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Apple’s Supply Break With Samsung Boosts Semi Foundries

For most of August the big news on the chip front was analyst IHS´s predication that pure-play chip foundry business would climb more than a fifth (21 percent), based on Apple's move away from Samsung as a sole supplier. However, it's not necessarily so simple.

Samsung, the apparent loser in the Apple move, holds the unusual position of being both a massive demand-side force in the chip market, and supply-side behemoth — even with Apple's move. What remains unknown is what the overall chip market is right now. Further, no one knows how Apple's move will affect both that market, and the frenemy-esque relationship between the Korean giant and Cupertino.

IHS, the source of all this noise, was also the source of a finding three weeks ago that the overall chip market would finally grow this year after a flat 2012. The estimate was a little over four percent, which is not roaring, but the news was well received anyway. The important part of that number, in turn, was that it is four percent of an estimated total available market (TAM) for chips, of a little more than a quarter trillion dollars. (Yes, that's trillion, with a t . The precise call was $254 trillion in chip business.)

But (and there is always a but), IHS also noted that the TAM included internal chip sales. For a company like Samsung, that's important. The company's chip foundry capacity means it can supply itself, where it can't find a better deal in the existing supply chain.

If you take the internal supply out of the number, a cool 15 billion dollars falls off the table, and with it, most of that four percent growth. IHS argues that its figures show a likely jump in available market again in 2014 and 2015 of about $30 billion. But it also argues that the non-internal number, the Shared Available Market (SAM), is probably the better gauge, compared to TAM.

“Companies or expenditure segments tracked by their SAM levels yield a more accurate picture of their net spend, which does not include internally sourced products that could be classified as intersegment sales,” IHS said in a press release.

Let's get back to the big August news, Apple's move. What does the wrangling over available chip market mean to the foundry market? There are a couple potential elements to this debate. First, it probably re-jiggers Samsung's calculations around acting as a foundry for its own internal divisions. Most of the focus on the big Apple news has been on the opportunities it creates, and the likely pure-play actors who will jockey for those contracts. However, it also stands to change Samsung's math, and the manner in which we estimate a fundamental measure of a fundamental market — chip sales — considerably.

Further, taking Apple's orders off the ledger changes Samsung's own foundry business enough that it could affect the company's internal supply chain. No one yet knows how, and even if the company will, count it. That's a huge variable. Apple's key rival, and former supplier, needs to decide how its own foundries will respond to a market in which they are playing both supplier and OEM.

35 comments on “Apple’s Supply Break With Samsung Boosts Semi Foundries

  1. SP
    August 21, 2013

    Its difficult to believe that apart from being a major supplier to Apple, Samsung came up with so much enemity with their customer whether its on patent lawsuits or sales strategies.

  2. elctrnx_lyf
    August 22, 2013

    Apples move certainly may affect the Samsung founday business a bit, but the profits of the complete samsung group will not have any issue. Pure play chip foundaries are on a high waiitng for the great news from Apple which could provide sustainable business for the next few years.

  3. _hm
    August 22, 2013

    If Samsung is not supplier to Apple, they will miss learning  most things from Apple design. This will make it difficult for Samsung to design new product similar to Apple, as it does time and again. Delay in new product from Samsung will affect them most as they will loose market share.

     

  4. prabhakar_deosthali
    August 22, 2013

    Apple has made this a very prudent move knowing well that its one-time supplier has now become its competitor.

    By keeping Samsung away , Apple is also ensuring that its future product plans remain a well guarded secret from Samsung.

     

  5. Marc Herman
    August 22, 2013

    The corporate intel angle seems really important, it's a key point. But there's also that theory about keeping your friends close, but your enemies closer…

  6. Ashu001
    August 22, 2013

    Marc,

    When I read your Post-The First thing that hit was this-

    “When Two Giants Fight,the Little Guys usually Benefit.”

    I have no doubt if both Companies had used saner counsel here this split wouldnt have happened.

    Still since it promotes competition,I see nothing wrong in it per se.

    Lets see how it pans out now.

  7. Ashu001
    August 22, 2013

    @hm-It seems you are stuck in a totally different age.

    Today its Samsung which is the Pioneer in the smartphone space while Apple is often 1-2 Generations behind anything(&everything) that Apple comes out with on their Phones.

    Look at all the latest Trends in Apple-They are looking to make a low cost Phone now;Why is that?

    Samsung has swamped the entire market now(from Top to Bottom) because of which Apple has no choice but to release low-cost phones if they are to compete today.

  8. Houngbo_Hospice
    August 22, 2013

    “When Two Giants Fight,the Little Guys usually Benefit.” There is a potential market for both companies to thrive in without an unnecessarily competition. But anyway, competition between rival companies is the backbone of business in a free market. So let there be competition in terms of innovation and not in terms of ridiculous patent lawsuits.

  9. Houngbo_Hospice
    August 22, 2013

    @tech4people “Samsung has swamped the entire market now”. Not so fast! We cannot reach that conclusion yet! Also being #2 in the business after being #1 for years doesn't mean that Apple is out of the smartphone business, right?

  10. Hailey Lynne McKeefry
    August 22, 2013

    @Prabhakar, your point is well taken. The suprise factor of Apple's new products and its ability to create hype on the eve of the new products is at least part of what drives sales for Apple..It certainly gets them a lot of press attention.

  11. Hailey Lynne McKeefry
    August 22, 2013

    @Marc, LOL> that's an interesting thought. It's always worked well in the Mafia.

  12. itguyphil
    August 22, 2013

    I don't think that will last very long though…

  13. Daniel
    August 23, 2013

    “pure-play chip foundry business would climb more than a fifth (21 percent), based on Apple's move away from Samsung as a sole supplier. However, it's not necessarily so simple.”

    Marc, Apple and Samsung have a long tie up with supply of chips and display screen. It's just like a preferred vendor status because of mutual trust. Now Apple had decided to end up such ties and planning to go for their own source the chips, for various Apple devices. I personally feel that, then can get any chip manufactures or vendors, but it may be difficult get a trusted & proven one.

  14. Ashu001
    August 23, 2013

    Houngbo,

    I recommend you look at Apple's Recent Maket Share numbers and see how badly they are sinking today.

    If you breakup all Android Handsets simply By Manufacturer today,Apple won't even be in the Top 3 today!!!

    And unless they get their act together,I have no doubt they will not even be in the Top 5 by end of 2013 when all Sales Data is Collated on a Global Basis!

  15. Ashu001
    August 23, 2013

    Jacob,

    Lets just wait and watch how this one pans out today.

    It will be an interesting battle for sure!

  16. Houngbo_Hospice
    August 23, 2013

    Apple's decision makes sense as it is a way to really show they no longer want to owe their success to a competitor company. Question is whether Apple's future chip suppliers will be as reliable as Samsung.

  17. ahdand
    August 25, 2013

    @Hospice: I don't think it's a good idea to write off Apple since they are one of the biggest players in the market, even though they had some issues in the past. I think they are planning big on re-entering with a bang to the market for sure and that will not take much long.   

  18. Adeniji Kayode
    August 26, 2013

    @Hospice,

    Competition is a major drive in businesses which leads to innovation and sometimes affordable price.

    It is tha reason the first sometimes becomes the second and the second move to the first position.

  19. Adeniji Kayode
    August 26, 2013

    @Hospice,

    I agree with you on that but Apple need to know that other manufacturers are not sleeping too. They are thinking is Samsung can do it they can also do it too.

    Apple will need to do more than its doing now.

  20. Adeniji Kayode
    August 26, 2013

    @Tech4people,

    I agree with you on that too.

    For some reasons it seems the whole world are embracing Android better.

  21. SP
    August 26, 2013

    I guess media has put lots of pressure on Apple but they should and will do the right thing for the business.

  22. Adeniji Kayode
    August 26, 2013

    @tech4people,

    you are right on that, Apple has to play it low in style to keep that position it is for now.

  23. Adeniji Kayode
    August 26, 2013

    @Sp,

    Do you think that is enemity or competition?

  24. SP
    August 26, 2013

    On Apple side its no enemity….

     

  25. Adeniji Kayode
    August 26, 2013

    Sp,

    Hmm,

    Well lets wait and see but then what goes around comes around too

  26. itguyphil
    August 26, 2013

    They better be unless they want more people to start jumping ship.

  27. Daniel
    August 27, 2013

    “Lets just wait and watch how this one pans out today. It will be an interesting battle for sure!”

    Tech4people, would you think that it will come in a positive way?

  28. Daniel
    August 27, 2013

    “Apple's decision makes sense as it is a way to really show they no longer want to owe their success to a competitor company. Question is whether Apple's future chip suppliers will be as reliable as Samsung.”

    HH, you are right and am raising the same question, will it be? I think it's always better, if Apple goes with their Chip manufacturing facility.

  29. Eldredge
    August 27, 2013

    It makes sense that Apple would be looking at other potential suppliers, such as Global Foundries.

  30. SunitaT
    August 31, 2013

    It makes sense that Apple would be looking at other potential suppliers, such as Global Foundries.

    @Eldredge, I think Apple should have taken this step long back instead they stuck to Samsung. This helped Samsung to get insight into the Apple products.

  31. SunitaT
    August 31, 2013

    Its difficult to believe that apart from being a major supplier to Apple, Samsung came up with so much enemity with their customer whether its on patent lawsuits or sales strategies.

    @SP, I think its not proper to blame Samsung for this situation. Its Apple which started patent lawsuits and Samsung just responded. But yes Samsung definitely took inspriation from Apple.

  32. SunitaT
    August 31, 2013

    If Samsung is not supplier to Apple, they will miss learning  most things from Apple design.

    @_hm, I dont think Samsung is still learning from Apple, infact Samsung is working on new technologies like flexible display and this will help Samsung to capture greater smartphone market share.

  33. SunitaT
    August 31, 2013

    Apple has made this a very prudent move knowing well that its one-time supplier has now become its competitor.

    @prabhakar_deosthali, dont you think this move has come pretty late considering the fact that Samsung has capture greater smartphone market share? Dont you think Apple should have taken this decision long back ?

  34. SunitaT
    August 31, 2013

    Look at all the latest Trends in Apple-They are looking to make a low cost Phone now;Why is that?

    @tech4people, that is because even low-cost mobile manufacturers like Micromax are giving tough competition to big companies. This has forced many big companies to drop the prices of their handset.

  35. SunitaT
    August 31, 2013

    Question is whether Apple's future chip suppliers will be as reliable as Samsung

    @Hospice_Houngbo, I am sure they will be as reliable as Samsung because they dont want to lose customer like Apple. Companies will do watever it takes for them to retain Apple as their customer.

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