Are Samsung, Apple getting closer?

Kwon Oh-hyun, president of Samsung’s semiconductor division

By Kim Yoo-chul

Samsung Electronics is seemingly poised to quadruple the shipment of its advanced mobile processor chips to its most outstanding partner and rival in the United States ― Apple.

Analysts point out that the measure may herald the era of full-fledged cooperation between the two giants after two years of estranged relations in the midst of smartphone competition.

Apple stopped buying application processors (APs), the equivalent of central processing units (CPU) for mobile handsets, from Samsung in 2008 in line with its strategy of creating custom chips for

Steve Jobs Apple CEO

gadgets such as the iPhone or the iPad.

Along the same lines, Apple acquired Intrinsity, known for manufacturing zippy versions of a computer chip geared toward mobile gizmos.

Samsung would not be happy with that step.

Yet, the latest deal between the two competitors is expected to benefit both in line with the explosive growth of the non-memory processor chip businesses thanks to the smartphone and tablet PC frenzies.

The only detail known appear to be the most crucial one ― the values of the contract.

"Samsung has agreed with Apple to quadruple monthly shipments of its mobile AP chips to 20,000 sheets throughout this year from 5,000 last year," said an industry source, citing Samsung’s suppliers as the source, Wednesday.

This means that Samsung will offer 50 percent of its AP capacity to Apple for 2011, which would be more than the supply for its own products such as Galaxy S and Galaxy Tab, according to the executive.

Another industry executive came up with the same story.

"Samsung aims to chalk up multiple effects through the sales. For one, it will be able to strengthen its non-memory business by shipping fast and low-power chips to Apple. That’s a very fine-tuned strategy," he said.

Samsung is producing mobile APs from its line in Giheung, on the outskirts of Seoul, by applying an advanced 45-nanometer processing technology. Samsung churns out 40,000 sheets on a monthly basis.

In an apparent scheme to ship more of its mobile processors to Apple, Samsung is building a $3.6 billion chip plant mainly to produce non-memory chips in Austin, Texas, according to Samsung officials.

When contacted, a Samsung spokesman Kim Se-hun declined to confirm this as it's the corporate policy not to comment on key issues that involve its clients.

"That's also a major blow to local medium-sized tablet PC makers as Apple is more profitable and lucrative for Samsung," said the anonymous executive.

AP is the electronic brain for most value-added consumer devices such as smartphones. The function of the non-memory chip is quite comparable to the CPU in PCs.

While the conventional DRAM and NAND flash memory chips are just used to read, write and store data, the AP enables it to control the entire operating system.

Heavy bets on non-memory

The boom for ``smart’’ devices is urging Samsung to boost its non-memory processor chips, thus making the firm follow in the steps of Texas Instruments, Qualcomm and Broadcom.

To find massive ``turning points’’ for the sustainability of its chip-making business, Samsung is going to open its purse strings as it plans some big acquisitions in the sector.

Samsung has been known to be trying to take over Infineon’s wireless chip unit. Despite sitting on a big cash pile, it hasn’t managed to buy any entity yet.

Samsung officials say the recent expansion of its foundry business also reflects its strategy of having the infrastructure to turn out high-volume non-memory chips.

Sources told The Korea Times that Samsung already started producing custom chips to Texas Instruments, another major deal to switch its chip focus toward non-memories, though Samsung’s Kim declined to comment.

``I am not satisfied with Samsung’s second-tier position in the foundry business. Capitalizing on high-end image sensors and mobile APs, Samsung will do more,’’ Samsung’s semiconductor division head Kwon Oh-hyun said.

Samsung plans to use 4 trillion won ($3.6 billion) for its non-memory chip business from its 10.3 trillion won investment budget for the semiconductor sector this year.

Samsung is the world’s top vendor in memory chip sector including DRAMs and NAND flashes, however, it is the second biggest semiconductor maker in the entire chip sector after Intel of the United States.