Apple Collaborates with Rival Samsung for Screen, Chip - Analyst Blog
There is yet another twist in the love-hate relationship between Apple AAPL and Samsung Electronics SSNLF. According to media reports, Samsung has formed a novel 200-employee team to provide screens for its biggest competitor, Apple.
Per reports, from Apr 1 onward, the new Samsung Display team has started producing screens for a range of Apple devices including the upcoming iPhone and Apple Watch. The Samsung team is also apparently helping Apple’s sales efforts.
The relationship couldn’t get more complicated. While Apple is the largest customer for Samsung components, the two technology giants are the bitterest rivals in the U.S. smartphone market.
The Tale of Two Tech Giants
The two companies have their own strength and weaknesses. While Apple retains an edge in terms of technology and its unbeatable ecosystem, which increases its customers’ brand loyalty, Samsung scores over Apple in terms of display, camera, battery and specially its Exynos 7 applications chip.
Exynos 7 is built on 14-nanometer manufacturing technology that provides higher power and efficiency in a limited space. Also, Samsung’s display has always been better than the iPhone maker.
Until the last quarter results, Samsung had a prime position in the smartphone market with Apple slightly behind it. However, according to a recent research report from Gartner, both Apple and Samsung are now tied for the top spot as they compete to become the largest smartphone vendor in the world.
The iPhone maker has been on a roll driven by record sales of its larger-screened iPhone 6 and iPhone 6 Plus especially in emerging nations like China in the last quarter. The strong demand for Apple's offerings completely crushed Samsung’s sales. While Apple’s mobile shipments surged around 46% in the last quarter, that of Samsung dipped around 13%.
However, Samsung recently rolled out its flagship smartphones, Galaxy S6 and double curved-screen Galaxy S6 Edge to challenge the iPhone maker.
The two companies have been competing in the mobile payments market. Following the launch of Apple Pay, Samsung made no delay in acquiring Loop Pay. Rechristened Samsung Pay, the mobile payments application is now available with Galaxy S6 phones.
Not just that – Apple continues to hire away Samsung’s talent.
Possibility of Truce?
It seems that the two companies have been working on ways to coexist. Last year, both Apple and Samsung withdrew their lawsuits against each other outside the U.S. Now the recent collaboration for producing screens seems to be an effort to solidify the ties despite the competition.
Furthermore, the Korean media have been hinting (broadly) that Samsung’s edge in the processor chip manufacturing process would help it take some A9 processor business away from Taiwan Semiconductor, which could mean that Apple has given Samsung a larger chunk of business this year. Samsung had been the primary semiconductor supplier for Apple’s iPhone and iPad till 2013.
However, souring relations between the two companies had resulted in Apple reducing its dependence on Samsung and the contract for providing the sophisticated chips was given to Taiwan Semiconductor Manufacturing Company Ltd. TSM last year. According to a recent report from Korea Times, Samsung will be offering at least 50% of the mobile DRAM chips for Apple’s next-gen iPhone.
Our Take
While on the one hand Samsung is giving its all to gain its lost position in the smartphone market, on the other, it is sharing its own strengths with its rival.
Not only will this lead to a significant share of Samsung’s profit being tied to Apple (which became the most valuable company in the world last quarter), but the latter’s products will also improve upon incorporating Samsung’s strengths.
Samsung must have a compelling reason to do this, which is likely one of two things. First that it needs to fill capacity in the wake of weak phone sales over the past year. But since initial uptake of its latest phones seems strong, this is likely less of a factor. The second reason could be that there is an alteration in their cost-sharing agreement that is more beneficial for Samsung. This would explain the setting up of the new unit to increase accountability.
Apart from Samsung, some other suppliers for this Zacks Rank #2 (Buy) company include LG Display Co Ltd. LPL, which provides the in-touch in-plane switching (IPS) liquid crystal displays (LCD) for the iPhone 6 and NXP Semiconductors NV NXPI that supplies NFC chips for the iPhone 6.
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