Android Central

Sources are claiming that Samsung has cranked up the price of application processors for iPad and iPhone devices by 20%. According to the Wall Street Journal, Apple rejected the price change, but after being unable to find anyone else that could fill the order, they accepted the hike. Just to put atht in perspective - Samsung's shipment of processor is expected to be going up to 200 million this year from 130 million last year. 

While Samsung is big enough that their chips business operates more or less independently of the handset side, it's hard not to see that as a direct result of Apple's ongoing smartphone patent tiffs with the electronics giant. Most recently, Apple has been skirting the issue of posting a public apology in the UK for claiming that Samsung devices had copied their design, and have ultimately been ordered to pay Samsung's legal fees

So, is a move like this fair game? is Samsung shooting themselves in the foot by estranging a high-volume customer, or a natural repercussion of Apple being so antagonistic in courts? Is there any chance that the increased price in application processors has nothing to do with what's happening on the legal side at all? What are the odds that Apple will be able to pick up the slack on these processors themselves eventually? 

Source: WSJ

 
There are 56 comments

robotaholic says:

I would have raised prices by 10,000% and required no further litigation from Apple. lol

You have to pay to remain in the tech game. Yeah they have legal issues but that's because apple woke up and realized that Samsung has been kicking their tail left and right for 2years now. If I was running Samsung apple would be paying much more that's for sure.

squiddy20 says:

1. It's a d*mn good thing you don't run Samsung then. Under your "astute" ruling, Samsung would quickly go under due to your biased, uneducated thought process and irrationality. I mean, you are the guy that goes around calling *all* iPhone users "uneducated simpleton's", when the fact is there are tons of really smart people out there who chose to use an iPhone.
2. If Samsung really were "kicking [Apple's] tail left and right", then why was Samsung slapped with a 1.05 BILLION dollar fine just a few months ago? Proof that you have no clue what you're talking about right there. Just another blind, biased fanboy.

mhmmdy123 says:

I think you`re the one has clue, the $1.05BLN, not final yet,there is another hearing for this case,it`s far from over yet. But,did yo read the UK cort rulling against Apple?

Magnus#AC says:

"when the fact is there are tons of really smart people out there who chose to use an iPhone" Show me one smart person who used an iPhone... I thought so

mwara244 says:

iPhones and All Apple Products are so Bad, that the US Government banned the use of them for government use. Apple product don't meet part of the criteria for government use being that thy use and are made of highly toxic materials and also can not be recycled. If an Apple product was to be opened warnings state that breathing in anything could be dangerous to people.

So yes, intelligent people would not use Apple products.

1. I'm not going to say that there aren't plenty of smart people using iPhones. I know there are. Even the most intelligent people can fall prey to the great marketing of Apple. iPhone's have their name brand reputation just as many clothing brands. People buy the name more so than the product. That's not to say that Apple doesn't make quality products. They do. Superior products, though? No. Just different and vastly more simple which appeals to many people. However, when it comes to innovation, they are far behind the rest of the industry. Constantly playing catch up with features other companies have for years before Apple.

2. Your statement about the 1.05 billion is borderline idiotic. That ruling has nothing to do with who is kicking who tail. The reason Samsung was on the losing side of that is because Judge Koh was obviously biased in that case and my concern is that the U.S. courts in general will remain biased in favor of Apple since it's a (semi) American company. Almost every other court system in the entire world rules in favor of Samsung because they recognize that no infringement is taking place. Apple just hates competition. They don't like the idea of being second best. Considering they seem to be totally incapable of creating anything new and innovative, their only option is litigation.

For the record, yes I am a Google/Android fanboy. However, I am an informed one. I always keep my statements fact based and unbiased even if I am a fan of Google. I give credit to all companies doing anything worth while. I'll rip any company just the same (including Google) that does things I don't agree with.

npco543 says:

Has anyone noticed the number here? If the processors are $35, 20% of that is an extra $7. $7 multiplied by the 200 million chips Apple reportedly purchased this year turns out to be.... $1.4 billion, which is conspicuously close to what Apple was awarded in their law suit against Samsung.

Let's hope the judgment is overturned so Apple doesn't get that billion AND ends up paying Samsung an additional billion for chips.

HAAS599 says:

I love the questions you always ask in your posts. I just wish you would throw in a "What's 2+2?" once in awhile so I could give you an answer.

Isn't apple starting to make their own chips now to be less reliant on Samsung?

Ry says:

They design their own processors but don't have the resources to mass produce it. Look up fabless manufacturing.

In case apple and Samsung cut relations, what other options does apple have? Does anyone else make semiconductors?

Ry says:

They probably have other options. Those other options probably don't have the scale that Samsung has though.

deltatux says:

TSMC, GlobalFoundries (formerly AMD's foundries and Chartered Semiconductor), Texas Instruments (via the National Semiconductor purchase), Intel and IBM are the other remaining big names for chip fabrication.

Intel less so, since they rarely open up their foundries to others. Likely if Apple contracts it out it will be either GlobalFoundries or TSMC as they are the largest contractors for chip fabrication.

icebike says:

Lots of smaller manufacturers out there, but none who can satisfy the volume or the quality that Apple demands. Starting up their own fab would be dramatically more expensive than a twenty percent price increase in a 35 dollar part.

Given the huge profit margin Apple has in their handset, (and the pride their fanboys take in over paying for mediocre phone), I suspect Apple will simply pass the cost on to the customer.

As soon as the contract for screen components expires you will see more of the same type of price increases.

In spite of how apple likes to spin this to the lapdog press, they have been getting preferential price treatment for years, and this just brings things back in line with what other handset manufacturers are paying.

BaMaDuDe87 says:

So they stole Sammy's lead chip designer, but still can't cut ties with them. Hahaha good move Apple

cguella says:

Let me get things started the right way... F Apple

BaMaDuDe87 says:

I thought Apple came out and said they were heading away from Sammy for their processors?

icebike says:

Posturing.
Apple has few choices, and no clue how to do that themselves.
Intel is the only source large enough to meet their needs.

reidoreilly says:

and some people are saying they want to move away from intel now(which would be dumb). Basically they are just making everyone mad, and no ones going to want to play with them anymore.

rengek says:

lol, they desperately wants to but they can't because nobody else on this planet has samsung's capacity. Apple was hoping to divert most of the work to sharp and lg but both are producing low yield on parts. Sharp has their own problems as the company is near bankruptcy. Their stock is now junk status.

Because of these and many other issues, apple has had a severe supply issue which is partly causing their stock price to drop.

"An anonymous source has claimed.."

That would be Apple then. Trying to turn the tide of everyone thinking they are the bad guys.

Must try harder...

It sounds like Samsung adjusted for real (not official) inflation post election. Especially if Apple was "unable to find anyone else that could fill the order" cheaper than Samsung. That is very strong evidence Samsung's new price reflects a fair market value for their chips. If only they would make some crisps for the UK.

benthe1 says:

This is the most informed and best post so far. Thumbs up.

charles_dent says:

Apple wants to ditch Samsung in favour of its in-house solution so Samsung decided to be opportunistic and make money off them while they could.

NavyVet420 says:

Big Fruity has brought these higher prices on themselves. They have lost almost every major case outside of the United States. Big Fruity only litigates when they have failed to innovate. I see nothing that big fruity is doing that is so leaps and bounds ahead of anyone. Outside of the imaxipad, nothing they do anymore gives anyone the WOW feeling.

Big Fruity will lose its case on appeal in Cali due to the foremans misconduct. Big fruity has nothing left to offer its customers.

@ androidpensour, yes, but they are years away from full production. I think they have moved the chip making process to Texass. But that begs the question, Why make them in America, then ship overseas? Why not move the entire operation to America if Big Fruity is truly an American company.

Oh wait, Big Fruity is nothing but a glorified design firm. They actually produce nothing but paperwork for the courts.

kjdroid007 says:

It just seems like the cost of doing business to me. If Apple wants the processors then they will have to pay the price Samsung sets. Everyone else has to do it.

benthe1 says:

Yeah. Samsung is definitely NOT shooting themselves in the foot on this one. They could have raised their prices even more because they're basically the only have in town with the size of production they have.

benthe1 says:

Yeah. Samsung is definitely NOT shooting themselves in the foot on this one. They could have raised their prices even more because they're basically the only have in town with the size of production they have.

robotaholic says:

Apparently Samsung still makes screens and processors for Apple...and they have contracts for years to come. I bet Samsung makes more money from Apple selling iPhones and iPads than Apple makes from Samsung licencing deals on Galaxy devices. :)

ScottColbert says:

That's the main reason Apple bailed out Sharp-to have them make their screens.

tx_tuff says:

Of course when a company takes a hit on the pocket book they will always pass on the cost. This will not just be added to Apple's bill but will even come all the way down to the consumer also. Same with all big companies.

rengek says:

Thats why there is an ipad mini. Use old parts sitting in warehouses doing nothing to make a new product of the same old thing. iSheeps will buy it.

icebike says:

There are other reports of Apple looking around for other fabs to make processors for them over the last year , so they had to have known this was the likely result. I imagine the minute their contract came up for renewal the price went up.

Its perfectly reasonable, since Samsung's total cost of operation has increased, they have to recover that from increased prices. Ignoring the fiction of "independent business units" a corporate entity has to cover it's costs.

Since Apple was already getting volume discounts way better than any other handset manufacturer this is more a leveling of the playing field than anything else.

Samsung could lose ALL of Apple's business and recoup it in less than a year due to the growth in the handset market. They have some of the best processor fabs in the world.
I've stated before on AC that Apple needs Samsung more than Samsung needs Apple, and this just proves the point.

TenshiNo says:

Exactly true, Ice. I'm sure Apple's been shopping around, but it's not really surprising that they couldn't find another company with the production facilities to be able to meet their demand with quality output. Sammy's been making chips a *long* time, and they supply a *lot* of parts to a *lot* of companies.

I really kinda doubt this is caused entirely by the lawsuits, but I can't imagine they put Samsung in a very charitable mood when it came to contract re-negotiation.

Mobius360 says:

Things like this in manufacturing are planned out way ahead of time.

Just as the article states Apple rejected the price hike. We do it all the time at my work too. It's part of negotiations in the manufacturing world. In the end Apple couldn't find anything better than Samsung's bid. Samsung certainly isn't going to throw away business from a company like Apple, who surely has the funds to pay their bills on time. These things are much bigger than the fact they make cell phones that compete against each other.

tourberry says:

Apparently "Don't bite the hand that feeds you" is not a phrase Apple execs and lawyers are familiar with....and now they're paying for it...literally.

MrHatchi87 says:

Seems that Apple is the annoying neighborhood kid who never shares their toys and is always grabbing at all the other kids toys... Smart move Samsung

dcreed says:

Dear Apple,

Please note the new Asshole Surcharge added to your bill.

Sincerely, Samsung

Wow. You kiss your momma with that mouth?

hmmm says:

With rumors that Apple is designing their own processors and the fact that they even hired one of Samsung's processor people this is a smart move. Apple will probably go their own way soon so why not make a little extra money from it.

movielover76 says:

I've thought they should be doing this for a long time now.
Serves them right.

alila2 says:

So basically Apple is paying themselves the billion $ that Samsung own them, from their own pocket . hehehehe , well played Samsung , well played.

overfloater says:

"is Samsung shooting themselves in the foot by estranging a high-volume customer"

Is Apple shooting themselves in the foot by suing a high-volume supplier?

Swings and roundabouts.

MrJazz says:

Apple "rejected" the price change? Without a Plan B, this is arrogance to the ninth.

It's not as though Apple would allow it to affect their margins...

BaMaDuDe87 says:

I think Samsung needs to come out with a phone that has a single button on the "top" of the phone and a camera on the "bottom" and the screen can auto rotate :) Just to see the Apple explode

Rockafella says:

Apple tried to bite the hand that was feeding it and got slapped. I'm glad Samsung raised the prices on them. Apple continues to try and sue Samsung in the meanwhile while Samsung is trying to meet apples needs. Apple took money from Samsung so Samsung will get apple where it hurts and make the money back in no time. Samsung knows they have an advantage over apple and are taking advantage.

carraser891 says:

Good. Make it 99% tho

m1n3 says:

I don't think it's really related to all the legal thing. Maybe just think that it's been awhile that apple keep squezing their supplier profit. It happened with samsung display division too right?

Biga173rd says:

Apple wants to sue them for everything but rely on them for parts. Freak that triple charge those non innovators Apple sucks!!!

MarqBland says:

If Samsung ever gets hauled into court over this, I'd LOVE for their lawyers to argue that the price increase was due to the increase in the cost of developing the processors since the company had to pay $1 billion. Essentially, the cost of producing products increased, therefore the cost had to be passed on to customers. Lol!

Ry says:

..yeah. That argument would certainly lead to a Samsung win. ....

PhishyKris says:

Samsung is a matter of Korean national pride. Apple isn't just screwing with Sammy, the are screwing with South Korea and likely pissing off other manu partners over there.

Lolo Lloyd says:

Let's see Apple could try & duplicate Samsung's quality parts, but they have no place to do that in quantity, they could try & use Samsungs technology, but maybe that would lead to a new lawsuit or any other combination of possiblities that lead to problems. I would say gotcha Apple! You better think of going a different way with this one, like a peace treaty, the Job's method is not gonna work. Way to go Samsung.

yzf600 says:

You can't just take the chip design to a competitor and have them make it in short order. Silicon foundries don't work like that. The A5/6 processors are custom built to Samsung's 32nm technology. It would take at LEAST 12 months to make an A5/6 in any other fab. Probably 18 months is more realistic.

Also note here that Apple has a history with Samsung and their silicon technology. All Apple mobile devices, back to the original iPhone, have their main SoC fabbed with Samsumg tech. Going to another fab has risks that power or performance will be different since it's a different fab.

Samsung is making a bet here. They want to make more money from Apple and they are fairly confident that Apple will have to pay up. Assuming the cost hike is soon on current chips, Samsung knows they will have 20% extra profit for at least 12 months. That's a lot of revenue at the rate Apple is selling devices.

This is what happens when you single source a part. You put yourself at the mercy of your silicon vendor. Unfortunately, this is the catch 22 of ASIC/SoC. You can't dual source such a custom part. Some companies place projects out on the fab market for "pre-construction" bids in order to keep prices in check.

JFRANEY01 says:

This was one of the first things I thought about when this all started between Apple and Samsung.

I really feel Apple would have to slow down product launches if they want to switch to making all of their own chips...Samsung's manufacturing is on a broader scale than Apple's.