It is marked by wide spikes in supply and demand; corresponding swings in pricing; and is a key component in just about every electronics device. And that’s where I see a risk for Apple.

Displays have become the single most important component in many consumer goods. They aren't just nice to look at: touchscreens are a device's on/off switch and mouse and keyboard. It is the primary interface for most electronics devices. If, for some reason, display supply is disrupted to the extent HDDs were last year, what customers would get preferential treatment? The biggest customers, certainly. But the biggest customers that are also suing you? I have to wonder about that.

Ultimately, however, I think it will come down to a business decision, at least for Samsung. If losing Apple harms the business, Samsung, like any corporation, will consider its shareholders. It is highly unlikely any company, even Samsung, can afford to tell Apple to take a hike.

18 comments on “Apple-Samsung: How Far Is Too Far?

  1. Nemos
    September 10, 2012

    ” It is highly unlikely any company, even Samsung, can afford to tell Apple to take a hike.”

    It seems that the two companies despite their patent-war are close connected as buyer-seller. Do you think that there is a possibility to see that to happen ? 

     

  2. bolaji ojo
    September 10, 2012

    It used to be that top management at enterprises respected their counterpart at competitors. The air has been so polluted between Apple and Samsung I bet these guys won't even shake hands if they can help it. They are still business partners but the phrase “healthy competition” seems to have had a fatal seizure.

  3. SP
    September 11, 2012

    Wow its amazing to learn that if Apple is one of the big customers of Samsung for displays and memories, how Samsung has gone for legal battle. May be the thought of being a winner in market share for iphone or smartphone is what would have lured them. In any case Samsung would loose something.

  4. hash.era
    September 11, 2012

    Well I feel the war between Apple and Samsung is good for the users and all the others who are willing to go for one of these products. It will give them an insight on how things will happen and what services they will get.

    Also this will be some sort of a plus factor for others like Nokia, Sony Ericsson, HTC, etc..

  5. Barbara Jorgensen
    September 11, 2012

    @Nemos: As much as I'd like to think Samsung will walk away, it's just not feasible for a publically traded company. Apple is just too big and too powerful. About 20 years ago, companies such as Motorola–which still made TV equipment, radio/wireless equipment, chips and a host of other devices–had that kind of clout. But since Moto has split itself up into a half dozen different businesses, no single division can dictate to its partners. Moto drove the electronics industry toward six sigma. Apple is driving the industry toward something…but only for its own benefit.

  6. ahdand
    September 11, 2012

    Very true Barbara. Apple has the edge in my view since they have the resources to bring things back to normal. Also the innovative ideas of Apple has made people thing differently when it comes or Apple products. I feel this war will continue but will not affect the Apple market in any big way as such.

  7. mfbertozzi
    September 11, 2012

    Did you never thought that this war is, for sure, about patents rules, but for another part, also fomented as implicit promotion for both actors involved?

  8. _hm
    September 11, 2012

    Both Apple and Samsung are too big and too busy. It is nice to have good business for mutual interest. However, this relation lasts long if both are willing. If either is not interested for any reason, they should depart for meach other. This will not much hurt either.

     

  9. Susan Fourtané
    September 13, 2012

    mfbertozzi, 

    The amount of money these companies are spending in the courtrooms is too much to simply be for promotion. They both have all the means they want for buying excellent campaigns, if that would be what they want. However, that's not the case. 

    -Susan

  10. mfbertozzi
    September 13, 2012

    Nice perspective Susan, you have convinced me, although within the community I have heard around some small doubt still remains.

  11. Susan Fourtané
    September 13, 2012

    mfbertozzi, 

    You see, not even if the whole world would have a small doubt about it, as you say you have heard, I would believe it from two companies of the magnitud of Apple and Samsung. I am applying pure logic here, and logic rarely is wrong, if ever. 🙂 

    -Susan 

  12. Barbara Jorgensen
    September 13, 2012

    To take Susan's point on step further, logic would dictate that there will be a winner and loser in this battle. So while the PR for the winner is no doubt good, the PR for loser would be bad. That's an awful lot of risk for a marketing campaign that hinges on 12 people in San Jose…

    But I'm not exacty known for my logic 🙂

  13. bolaji ojo
    September 14, 2012

    The winners and losers are being sorted out in this market already. Companies like HTC, Sony and Motorola aren't really competitive currently in the wireless market. In the case of Apple and Samsung, the real winner will not emerge in my opinion from the legal tussle. A winner will be selected by consumers. The technology is available and can't really be claimed by a single “patent holder.” So, if Apple wins in court, Samsung will find a way around the patents and be back in the market within months with similar products that aren't in violation. They will have to duke it out in the market.

  14. Barbara Jorgensen
    September 14, 2012

    True. I still wonder if the consumer really cares who holds the patent, as long as the product they buy is authentic

  15. Mr. Roques
    September 21, 2012

    Apple, with its iOS 6 also parted ways with Google in some key apps: Maps and YouTube. I read that Google is already submitting a Maps app, and the YouTube app is already there. 

    Are they trying to break every relation? Will Apple eventually develop a search engine?

  16. bolaji ojo
    September 21, 2012

    Apple dropped Google Maps because of its adversarial relationship with the company in mobile operating system. Any company that crosses Apple or that is seen as a significant competitor will see its products shunned by Apple even if this had previously contributed to its success. Will it result in Apple becoming more like a cradle-to-grave provider? Possibly. If it seems to make sense to the company.

  17. mfbertozzi
    September 22, 2012

    It not easy to tell about what will happen in future, even speaking for myself, I could say that attitude from Apple, sooner or later, will become a sort of boomerang for them.

  18. Mr. Roques
    October 25, 2012

    Will it make sense for them to seek an alliance with a search engine in order to split the revenues? I don't see how they will maintain a relationship with Google, where Google is getting all the benefits (from the search results) and using that to create more competition for Apple.

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