Apple-Samsung: The Other Shoe Drops

There are more reports out this week that Apple Inc. is moving away from using Samsung chips in its products.

All of the reports cite the ongoing Apple-Samsung patent battle as the root of the problem. Apple, says one report, doesn't want to use its competitor's technology in its products.

Really? Then what about displays? If Apple really wants to cut the cord with Samsung, drop Samsung as a display supplier. It will deal a bigger blow to the Korean company.

Analyses of the impending Apple-Samsung split spend a lot of time on the A6 processor (soon to be A7) that Samsung manufactures for Apple. According to a teardown analysis by IHS iSuppli, the value of the A6 in the iPhone 5 amounts to $17.50. The iPhone's Retina display is valued at $44 — the single biggest cost in the iPhone's bill of material.

Samsung is not the exclusive manufacturer of Retina displays: LG Display, Sharp, and AU Optronics are among other companies licensed to manufacture the Retina. However, Sharp has recently been hit with yield problems, and AU has taken a beating in US courts for price fixing. AU's court woes probably won't affect yield, and LG has definitely earned its chops competing with Samsung in display manufacturing. But Samsung still has to be a major supplier of displays to Apple.

And Apple is facing another problem. Within the next few weeks, Apple is said to be unveiling a new MacBook Pro with a Retina display. (There have been mixed reports about the arrival of the MacBook and the size and type of display.) Apple is also expected to launch the iPad Mini, which will probably sport a Retina. Where are all of these Retinas coming from?

I'd wager a good number of them are coming from Samsung factories. If, as iSuppli reports, a four-inch Retina is valued at $44, seven- or eight-inch Retinas will cost more for the iPad mini, and 13-inch Retinas (for the MacBook Pro) will carry yet a higher price tag. Samsung can only be profiting from these sales.

The Retina was developed and patented by Apple, so technically, Apple isn't using a competitor's display technology in its products. Apple is clearly secure in its patents as it is defending them against all corners. But severing ties with Samsung is eventually going to mean severing ties with Samsung's display factories, and Samsung is the 800-pound gorilla in the display world.

Yes, it will be a blow to Samsung, and I'm not suggesting Apple do this. But if Apple has drawn a line in the sand, and it seems that it has, then displays will be the next move, and the costliest one at that. But it may cost Apple as well.

6 comments on “Apple-Samsung: The Other Shoe Drops

  1. radical
    October 15, 2012

    So it'll be interesting to see to whom this would affect more. So let's say Apple decides to drop supplying relations with Samsung display. What will happen with Samsung? It will turn to their next customer in line, probably a high drop in revenue, but with a much better cost margin. (Look up what the CEO said; Samsung has numerous companies standing in line for their production) Affect on profitability? Marginal. What about Apple? You mentioned LG. What other suppliers are there? Ummmm, none that can withstand Apple's requested quality, yield and cost margin. So Strategy 101: What happens if you are relying solely on one supplier? Less bargaining power, higher price, and thus lower margin for Apple, not to mention the quality gap between Samsung and LG. So tell me again, to whom is it more costly?

  2. _hm
    October 15, 2012

    Apple and Samsung should work together for their mutual benefits. If required, they should change person in charge to get fresh ideas without much prejudice. Apple has good product design and marketing and Samsung is great in parts manufacturing. They together should provide novel products.


  3. dalexander
    October 16, 2012

    @Barbara, who owns the patent rights for the Retina technology? I know Samsung has the Amoled tech, but they are supplying Retina displays to Apple. Can Samsung use Retina displays or is it just a trademark name by Apple. Are there Retina displays being used by any other manufacturer by any other name?

  4. Barbara Jorgensen
    October 16, 2012

    Hi Douglas: The Retina is patented by Apple and then licensed out. Samsung, Sharp, LG and AU are the companies that are reported to be licensed for the Retina. Apple does not appear to be interested in OLED. But even if Apple sticks solely to Retina for awhile, volume may be a challenge if Samsung is out of the picture (pun intended).

  5. ahdand
    October 16, 2012

    For me the fight is still pretty much on as it was in the begining. I think the introduction of Apple i5 has made it a bit more tight. I still feel Apple has the edge out of the rest.

  6. Barbara Jorgensen
    October 16, 2012

    Hi Nimantha….maybe I automatically seek out Apple detractors, but I recently read an article that said something along the lines of “if Apple introduced fire to the world, it would seem like a new idea.” The Apple logo is becoming like Gucci or Chanel…it implies coolness and affluence, but really, how much better is the iPhone? The downside is, now that logo also screams “Steal Me!” on random street corners and subways. Anyway…Apple is throwing its weight around regarding Samsung, and I tend to root for the underdog.

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