Apple might want to kill its relationship with Samsung, but it can only do that by reducing the stock it allows into the channel
Apple’s slug fest with Samsung over patents is covering the fact that it depends on the company to feed its channel.
According to a Bloomberg supply-chain analysis Apple accounts for 8.8 percent and is the company’s largest customer.
The companies have been largely inter-dependant since 2007 when Apple realised that it needed Samsung’s logic chips, memory chips and screens. Gartner reports that 20 percent of Apple’s iPhone is comprised of Samsung technology.
Since the falling out between the two companies, Apple would dearly like to walk away from Samsung, but cannot do so without running out of parts and equipment.
TSMC has apparently made Apple an offer, but it uses a different production technology than Samsung and would mean a redesign of the processors.
Apple would have to stop placing its goods into the channel until TSMC is up to speed.
Michael Hasler, a former supply-chain management executive at chipmaker Applied Materials told Business Week it would cost Apple too much to do that.
Samsung also dominates flash- memory chips and makes Apple’s Retina displays. If Apple shut down its relationship with Samsung, it would mean that it would no long have access to any of these too, which would mean a total supply shut down, with nothing entering into the channel, until new suppliers could be found.
Apple representatives have been talking to LG, Sharp and Japan Display to open a new supply-chain but this is also taking time.
Competition wise, Apple needs this like a hole in the head. It is already losing ground to Android and later this year there will be the Nokia/Windows alliance to fight off. Later, it might need to see off an unlikely push from RIM.
This is not a good time to have a fight with your main supplier and limit the amount of goods you can place in the channel. This is a time for shoring up your alliances and making the rock solid. If Apple continues to play the “thermo-nuclear option” it could find itself without enough products in the market place to compete. Those products which are available might not have the sorts of quality components which Apple users expect.
Apple is already expected to cut its iPad orders to avoid an oversupply of the tablet.
Charles Chou, a senior industry analyst at the Market Intelligence & Consulting Institute, told the Taipei Times that the growth of tablets had become weaker this year, partially due to market saturation.
Apple is seeing its facing market share eroded by cut-price ‘white-label’ vendors and smartphones with displays over 4 or 5 inches.
This has left the company with a choice of either releasing its own cheap and cheerful models or limit the amount of products finding their way into the channel.
With the problems with Samsung, Apple might simply cut back, indeed there are some signs that it is already doing so.
The new iPad is more vulnerable to the spat with Samsung than any other component. Its main feature is the 9.7-inch Retina display. IHS iSuppli said that the only choice for Apple remains Samsung. Apple might feel that lowering the amount of iPads in the channel might have the effect of lowering its inventory, sending a message to Samsung.
In the short term it is hard to see why Samsung needs to listen to any of Apple’s messages.