Why Apple Pays Samsung Millions Every Year
“YOU ONLY LOVE ME WHEN YOU NEED ME,
OUR RELATIONSHIP IS TOXIC”
The relationship between Apple and Samsung is not just that of rivals in the marketplace or restricted to lawsuits. The two companies in fact work as supply chain partners and are important for each other. Samsung is Apple’s biggest supplier, thereby contributing a sizeable part of revenue from component sales for Samsung.
So despite battles in courtrooms and media, they remain significant for each other for business. In fact, Apple and Samsung have managed to keep their business relationship insulated from the bitter rivalry that exists between them.
Samsung was Apple’s main supplier for the iPhones from the very beginning, making the A-series processors and supplying both NAND flash and DRAM memory chips. But Samsung started to supply less components to Apple since 2011, coincidentally when Apple sued Samsung for patent infringement. But that trial is finally wrapping up, with the U.S. Supreme Court ruling in favor with the South Korean company, just when Samsung is set to be iPhone’s main supplier soon.
The two companies have been involved in multiple patent lawsuits since 2011 when Apple first sued Samsung in the U.S. for copying features of the iPhone. It was followed by Samsung suing Apple in South Korea, Japan, Australia, the Netherlands, Germany, France, Italy and the U.K. for patent infringement, to which Apple filed countersuits.
As a result of the 2012 verdict, Samsung was initially ordered to pay $930 million to Apple, which was reduced by $382 million by an appeals court, resulting in about $548 million remaining due for payment by Samsung, which finally got settled few days back. There were more than 40 patent lawsuits, which the two companies were involved in against each other. These were settled as the two smartphone giants called for partial truce by dropping all patent lawsuits against each other outside the US in August 2014.
Bloomberg reported that Apple has adopted OLED to give iPhone with a curved screen and Samsung will be the sole supplier, (not that Apple had much of a choice). The Korean tech giant dominates the market. “Currently in flexible OLED market, Samsung is the only company to mass produce and to stand in No. 1 position in both OLED smartphone and OLED panel markets,” according to analysts at Hyundai Securities.
Samsung is the largest supplier of NAND flash memory chips, with more than a third of the global market share. With so much business, Samsung was able to afford to pass on Apple’s demands in prior years, which was to use electromagnetic interference shielding technology, that would cost Samsung more money to make, and let SK Hynix and Toshiba to step in.
Now Samsung needs a big buyer—like Apple—to make full use of its new semiconductor facility. In 2014, Samsung poured 14.7 billion into a new chip plant in South Korea, the largest investment for a single plant by the tech giant. But again, the California-based company couldn’t really avoid Samsung. The iPhone maker sources from multiple suppliers and it’s difficult not to use the largest supplier of NAND flash memory chips. Apple also won’t be able to circumvent using Samsung’s DRAM memory chips, as it commands about 60% of the mobile DRAM market.
Contract chip manufacturing is really the only area where Samsung faces competition, due to Taiwanese foundry TSMC .Both Samsung and TSMC made Apple’s A9 chips for iPhone 6 smartphones, but the Taiwanese company won an exclusive contract for A10 chips for the iPhone.
TSMC’s advantage comes from its integrated fan-out packaging technology, which the company said has led to improvements in both speed and packaging thickness, as well as thermal performance. The improvement will help TSMC continue to secure Apple’s business, says Len Jelinek, senior director of semiconductor manufacturing at IHS Markit. “The package in design, along with an optimized chip design, provides Apple a SoC performance advantage, as well as a physical advantage in board assembly,”
Samsung is a vertically integrated electronics company, and its advantage comes from the synergy of handsets and components. It has huge facilities that make more components than its own smartphones for economies of scale and needs big component buyers like Apple.
Apple depends on multiple sources, but it also needs a reliable supplier who can make high quality components at large quantities like Samsung.
Their business relations haven’t stopped Samsung to take a dig at the late Steve Jobs. Samsung has an app — iTest — that turns the iPhone’s home screen into that of a Samsung Galaxy phone. In that app’s description, Samsung has mocked Jobs and his clothing style. “Samsung users are all unique and they like their phone to be unique too. No turtleneck wearer should dictate how your phone looks,” a part of the description reads. Jobs, who changed Apple’s fortunes, was famous for wearing a black turtleneck at jeans. At every Apple event, he was seen in the same attire which had become his signature style statement.
At the end of the day, despite the rivalry and legal battles, the top two smartphone makers need each other, and their love hate relationship will always be iconic.