What If Samsung Stopped Supplying Parts For The iPhone 4?

This is all hypothetical, but what would happen to the iPhone 4 if Apple's vigorous legal campaign against Samsung caused an irreparable rift between the two companies?

Several key components of the iPhone 4 including the Flash Memory, DRAM memory and applications processor come from Samsung. Together, these account for $US45.68 in parts which is 26 per cent of the final component cost of the iPhone 4.

If Samsung were to turn its back on Apple, who would supply these components, how much would they cost and how quickly could another company supply them? We don't often think about it, but Samsung supplies these critical components to Apple at a reasonable price and it supplies them at a volume few companies could match. Remember, Apple shipped 20 million iPhones last quarter which is a lot of processors and flash modules in a relatively short amount of time.

Thankfully, there's no sign Samsung is ready to walk away from one of its biggest customers. But with Apple winning injunctions left and right against the Galaxy Tab, you can't help but wonder, what if? [The Economist]


Comments

    Why do you think Apple is pushing cloud computing and going to their own processors again?

    Less reliance on other manufacturers for parts, flash memory, CPUs, screens.

    Could be an issue as in the US phone companies are rolling back unlimited data plans on mobile and most of the rest of the world simply never had them.

    It's a gamble.

      So true, instead of a screen, cloud computing lets you just us air (or clouds, obviously).

      Doesn't it?

        Settle petal, I think you know what I meant.

        Rumour has it Sharp will be the LCD supplier for LCDs after the iPhone 5 and LG are supplying the other 70% of LCDs.

        Don't expect in-built memory on iPhones and iPads to reach over 32GB any time soon.

    the move would hurt samsung a lot more than it would hurt apple.

      Samsung are not the only component provider in the world, and while they're one of few that can supply those components in the volumes Apple want; there are others. Not to mention in house start up possibilities.

      The only way Samsung could really do any damage, is to give 11th hour notice, and all but stop supply over night. Doing so is morally irresponsible (even by loose business ethics), and no doubt there would be massive breaches of contract if Samsung did not provide fair notice.

        Ahem.. So it's ethically dubious to make a deal then reneg on it?? So when Apple were price fixing RAM they were being 'magical'? This also had the effect of driving up prices for others. Just google 'Apple NAND market manipulation'.
        http://www.tuaw.com/2009/11/30/chip-makers-apple-manipulating-flash-memory-prices/

        BTW, if you buy a MBA today you will randomly either recieve a Samsung SSD or a Toshiba SSD. The Samsung is twice the speed of the Toshiba one,... good luck with your quality control lucky dip. They don't tell you which is which, and charge the same reguardless.

          We both know that Apple have no qualms at dipping their toe into pools of dodgy ethics; as evidenced by the fact they're suing one of their primary component suppliers.

    I'm sure they are locked into contracts, and Apple wouldn't be stupid enough to let those contracts expire without finding other solutions (including the possibility of continuing with Samsung)

    I would assume if Samsung tried pulling parts supply to Apple, Apple would pull out the signed contract between the two and then start measuring up the executive offices for Apple staff to start moving in.

    They have a legal agreement in a contract, if Samsung decided to get snippy and cut supply mid contract I suspect Apple would end up owning Samsung outright

      Rooboy, you sound like a naive Apple fanboy. Apple couldn't pull out of the contract unless they receive a court judgement saying that the conditions under which they could exit the contract, had been met. You'd be looking at months, if not years, in court before that happened.

      No, it isn't that simple, and even Apple wouldn't be able to take over ownership of another company just like that.

      But Samsung could make it hard for Apple without breaching the terms of the contract, if they wanted to. Apple knows this is always possible, and is probably talking to other suppliers right now in case there is a supply problem. Remember, Samsung isn't so small that it can't stand up to Apple.

      Sorry, pal, but it doesn't work like that.

        "Rooboy, you sound like a naive Apple fanboy. Apple couldn’t pull out of the contract unless they receive a court judgement saying that the conditions under which they could exit the contract"

        You might want to reread his post given he was taling about Samsung pulling out, not Apple.

          I think you should re-read the comments.

            I read it a few times. Find me the part where he implies anything regarding Apple pulling out of the contract. He said they'd pull the contract out, implying Samsung legally may be in a shit ball but he didn't talk about Apple breaching it or pulling out of it.

    This would be the single best thing that Samsung has done in the last 5 years.

    Apple = Evil Empire I tells ya! They will own the world soon enough.

    ppl get off the iphone, they are overpriced and limiting just like there products always have been. Whats worse are those rubbish ads 'if you don't have an iphone, you don't have an iphone' wtf is that dribble, iphone 4s have been outdated for 12months. By the time the 5 comes out it'll already be out of date.

      lolz you're funny
      The only thing better than Apple fanboys are Apple haters, they're louder and more annoying than any fanboy.

      Although I don't disagree with you, there are plenty more compelling arguments against the destructive nature of vertical integration. It is a sad time for the computing/electronics industry as a whole.

      Yours sincerely,
      Andrew. (The less caffinated, more articulate Andrew that is not the Andrew of the OP)

    No wonder Apple are up with Exxon Mobil in value, they've become greedy f***ers. Blocking Samsung just makes them look even greedier.

    I can't imagine owning any other computer than a Mac but ever since Apple got into mobile devices their whole business ethic changed and they continually make me consider trying something else. I've already gone to an Android phone.

    Ahhh, it's finally happened. Back when Bill Gates was the 'devil', I told Mac users 'your day will come. One day everyone will hyperbolise about Apple being evil'.

    The day has arrived! WOOOOT! Unfortunately now I have a Mac.

    DAMMIT

      haha, cop that! For a long time I was a lone Mac user (OS 9) among the Windows horde. When OS X was released with its aqua interface I began telling everybody how much better Mac was and encouraging them to switch.

      Now practically everybody has switched and I'm kinda begrudging that fact, as being a Mac user no longer has the sense of prestige about it that it used to.

        So you were one of the wankers who only used it to look better than others? :P oh dear. (I use the term wanker affectionately)

      +1 sir.

      P.S. I'm not the Andrew that commented a few spaces above.

        Yeah one of you guys is gonna need to put a number after your names or something. This is doing everyone's heads in!

          I am not a number. I am a free man!

          What's that? Oh, sorry Mr Jobs, I'll get back in my cubicle now sir.

            You can pry my numberless name from my cold dead hands.

    $45.68 = 26% of total cost to manufacture a 16GB, GSM iPhone 4.

    Therefore, 1% = 45.68/26 = $1.76.

    Therefore, 100% = 1.76 x 100 = $176.00

    Cost to produce a 16GB GSM iPhone 4 = $176.00
    Retail price of 16GB GSM iPhone 4 = $649 (outright from US Apple store).

    Markup = (649/176) x 100 = 368.75%.

    Couple that with insatiable consumer demand and it's no wonder Apple is the most valuable company on Earth.

      Also need to remember that you're not just buying the parts, you're buying the parts already assembled! :-P

      Plus the OS on the phone and all the design work that has gone into it. So the markup isn't quite so high.

      Competing phones cost about the same. They might have better hardware, but what does it matter when everything works equally fast on the iPhone? Should I be buying some high-end Android device instead, just because it has (allegedly) less markup?

    + assembly costs + distribution costs + marketing costs.

    Still, I agree, Apple make a huge amount on their iPhones.

      And their continuous 30% cut from all apps.

      No wonder Apple's richer than god. They're bleeding everyone else dry.

    the only reason i own an iphone is because of the games and HTC back then was so slow releasing their handsets for australia

    so im stuck with iphone

      The battered-wife-syndrome attitude of Apple users is saddening. Don't make excuses for them. If you are in a bad relationship, leave.

        He's probably living out the rest of his 24 month contract like I am.

        I'd happily switch to Android permanently once mine is over, but damn if it's not a colossal bitch moving all my music and apps over to another ecosystem. That's my biggest concern, I've sunk maybe $100-150 into apps alone. It'll probably be like ripping off a bandaid. Do it quickly and don't look back.

    when they're making a x% cut on apps/music/video/book content through iTunes, and now iAds, do we really think they're caring about making even $50 a unit off their iPhones? The margin argument is myopic.

      Of course they care, the margins on those other things are much smaller than their hardware. They other revenue streams are great but a healthy hardware profit gives you a very large head start in maximising potential revenue from a customer.

    Could all the Andrews please stand up?

    On-topic: Apple will have a tight contract, and will most certainly have developed contingency plans before launching any cases against Samsung. I think the only thing technophiles can hope for is speedy judgement that reflects the original intent of patent law (i.e. a quick win for Samsung). A large judgement against the plaintiff would certainly send a message about frivolous and consumer-unfriendly actions such as the ones Apple has taken.

    I'm waiting for Apple to buy the 'Apple Isle' (Tasmania). In the current economic climate, Joolia would sell it I reckon.

    ...and I have an iphone4. I recently gave up upgrading my PC all the time to play the latest games and prefer my PS3 cause it works everytime. Same for my phone. I couldn't care less that there is bigger, better, faster, higher, longer, smaller yada, yada, yada. Its a phone, it works well. If anyone says their phone is better than the one you currently own, chances are in 5secs a better phone will be on the market. If you like upgrading - upgrade. If you don't, stick with what you're happy with.

      Agree 100%
      Apple aren't perfect, neither are htc or google and samsung make some of the most poorly built products on the market.
      Seems the apple haters have a much more obnoxious voice than the fanboys these days.

    erm.. i believe the touchscreen/display is manufactured by LG (in the picture it says unknown manufacturers).

    whats not said is they definitely have second sources...

    Samsung should definitely raise prices, or completely stop selling parts to apple. Apple doesn't deserve such a great service and so low prices, when they sell the "phone" with a ripoff price!!

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