Dylan- Yes, we believe the competitive situation between Apple and Samsung at the system level is a growing concern for Apple with regards to its chip supply from Samsung.
Overall, I believe that this situation kind of "snuck up" on Apple. In 2010, Apple purchased about $1.2 billion worth of foundry ICs (i.e., not including memory) from Samsung. That same year, Samsung was ranked 5th in smarphone sales (24 million handsets) behind Nokia, Apple, RIM, and HTC, with little to no presence in the tiny emerging tablet PC market. However, in 2013, just three years later, Samsung is expected to be by far the largest supplier of smartphones worldwide (shipping about 300 million) with Apple a distant second with 180 million smartphones shipped this year. Moreover, IC Insights expects Apple to buy about $6.0 billion worth of foundry ICs from Samsung in 2013, a staggering 5X surge from 2010.
At this time, this is truly a marriage of convenience for Apple, but the company is definitely motivated to establish other relationships.
Bill- good point about Samsung's ability to also supply DRAM and flash. I'm sure buying all three from Samsung does give Apple some pricing leverage, too. Given that, why does IC Insights see Apple slowly moving away from using Samsung for foundry? Obvioulsy the competitition between the two companies in the courtroom and the market place must make for an interesting supplier relationship. Is that why you think they'll move away from Samsung?
It has long been IC Insights opinion that Apple will move away from using Samsung as a foundry but very very slowly. It should be remembered that Samung has been a good supplier at the chip level to Apple—it has given Apple access to essentially all of the capacity it has needed, offers leading edge technology to Apple, and most likely provides Apple with good pricing (including bundling of processor, DRAM, and flash memory supply). The ability to supply Apple with processors, DRAM, and flash is one aspect of its association with Apple that just cannot be met by TSMC and GlobalFoundries.
There are some collateral benefits to both sides (Samsung & Apple) in doing business with each other. Each will be constantly gauging what the other is capable of so it keeps their teams on their toes.
Perhaps it is also the realization that fight between equals destroys both that leads them to cooperate and compete.
One would therefore hope that the deal betweent he two is beneficial to the end customer!
Rick, your point is well taken. We do see these reports fairly frequently and at the end of the day, nobody outside of Apple or the foundries truly knows who is building the chips.
I also agree with you that the Apple-Samsung relationship is good theater. as for whether or not it matters, I for one would say yes. Samsung has been making great strides in increasing its foundry business, and Apple is obviously a major, major customer.
@the_floating_ gate: Agree. Clearly it would be better for Samsung or TSMC if they had an exclusive deal with Apple. Competition means lower average price per wafer. But from Apple's perspective, you know that they want to have choices and price leverage.
Dylan has good questions, but I have slightly different answers. It makes sense for Apple to use different sources for chips - agreed. The reason to do that is, yes, heighten competition, but it also provides alternatives for the supply chain if one of the companies is disabled for some reason -- flood, earthquake, political upheaval, whatever. Will all the chips work the same way? Hopefully, they'll all support iOS the same way that AMD vs Intel support Windows -- not exactly the same, but close enough.
Michael Campbell, a vice president of engineering in Qualcomm's chip design group, said FinFET structures in one foundry are "similar, but not the same" as those in another foundry. "You can only etch in certain directions and etch tools are common—that drives some similarities--but [foundries] use different in tricks in spatial walls and diffusion," he said.
I agree. Apple's best bet is to use them all and pit them against one another in competition. I believe many companies do this. But the thing I don't quite understand is: this is very complex technology. Can they all do it? Will all of the chips hit the same performance specs, regardless of who builds them?
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