Samsung Will Be Apple’s Top Supplier For iPhones Again In 2017

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Samsung

Samsung was Apple’s main supplier for the iPhones from the very beginning, making the A-series processors and supplying both NAND flash and DRAM memory chips. But Samsung started to supply less components to Apple since 2011, coincidentally when Apple sued Samsung for patent infringement. The South Korean company now only supplied DRAM chips for the iPhone 7, according to a teardown by iFixit.

But that trial is finally wrapping up, with the U.S. Supreme Court ruling in favor with the South Korean company last week, just when Samsung is set to be iPhone’s main supplier once again next year.

Some of the most expensive components of an iPhone are the display panel and memory chips (both NAND flash and DRAM combined). In the iPhone 7 (32GB), these components together are worth over a quarter of the total bill of materials ($219.80), according to data from IHS Markit. Reports say Samsung will provide OLED display panels for at least one of the next iPhones, as well as NAND flash memory chips again. Adding DRAM chips into the mix will make Samsung the main supplier out of hundreds of companies.

OLED display

Apple will finally adopt OLED panels next year to have an iPhone with a curved screen (most likely for the 10th anniversary version), and Samsung will be the sole supplier, Bloomberg reported last month. Not that Apple had much of a choice. The Korean tech giant dominates the market.

“Currently in flexible OLED market, Samsung is the only company to mass produce and to stand in No. 1 position in both OLED smartphone and OLED panel markets,” according to Jeff Kim and Kevin Kim, analysts at Hyundai Securities.

Memory chips

Samsung is the largest supplier of NAND flash memory chips, with more than a third of the global market share. With so much business, Samsung was able to afford to pass on Apple’s demands in prior years, which was to use electromagnetic interference shielding technology, reported ETNews. That would cost Samsung more money to make, and left SK Hynix and Toshiba to step in.

Now Samsung needs a big buyer—like Apple—to make full use of its new semiconductor facility. In 2014, Samsung poured 15.6 trillion won ($14.7 billion) into a new chip plant in South Korea, the largest investment for a single plant by the tech giant.

The new plant will start operations next year, and ETNews has reported Samsung will once again supply NAND flash memory chips to Apple.

But again, the California-based company couldn’t really avoid Samsung. The iPhone maker sources from multiple suppliers and it’s difficult not to use the largest supplier of NAND flash memory chips.

Apple also won’t be able to circumvent using Samsung’s DRAM memory chips, as it commands about 60% of the mobile DRAM market.

A-series chips

Contract chip manufacturing is really the only area where Samsung faces competition, due to Taiwanese foundry TSMC.

Both Samsung and TSMC made Apple’s A9 chips for last year’s iPhone 6 smartphones, but the Taiwanese company won an exclusive contract for A10 chips for the iPhone 7. It’s expected to continue to be the sole supplier for A11 chips used in next year’s iPhones.

TSMC’s advantage comes from its integrated fan-out packaging technology, which the company said have led to improvements in both speed and packaging thickness, as well as thermal performance. The improvement will help TSMC continue to secure Apple’s business, says Len Jelinek, senior director of semiconductor manufacturing at IHS Markit. “The package in design along with an optimized chip design provides Apple a SoC performance advantage as well as a physical advantage in board assembly,” he says.

But this loss hasn’t left Samsung too disappointed. This year, it produced flagship chips for Qualcomm, the other big chip buyer, and will do the same in 2017.

Back-scratching

Samsung is a vertically integrated electronics company and its advantage comes from the synergy of handsets and components. It has huge facilities that make more components than its own smartphones for economies of scale, and needs big component buyers like Apple.

Apple depends on multiple sources, but it also needs a reliable supplier who can make high quality components at large quantities like Samsung.

At the end of the day, despite the rivalry and legal battles, the top two smartphone makers need each other.

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