The South Korean tech giant, Samsung (SSNLF, Financial), is most probably joining hands with its worst rival in the smartphone arena, Apple (AAPL, Financial) and this duo would manufacture chipsets for the Apple’s upcoming iPhone. This move represents a sweet relationship cropping up between the once known biggest rivals in the smartphone world. In fact, this collaboration would put the fortunes of several other chip-making companies such as Qualcomm (QCOM, Financial) and SanDisk (SNDK, Financial) into danger which were working with the Cupertino-based technological leader Apple to date with respect to its smartphone components. Let’s take a peek and find out how this collaboration could benefit both the rivals in the long run.
Samsung on the mission of improving its bottom line
The South Korean company has been facing intense competition from Apple’s iPhone series in the smartphone segment and hence the operating profit from that division has dipped over 37% from 60% by the end of 2014. However, the semiconductor business has aided in offsetting the decline in smartphone segment and the operating profit in the chip making business line has grown more than 50% in the year 2014.
It is to be noted that, as per research firm Gartner, Apple and Samsung make about 17% of the global purchases of semiconductor chips. So, now the collaboration would be advantageous to Samsung as it could easily supercede its rivals in the semiconductor manufacturing space. To date, SanDisk chips were being used in several of Apple’s phone series, but now it seems that the former has lost a platinum client. Maybe that’s why SanDisk has reduced its guidance for the entire fiscal year recently when it reported its first quarter earnings.
However, Samsung reported growth in most of its operating business segments on April 29 when it reported its first quarter earnings. As per a Bloomberg report, Samsung will be making the A9 processor chip for Apple’s next iPhone, besides making displays for other products of Apple. Samsung has already disclosed information regarding its $14 billion budget for new plants and equipment that would help in concentrating on its core chip making business.
In fact, Samsung has been bagging more orders for making chipsets which has been making up for the declining profits it has been encountering in the smartphone business. And now, Samsung is no longer collaborating with peers for manufacturing components of its smartphones. It’s making them itself, and that is well reflected through the recent Galaxy S6 and S6 Edge it released in the month of April this year.
Now, even if this collaboration with Apple on semiconductor chip production takes final shape, the South Korean manufacturer will still remain Apple’s chief rival in the smartphone space.
Apple-winning from all corners
As Samsung would win to its immediate rivals after the collaboration, Apple too is venturing ahead to create a tie-up with the best chip-making giant and this would aid the latter to gain access to the world’s most refined chip-making operations.
This could aid the smartphone leader to reinforce its stand in that segment since both Apple and Samsung combined account for about 40% in the global smartphone market in terms of units as per information shared by IDC.
Conclusion
If the collaboration of Samsung and Apple finally bears fruit, it would make the rivals come closer and earn profits from such a joint effort though in different spheres. For Samsung it would mean creating a niche in the chip making space, while for Apple it would aid in pulling up the iPhone sales further in the coming quarters.
