Why Samsung Doesn’t Need Apple
Karen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Right about now, Apple (NASDAQ: AAPL) should be regretting their decision to attack Google (NASDAQ: GOOG) through Samsung. The glow from that $1 billion dollar judgment against Samsung must have faded now that Apple realizes that, instead of shutting down Google’s Android, they’ve created a new rival.
It’s easy to think of Samsung as just an Android handset producer. According to the International Data Corporation (IDC) Worldwide Quarterly Mobile Phone Tracker, Samsung shipped 50.2 million smartphones in 2Q 2012, a figure that makes Apple’s 26 million smartphones shipped look paltry.
But unlike other vendors who are joined at Apple’s hip, Samsung is diversified in many different sectors, including financial services, medical health equipment manufacturing, shipbuilding and construction. Their global client roster includes Royal Dutch Shell, the United Arab Emirates, and the government of Ontario. As a result of this diversification Samsung’s 1Q 2012 revenue was $39.787 billion and net income reported as $4.438 billion, up from $32.506 billion and $2.447 billion, respectively, from the same quarter 2011.
iPhones and iPads are quality items because of their components, and the majority of these components come from Samsung. But earlier this month, Reuters reported that Apple was reducing its component orders from Samsung. With Samsung apparently being phased out, Apple has to go shopping for new vendors whose reliability and component quality is questionable. For example, Sharp (NASDAQOTH: SHCAY.PK) was supposed to have manufactured and shipped screens for the new iPhone to reach Apple by August 31st, but the company experienced “manufacturing problems” that delayed shipment. Sharp was also supposed to provide high-resolution screens for third generation iPads, but missed that deadline, too. With the new iPhone release coming up fast, Apple must be worrying that these delays may translate into lost sales.
Customer complaints from poor quality may soon give Apple some new headaches. The tech giant is now giving business formerly reserved for Samsung to Toshiba, Elpida Memory and SK Hynix. But there’s more to producing Apple’s unique chips than just changing a few specifications. The high-resolution Retina display used on the third-generation iPad was so complex to produce only Samsung could manufacture the item, and no other vendor currently has Samsung’s expertise or production equipment in place to take over. Apple’s decision to forego Samsung in favor of less-qualified vendors may be one Apple soon regrets.
But Samsung’s trump card is one Apple may have dismissed; Samsung has developed a Unix-like, Linux operating system, Bada, currently used in the smartphones they develop. The OS is used in mid-range to high-end smartphone and tablets and is different enough from the iOS to be immune from patent infringement claims. The OS is gaining in popularity, and in 2Q 2012, Bada’s worldwide market share grew 43% from the same quarter last year, and is currently at 2.7%. That market share is well behind Android’s 64.1% and the iOS market share of 18.8%, but with the fate of Android in the balance, Samsung’s OS may be looked at with renewed interest. The most recent version of Bada, the 2.0, runs in Samsung’s Wave 3 s8600 handset, and Samsung Apps store features over 2400 apps.
Apple is Samsung’s largest customer, accounting for 8.8% of Samsung’s income, and sales for 2013 were estimated to add $13 billion to Samsung’s revenue. The two companies have long history of collaboration, and Apple relies heavily on Samsung to produce their unique smart device components. But Samsung, seeing the writing on the wall, has already started making up for Apple’s lost revenue by increasing their headset sales and wooing new customers. Given Samsung’s diversification, manufacturing expertise, and Bada OS, Apple has far more to lose than Samsung should the two giants part ways.
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