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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 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

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