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Samsung and Apple, the world's top two phone manufacturers are locked in a court battle that's threatening their supplier-client relationship.  (Source: Into Mobile/AP)

Ultimately Samsung's device business -- whose revenue grew 500 percent last quarter -- is more valuable to it then its fast-growing (but not THAT fast growing) supplier business.
Analysts suggests Apple's customers may hardly notice the difference, even if they're paying more

Even as Samsung Electronics Comp., Ltd.'s (SEO 005930) legal woes [1][2][3][4][5] regarding Apple, Inc.'s (AAPL) campaign of lawsuits and trade court complaints continue, it faces a perhaps more serious crisis in the form of an eroding supply relationship with its legal rival.  Samsung currently "has its cake and eats it too", enjoying a position in that it's the world's second largest phone manufacturer, and at the same time drawing a great deal of revenue from the world's largest phone manufacturer, Apple, whom it supplies NAND flash memory.  But that comfortable situation for Samsung could be coming to an end.

I. Apple Expected to Dump Samsung

Nho Geun-chang, an analyst at HMC Investment Securities tells Reuters in an interview, "Samsung's tablet business will be most affected and its chip business will also take a hit as Apple moves to diversify away from Samsung to the likes of Toshiba. For Samsung, (the) biggest concern is reduced order from Apple. Without Apple's big backing, it would be difficult for Samsung to boost its chip market share sharply."

Mr. Geun-chang suggests that while the chips from rival suppliers will likely be slightly inferior in reliability, power performance, and other metrics, and may increase device costs, Apple's unquestioningly loyal customer will hardly notice the difference.  He comments, "Apple is leveraging the fact that it's got alternative suppliers. They may offer inferior or more expensive components but it's something consumers barely notice and something Apple can successfully use to pressure Samsung."

II. Device Business is More Lucrative for Samsung

The battle against Apple may prove painful, given the slow death of its lucrative supply contract, but it's one that Samsung must commit to, according to Mr. Geun-Chang.

Samsung's supplier contracts to Apple in calendar Q1 2011 constituted 5.8 percent of its revenue, up from 4 percent ($5.7B USD) a year prior.  But its devices business is too valuable to sacrifice even for the lucrative supply contract -- device sales will soon constitute over half of the company's revenue, according to analysts.  States Mr. Geun-chang, "[T]aking passive steps for fear of losing its biggest customer will slow down strong growth momentum at its telecoms business, which Samsung doesn't want to see as the business is set to become the biggest earnings generator this year and make up for weakening chip profits. It'll be a costly battle for Samsung."

Some say the lawsuit campaign could hurt Apple more than Samsung.  Aside from possible quality and price issues with a supplier switch, Apple may be creating the perception that Samsung is the best of the competition.  States Choi Do-youn, an analyst at LIG Investment & Securities, "These legal battles are raising perception among consumers that Samsung is the only one capable of competing against Apple."

There's some truth in that belief.  Samsung is by far the top Android phone manufacturer and holds a huge lead in tablet sales over other Android manufacturers.  In the tablet sector it's the only company to be currently giving serious chase to Apple, selling 7.5 million tablets in H1 2011, compared with Apple's 14 million.

On the smart phone side Samsung's diversified approach is paying even greater dividends.  The company's broad lineup, which includes the best-selling Galaxy family of smart phones
, posted 500 percent growth in Q2 2011, compared to an impressive, but lesser 142 percent growth by Apple.  Some expect Samsung to dethrone Apple's brief reign atop global smart phone sales (by manufacturer) when the Q3 2011 numbers come out next month.

Samsung and Apple are now suing each other in at least 23 lawsuits or trade complaints in 10 different countries.  One key trade complaint will be Apple's request to ban sales of Samsung's tablets and smart phones, via an import ban, which the U.S. International Trade Commission
 will consider [docket record] next month.  In anticipation of that hearing, Verizon Communications, Inc. (VZ) has filed a friend of the court brief on behalf of Samsung, saying an import ban would create economic harm to U.S. customers and lead to job loss. 

Some are holding out hope that the pair will settle their dispute outside court, similar to
 Apple and Finland's Nokia Oyj. (HEL:NOK1V).  Comments HSBC analyst Daniel Kim, "The most likely scenario is an out-of-court settlement, after a long-drawn IP battle... As in the case of the Nokia-Apple dispute, this issue too is likely to be settled out of the court, after a long drawn legal dispute."

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RE: Won't matter
By Pirks on 9/27/2011 11:39:35 AM , Rating: 0
Well, even if Apple is a strong brand now, it had to BUILD the brand perception somehow, because it was not such a huge brand a few years ago. And to build a brand one has to beat the competitors by offering BETTER PRODUCTS. That's what Apple did, essentially. That's what brought them a huge brand name they enjoy today. Better products. It's that simple.

Motoman is just too dumb to understand how brands are built these days. You CAN NOT build a premium brand by offering inferior products.

Anyone disagrees with that? Post your counter arguments then.

RE: Won't matter
By Miggleness on 9/27/11, Rating: -1
RE: Won't matter
By Reclaimer77 on 9/27/2011 12:35:19 PM , Rating: 2
I'll definitely miss having an AMOLED display.

What could Apple possibly offer you that would be worth giving up that gorgeous display?

RE: Won't matter
By Hieyeck on 9/28/2011 10:31:27 AM , Rating: 2
That precious white logo, which is getting covered up by a $5 Made-in-China case anyways. Don't wanna scratch that logo and risk Lord Jobs' wrath, y'know.

RE: Won't matter
By Kiffberet on 9/29/2011 7:42:20 AM , Rating: 2
People b1tch and whine about apple all the time on this site, but I don't know anyone who can't wait to get rid of their iPhone.
And i'm talking about IT professionals. We haven't got the time or inclination to spend hours tweaking our phones, we do that all day long on company computer systems. We just want the b@stard to work, update easily and be great to use.

A few people have changed from iphone 3GS to HTC or Samsung galaxy S, and are now waiting to revert back to apple when the iphone 5 comes out.

Also, I dropped my iphone in the toilet (don't ask), and when i went to the local apple store to get a damage assessment report for my insurance company, Apple just swapped the phone then and there, free of charge. Brand new iphone 4 within 5 minutes.
You won't get that kind of customer service anywhere!!

RE: Won't matter
By jimbojimbo on 9/27/2011 3:21:48 PM , Rating: 2
but I know I will enjoy many things which this phone doesn't have
Do you really mean "I know I will enjoy many things which I didn't know this phone already did have"?

RE: Won't matter
By Manch on 9/27/2011 5:52:56 PM , Rating: 2
Another sheeple born every minute!

RE: Won't matter
By Booster on 9/27/2011 3:59:20 PM , Rating: 3
'Better products', eh? In what way? Take an iPhone, for example, from a user's standpoint. Sure it has an impression of a higher-grade device than your typical Android offering, but it's just that - an impression. First of all, iTunes. Then - proprietary cabling, inability to pretty much do anything until you jailbreak, hack or whatever those Apple guys are so occupied with.

Yes, iOS may be more stable and more polished than Android, but in no way it's a better product for the buyer. Granted I only had an iPhone 3GS, but the short time I had was enough for me to not want to deal with Apple ever again. iTunes was a huge PITA, I could not send photos over Bluetooth quickly like I am used to, had all kinds of trouble with media and to add insult to injury I had to check the damn thing like every hour or so. And boy did I have to to that manually by pressing a button. It was driving me insane. When I'm at work or at home I usually don't carry the handset everywhere I go, it just lies on the table. One time my boss sent me an urgent message, but I wasn't there to hear it. Guess when I found out about it? Too late, obviously, since the boss was pissed. Android devised have a message LED and there's that Easy Reminder free (!) app, so no trouble being notified of missed calls and messages. But the iPhone has no LEDs, the damn thing just stays black and silent. How is that a better product? Granted in iOS 5 they have finally (!) thought of including missed events notifications, but in a usual moronic way. Notification interval is fixed at 2 minutes whereas I prefer 5. Then - the new iPhone won't notify you more than 10 times. What if I spend more than 20 minutes on the crapper, for example? Am I doomed? I sure am. Just as I'm sure the new iPhone won't have no message LED. No, thanks, I'll pass.

RE: Won't matter
By Booster on 9/27/2011 4:24:33 PM , Rating: 2
That being sad I'm very happy with my humble SE Neo which has not only a proper message LED, but also a camera button. You Apple fans just don't get how much a difference these little things make in a phone.

RE: Won't matter
By Pirks on 9/27/11, Rating: -1
RE: Won't matter
By Booster on 9/27/2011 5:24:36 PM , Rating: 2
Excuse me, but an iPhone by far isn't 'simple to use', in fact it's excruciating. If Apple is so good, why can't it figure out a simple fact that modern screens, when they are off, don't display any information and just stay black? You'd have to press a button in the very least to find out what's going on with your device. Isn't it just moronic that they ignore that? How do you know if you've got mail, a call, whatever? This is simply unusable at the lowest possible level, I'm not talking about satisfying nerd needs or the like.

RE: Won't matter
By Pirks on 9/27/11, Rating: -1
RE: Won't matter
By Natch on 9/28/2011 9:37:05 AM , Rating: 2
Or, perhaps, Apple has figured out that the "masses" you speak of are just too DUMB to know what they want, and only wish to be told what they want......which Apple has happily done, with phenomenal success.

Lemmings pretty much had the same fate with the Pied Piper, if I recall....

RE: Won't matter
By seamonkey79 on 9/28/2011 10:24:26 AM , Rating: 2
Rats. Lemmings just willingly jump off cliffs, rats at least had to be piped to.

RE: Won't matter
By Pirks on 9/28/2011 10:36:53 AM , Rating: 1
Apple has figured out that the "masses" you speak of are just too DUMB to know what they want, and only wish to be told what they want......which Apple has happily done, with phenomenal success
But the other companies were too dumb and too slow to tell the masses what they want. Only Apple was smart and fast enough to do that. Hence the Apple success - because Apple is smarter and faster than the others. Got it?

RE: Won't matter
By Manch on 9/27/2011 5:58:01 PM , Rating: 2
Universal? Theres nothing universal about a closed OS, locked down system with proprietary cables, no flash, with only one current model to choose from.

RE: Won't matter
By Fritzr on 9/28/2011 2:09:29 PM , Rating: 2
Depending on provider there are 2 models to choose from. The 3GS is still available from some providers :P

They will have to kill the 3GS when the 5 comes out ... having 3 models to choose from may be to confusing for Apple customers

RE: Won't matter
By ICBM on 9/27/11, Rating: 0
RE: Won't matter
By croc on 9/27/2011 7:10:23 PM , Rating: 3
Better products? Not really, better marketed products, definitely. The original iPhone, (Cisco) was clumsy to use, required a fixed line to operate, and very expensive as a system. But, as a system, it saved some companies megabucks in call costs. They just couldn't market it properly, their core router business didn't seem to apply to a PABX system, so people just didn't 'get it'. So along comes Apple, offers Cisco an undisclosed sum of money for the trademark (after already using it for a month or two, a fact that Cisco objected to...) and the rest is history. Except that, in Cisco's implementation the 'i' was for 'internet' (as in, voice over internet protocol). In Apple's marketing the 'i' was for 'me'. Look at 'me'. Am 'I' not cool? "If you don't have an iPhone, well, you don't have an iPhone." That kind of smug 'me-ness'. It took off, perhaps because most people felt powerless to control their lives and some smug 'me-ness' helped compensate... Good question for a good Psychiatrist...

RE: Won't matter
By someguy123 on 9/28/2011 2:00:43 AM , Rating: 1
Except they've only improved outwardly since their days of obscurity. The only exceptions I can think of are the ipod and being the first to push an online app store for mobile. The ipad isn't bad either performance wise.

For everything else they've been stagnant. In the case of their PCs, their shift to intel meant that they lost what speed benefits they could claim with PPC over the competition. Seems like this was done due to power and heat reasons, so going intel allowed them to "slim down" their lines further (again, aesthetic improvements).

In terms of internal quality their products haven't improved. What has improved are their case designs and advertising campaigns.

RE: Won't matter
By DFranch on 9/28/2011 9:17:21 AM , Rating: 3
Switching their computers to Intel processors allowed them to dual boot Windows, because Apple knew people need to get work done too, and you need Windows for that.

RE: Won't matter
By Hieyeck on 9/28/2011 10:37:46 AM , Rating: 2
You also need Windows to play games.

The only thing left is internet, and 95% of it is porn. Therefore, 95% of all MacOSX users are only using it for porn.


RE: Won't matter
By Paj on 9/28/2011 7:24:20 AM , Rating: 2
You clearly know very little about marketing and advertising if its your assertion that superior products is all it takes to build a brand.

Ever heard of betamax?

RE: Won't matter
By Pirks on 9/28/11, Rating: 0
RE: Won't matter
By nocturne_81 on 9/29/2011 9:21:33 AM , Rating: 1
You kids are still too young to remember Apple's real golden age in the 80s.. Sure, the tech market is so much incredibly larger at this point, but in terms of market share they'll never even get close to what they once were..

Your typical Apple user is just like my very best and childhood friend. Now, he isn't all too bright, and he doesn't understand tech stuff at all. Hell -- he doesn't own a computer, and could barely figure one out if he did. This same guy also drives a car he can't afford, spends thousands on new glitzy watches, listens to that horrible whiny wall-of-sound indie music, and wears all those ridiculous jersey-style glittery tattoo-esque shirts that only complete ***holes tend to wear.. Ya, I know.. You think you know the same guy, right..?

This same guy also always lusted after the iPhone, since the moment it was released. He doesn't know why he wants it, doesn't really have any use for it -- but he just neeeeeds to have one, to finally fit in with that trendy crowd he's always tried to identify with.

So finally, about 6 months back, he got his iPhone. Since then.. Well, I saw him last week, stole his phone for a minute to see what he's done with it. Now, I wasn't expecting to find it jailbroken with a slick third-party theme installed, but was quite surprised to find only a few various free apps (equating to the complexity of a fart app) and Angry Birds. Four hundred bucks, and he got a phone that he does everything he did on his previous one... but he gets to pull it out wherever he goes, so he can feel special too..

"I'd be pissed too, but you didn't have to go all Minority Report on his ass!" -- Jon Stewart on police raiding Gizmodo editor Jason Chen's home

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