

IPhone 5 Chip Overloads Samsung Production Capacity - ericmsimons
http://www.infosyncworld.com/reviews/cell-phones/iphone-5-chip-overloads-production-capacity/11746.html

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nonane
Wow - talk about conflict of interest. So - Samsung knows the exact cpu specs
for Apple's next gen iOS devices WHILE they're trying to compete with Apple on
the Android platform with the Galaxy series.

I wonder how the Apple execs feel about this - it should make them a little
uncomfortable knowing that their production line depends on a distributor who
has a vested interest in a competing platform.

On the other hand, my impression is that Samsung is in the business of selling
hardware for a profit. To them, it doesn't matter if they sell more hardware
in the form of Galaxies or iPhones - as long as they're pushing out
cpus/memory/lcds they don't care where it goes.

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peregrine
Samsung knows better then to breach a contract with someone like Apple.
Especially when they are building $3 billion factory to support it. Also I am
sure the division that designs phones is separate, contractually, from the
division that designs/manufactures chips.

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nonane
That makes sense.

It all roses for Samsung - they have their hands in both pots.

~~~
nonane
Some facts using Samasung's Q42010 earnings release:
[http://www.samsung.com/us/aboutsamsung/ir/ireventpresentatio...](http://www.samsung.com/us/aboutsamsung/ir/ireventpresentations/earningsrelease/downloads/2010/20110128_conference_eng_2.pdf)

1) In terms of their revenues, their telecom business is now bigger than their
semiconductor business, though from a profit perspective the semiconductor
business is about 30% bigger.

2) Year-on-Year growth is slightly higher in the telecom division.

3) Telecom division expects higher than market growth rate mostly fueled by
smartphone sets.

4) Telecom has mainly seen very strong growth in their 'strategic' handset
models - 40% growth over previous years. Their strategic models are all
Android based (5 models in total). Their telecom division is relying on newer
revs of these models to drive higher than market returns in 2011.

My (very simplistic) reading of this: Apple needs to diversify away from
Samsung and create more options (duh). If the Galaxy series turns out to do
better than expected next year, it gives Samsung more leverage to raise prices
/ cut production quotas on Apple's chips.

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jmtulloss
Every smartphone company wants to diversify away from Samsung, it's never in
your interest to be tied to a single supplier. The big problem with this:
Samsung is the best. By far. Until their competitors catch up, they're the
only reliable game in town.

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rabidsnail
Why hasn't Apple built a fab yet? Do they still not produce enough iphones to
be able to use the full capacity of a major chip fab (it would need to be
major because they need to produce chips at high yield at 45nm)? Another
company in Apple's position might build a fab and farm the extra capacity out
to other companies, but that seems to go against Apple's dna. Still, I think
it would make sense to pay some premium for the security of being sure their
chip supplier won't decide to stop supplying them with chips.

~~~
jacques_chester
1\. Fab-building is a nightmarishly expensive proposition, and worse, you need
to keep on building them to keep up. I think that's a treadmill that Apple are
happy to leave to their suppliers (Intel, TMSC, Samsung et al).

2\. Intel might decide not to be such a good friend if Apple get into
fabrication.

~~~
rabidsnail
>> 1\. Fab-building is a nightmarishly expensive proposition, and worse, you
need to keep on building them to keep up. I think that's a treadmill that
Apple are happy to leave to their suppliers (Intel, TMSC, Samsung et al).

Apple has the money, and if they can use the capacity the marginal cost of
production should be lower for them, since there's not a third party taking a
cut. Apple's also paying for the treadmill-running through their suppliers
(unless they're getting chips at a loss, which I doubt). This is assuming
Apple's internal demand is high enough to use the capacity of a whole fab.

>>2\. Intel might decide not to be such a good friend if Apple get into
fabrication.

If that's the case then Apple can threaten to tell on them. Intel has been
down that road before, and I don't think they want to go there again. Also I
think that, in the long term, Apple is trying to move away from Intel.

~~~
jacques_chester
> Apple's also paying for the treadmill-running through their suppliers
> (unless they're getting chips at a loss, which I doubt).

Yes, but Apple does not bear _the entire economic cost_ of the treadmill, only
a portion of it. The rest is borne by other customers of Intel, TMSC, Samsung
and the like.

The fact is that Apple can almost certainly get a better deal from being
fabless than trying to vertically integrate a cost centre that will be as
large as their entire current cash flow. That's the beauty of gains from
trade.

> Also I think that, in the long term, Apple is trying to move away from
> Intel.

Maybe. Maybe not. They moved to Intel in the first place because IBM weren't
interested in their business any more. The fab runs for Macs were too small
and Apple wasn't enjoying the economies of scale that Intel could offer
because it sells chips to many companies.

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hop
Interesting they are building the chip fab in Austin - maybe they will be
moving more manufacturing to the US. Must be more convenient too since Apple
is designing the silicon.

Edit: Silicon, not livestrong bracelet material.

~~~
rabidsnail
I'm sorry, but I can't help myself. It's silicon. Silicone is a kind of
synthetic rubber.

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flashgordon
Hardly surprising. But aside from Apple paying bucket loads (I dont have a
reasonable guess at this number but I am assuming a fair amount will go
towards the 3.6Bn to build the new plant?) to Samsung for getting access to
their production facilities, doesnt this offer by samsung effectively go
against its own mobile plans? Or would samsung's reason be that Apple will get
its production scale somehow/somewhere so it might as well be them?

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thinkbohemian
Any clue where they're getting their info on the Austin, Tx plant? (I live in
ATX)

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tpearson
They're probably talking about the expansion of Samsung's Austin fab.
[http://www.prnewswire.com/news-releases/samsung-austin-
semic...](http://www.prnewswire.com/news-releases/samsung-austin-
semiconductor-begins-36b-expansion-for-advanced-logic-chips-95960189.html)

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jacques_chester
I didn't see any hard evidence. "Rumoured that", "leaks from sources" and
"hinted" do not add up to the emphatic headline. But I guess we're talking
about Apple rumours here: anything goes.

Anyhow, no such discussion can go without the obligatory posting of a link to
the Apple Product Cycle: <http://www.misterbg.org/AppleProductCycle/>

