Moving from love-hate to hate-hate

Apple gets serious about reducing Samsung reliance on smartphone chips

By Kim Yoo-chul

Samsung Electronics and Apple have been technology’s oddest bedfellows: bitter foes in finished products but indispensible as friends in parts like chips and screens.

But with Apple moving quickly to reduce its reliance on Samsung’s semiconductor capability amid an intensifying intellectual property dispute between the companies in smartphones and tablets, the relationship is now about to become one-dimensional.

According to industry sources, Apple has not collaborated with Samsung in the process to develop its A6 microprocessor used in its latest iPhone 5. Samsung has handled the manufacturing of the processors used in previous iPhones and believed to have contributed in their design to some degree.

Apple is still relying on the Korean firm to manufacture its chips but has made it clear it will no longer use its rival’s technology, according to a senior Samsung official.

``Samsung’s agreement with Apple is limited to manufacturing the A6 processors. Apple did all the design and we are just producing the chips on a foundry basis,’’ he said on the sidelines of a technology fair at KINTEX in Goyang, Gyeonggi Province.

This confirms that the wedge between the technology giants has been driven deeper than it looked from the outside. Both companies have been bringing lawsuits against each other around the globe since the American firm accused its Korean competitor of copying the look and feel of its iPhones and iPads early last year when launching its own smartphones and touch-screen tablets.

Park Hyun, a senior analyst at Tongyang Securities, believes Samsung’s souring relationship with Apple could have a significant business effect.

``It appears that Samsung is losing its multibillion dollar partnership as Apple has been its biggest parts client,’’ Park said.

Since the early 2000s, Samsung has been involved in designing of Apple’s A-range of chips as the main manufacturer. Samsung technologies contributed in the development of the A6 predecessors A5 and A5X, thanks to a broad agreement between the two companies. It now appears that the structure of the deal has been dramatically adjusted.

``There are three kinds of chip clients. Some want us to handle everything from chip design, architecture and manufacturing. Some want us to just design and manufacture. Some want us to just make the chips. Apple is now the third type,’’ said the Samsung source.

A hint of the rift between the firms over chips came last week when one of Samsung’s top semiconductor designers, Jim Mergard, moved to Apple. Mergard is known for his skills and experience in advanced application processors and low-power chips for mobile devices.

``The high-profile hiring of someone like Mergard directly from a big rival no doubt increases mutual tension. Apple wants to internalize its management, even for application processors, and to lower its dependency on Samsung for those logic chips,’’ said the source.

Samsung did manage to earn a larger paycheck from Apple for manufacturing the A6 than the previous processors. After all, it is probably the only semiconductor in the world that can do the heavy work for Apple in terms of making a large volume of high quality chips over a short period of time.

Apple’s last big investment in chips was in early 2010 with the acquisition of Texas-based Intrinsity. Before that it was the 2008 purchase of chip design firm P.A. Semi.

Apple recently signed a deal with Taiwan Semiconductor Manufacturing (TSMC) for the production of quad-core processors for future devices and it remains to be seen whether the Taiwanese chipmaker will eventually fill Samsung’s shoes.

A report from Barclays claimed TSMC will start producing Apple’s A7 processors from the first quarter of 2014 and stressed hundreds of TSMC researchers and chip developers are currently set to produce processors that are free from Samsung patents.

``Samsung has already acknowledged that Apple has an appetite to carry out its own central processing unit (CPU) design,’’ said another Samsung official familiar with the matter.

``Apple is threatened by Samsung’s rapid rise. Apple is excluding it from major projects. However, it can’t completely wipe Samsung from its business partner list,’’ he said, adding the U.S. firm is asking Samsung to provide more flash-type memory chips.

As the patent war deepens, the two companies have seen a faster deterioration of their business partnership. Apple has already reduced its memory chip orders from Samsung for the iPhone 5 as it intends to widen its supply chain.

Unlike memory chips, which just read and write data, application processors control an entire computing system, therefore processor chips are more profitable.

Samsung has been providing logic chips to Qualcomm, Nvidia and Texas Instruments. While the wafer allocation to those companies is increasing, Samsung is being asked to increase its foundry volumes and to build additional logic chip lines to better prepare for Apple’s departure.

``Although Apple has excluded Samsung from key projects, we’re not too worried as Samsung is selling more custom chips to other major companies such as Qualcomm and Nvidia,’’ said the official.

Samsung spokesman Ken Noh and Apple spokesman Steve Park refused to provide any comments for this story.