LONDON – Apple Inc. has reduced its order with Samsung Electronics Co. Ltd. for memory ICs for its forthcoming model of iPhone, according to a Reuters report that referenced an unnamed source.
Samsung supplies a variety of components to Apple – including processors, LCDs, DRAM and NAND flash memory – but it is also a rival, selling Galaxy smartphones and tablet computers that compete with Apple's iPhone and iPad. And the two companies are entangled in a number of legal battles around the world alleging patent infringement and copying of the look and feel of mobile equipment.
It is not clear whether Apple is cutting back its memory order because of subdued general economic forecasts for the fourth quarter, or because it is trying to reduce its dependence on its rival, or a mixture of the two.
The Reuters report quoted a source saying Apple has been cutting back orders to Samsung as it seeks to diversify its sources of memory but that Samsung remains on the list of suppliers for the new iPhone.
Neither Samsung nor Apple is a single entity. Samsung has it's own set of profit overheads for memory vs. tablet. The guys supplying the components to Apple need Apple no matter how much the tablet team would like to cut them off at the knees.
Apple cannot pull 100% volume out of samsung. For nand flash, samsung has 40% market share. Only they can do is to reduce the volume, while other customer will be happy to use samsung chip. samsung SSD is in fact a factor for product choice, so samsung has nothing to lose in this game.
Truth behind the scene is.. Apple was ordering at a price lower than the manufacturing cost. Samsung said NO WAY! SK Hynix and Toshiba said NO WAY OUT! other than Apple. These two underdogs accepted Apple's offer very unwillingly. Still complaining..
Unfortunately there are no other customers that can provide Apple's volumes. And remaining ones might have supplier agreements with other manufacturers. Ineffect, there is not much hope of "diversifying" and keeping the volumes(without which even the price might go up!)