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.
Sometimes it's shocking how intertwined the supply chain is. But this is far from the first time a situation like this has come up.
If I recall correctly, IBM abruptly stopped buying disks from one specific vendor (Shugart, maybe?) which had a devastating effect on the supplier. That's the position Samsung is in.
The reverse risk to Apple is just as real. Antitrust laws may prohibit restraint of trade, but there are a lot of ways of holding back without going clearly afoul of the regulations.
The real interesting part here is that both Apple and Samsung stand to lose big from any kind of a supply war.
Do you really think it makes sense for Apple to essentially fund their largest competitor?
I do not see them destroying their product pipeline, though perhaps a slight delay. It was going to have to happen eventually, why not now?
Sure there is interdependence in many industries, but I have to imagine for Apple it was almost becoming uncomfortable.
They are also not destroying their whole supply chain, simply realigning it. That actually is good for the whole industry as it means not only can Apple build competitive advantage, but by moving supply out of Samsung which one could argue has far too high a concentration of Smartphone dollars on the supply side if Apple sticks with them, it grows supply chain competitors which helps other smart phone companies have access to top technology.
at some point there has to be an advantage to not being a dick, the way Apple has been. a company that genuinely has superior products does not destroy their whole supply chain and product pipeline as a defense against follower competition. playing such a defense game is tantamount to admitting your offense (innovation) is failing.
At some point there has to be an advantage in having captive fabs, otherwise no one would ever build any new ones. Samsung will reap the advantages of being more vertically integrated. Apple can certainly buy enough NAND for its use, but will simply pay more. If they are smart they will have at least two vendors. This situation is where Tim Cook can earn his pay.