Could Samsung, reportedly the ousted manufacturer of processors for Apple, be able to control the Silicon Valley company by putting it on a rationed supply of NAND flash memory? How should Apple respond to the danger?
In 2011 Apple became the biggest purchaser of NAND flash memory in the
world and its use of NAND flash surged in 2012. And in 2012 Samsung was
the biggest maker of NAND flash memory with 38 percent market share,
according to market researcher IHS. The other suppliers
were Toshiba with 28 percent, Micron with 14 percent, SK Hynix with 12
percent and Intel with 8 percent, according to IHS (see NAND flash market surged in Q4). As much Toshiba's output is for SanDisk Corp it can be seen that there are not many options for buying NAND flash memory.
2012 and previous years there was an oversupply of NAND flash memory
which kept prices low and ensured plenty of supply. But it is looking
likely that 2013 will see an undersupply of NAND flash and increased
average selling prices. Now as Apple is the largest, or close to the largest, purchases of NAND flash memory it does have purchasing clout. But it also has the biggest need and could see problems if NAND flash memory suppliers start to mutter the dreaded "A" word; allocation.
And as Samsung is itself a major supplier of smart televisions, computers, tablet computers and smartphones, all of which
are already, or are likely to become, major users of NAND flash memory
either in discrete form or solid-state drives, one can imagine that more
of Samsung's output will be reserved for its own needs. As the largest producer of NAND flash Samsung is likely to be one of very few electronic equipment makers that will not see a shortage of the non-volatile memory.
It is a
questionable practice under anti-trust legislation around the world to
tie the selling of processors to the purchase of memory. However, for
Samsung to tell Apple it can't supply as much NAND flash memory as Apple
would like because it needs the lion's share for its own tablets and
smartphones would be a subtler matter.
Apple goes to TSMC. Samsung says "Oh no you didn't!. Girl! find yo flash 'some place else!"
That would be too simplistic. Samsung and Apple have been very successful partners and not-withstanding lawsuits around curved edges and I doubt they would jeopardize their existing business. Apple most likely has contractual guarantees on flash supplies from Samsung.
I think that shortages of NAND flash are almost guaranteed later this year unless the entire world economy goes into recession. It's time for NAND producers to make a little money for a change. Another fast growing source of demand for NAND chips is the solid state drive market.
Apple is not vertically integrated because it chooses not to be. It's a business decision. The US government really has very little role in this strategic decision. US based Micron/Intel fabs produce NAND flash chips and we do have NAND flash being manufactured in the US.
Duane, that's an excellent point. But there are a whole bunch of human decisions that put companies behind the eight ball. Management execs aren't going to turn down huge business from Apple or IBM if it throws their model over into an 80/20 situation.
On the other hand, how many companies are there like ADI which I boasts its largest customer is 5 % of the business?
Tough calls... and I'd hate to be in their shoes!