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Despite the pair's eroding relationship, the brains of every Apple product are still made by Samsung

Like Felix Unger and Oscar Madison, Apple, Inc. (AAPL) and Samsung Electronics Comp., Ltd. (KS:005930) are the real world's corporate "odd couple".  Samsung is the world's top smartphone maker, outselling Apple over 3-to-2 at last count.  Apple is the world's largest tablet maker, outselling Samsung by an even larger margin.  And both companies are locked in an international legal war -- initiated by Apple in 2010 -- which has swept the globe to encompass over 80 separate lawsuits or trade court complaints [1][2][3][4] [5][6][7][8] [9][10][11][12].

And yet despite the company's apparent disdain for each other, Samsung continues to dutifully make the "brains" of Apple's tablets and smartphones, while Apple begrudgingly depends on the South Korean electronics giant's aid.  

I. The Apple A5: Now Made in America (by Samsung)

The pair's odd relationship was in the spotlight, following a Reuters report that reveals that the production of the A5 CPU found in the iPhone 4S and iPad 2 has shifted production to Samsung's new Austin, Texas facility.  The 1.6 million square foot (about the size of nine football fields), $3.6B USD new factory is only Samsung's second non-memory chip fab, with the other being in South Korea.

Apple A5
The Brains of the iPhone are currently made at Samsung's new Austin, Texas factory.
[Image Source: iFixIt]

The new chip fab reached full production in early December, with a reported yield of 40,000 wafers a month.  It employs 1,100 workers, many of them engineering graduates from the local University of Texas' engineering school.  

The facility is a sister site to Samsung's neighboring NAND flash memory chip fab, which opened in 1996 and employs 2,400.  Apple and Samsung could almost be holding each others hands under the table, as Apple is right next door with a thousands of employees customer call center that deals with customer complaints in North America, Apple's biggest market.

It's not all flowers and roses for the pair, though.  While Apple still relies on Samsung for its CPU chip-making expertise, according to recent tear-down reports Japan's Elpida Memory, Inc. (TYO:6665) is now making the chips in some of Apple's iPhone 4S models.  And those reports also indicate that Apple, as previously reported, has made a full transition from Samsung NAND storage to Toshiba Corp. (TYO:6502) NAND chips.

But for now Apple and Samsung are still forced to endure their standoffish coexistence as coinhabitants of the same residences -- the iPhone 4S and iPad 2.

One final aspect to note is that some will be refreshed with the change of scenery of a top smartphone maker buying chips from an American fab.  This is particular true given Apple's long history of relying on cheap Asian manufacturing capacity to build its products, having mostly turned its back on American manufacturing long ago.

II. Report: Apple is Opening New R&D Facility in Israel

In related news Apple is also reportedly preparing to building a semiconductor-focused research and development center in Israel.  Reportedly Apple scored a coup in hiring hot  Israeli high-tech veteran Aharon Aharon, who began his career at International Business Machines, Inc. (IBM) before going on to top leadership roles with several large and successful Israeli tech firms [source].

Apple is also thought to be closing in on acquisition of Israel's Anobit for around $400M-$500M USD.  Anobit makes the flash memory controllers found in Apple's mobile devices and holds valuable patents on extending the life of failure-prone MLC flash memory.

While Apple is called a "global innovator" by many analysts, it's among one of the most stingy of the large technology firms when it comes research and development.  In 2010 it reinvested a mere 2 percent of revenue -- or about $2.4B USD -- in R&D, according to company financial documents.

Apple admittedly relies heavily on its competitors for product inspiration.  Late company co-founder and CEO Steven P. Jobs infamously bragged, "Picasso had a saying - 'Good artists copy, great artists steal.' And we have always been shameless about stealing great ideas."


The top American tech firm is aided by its powerful legal staff, who have a penchant for cajoling global patent offices into granting them patents on seemingly obvious software features that are almost trivially different from designs that have been on the market for years.

The company is rather brilliant, though, in its ability to thus far use its supplier relationships, rather than actual research and development, to "out innovate" its competitors.  

For example, Apple was the first company to mass-deploy minimalist multi-touch smartphones and tablets, later admonishing its competitors in court for "copying" its design post-mortem.  Our sources and past reports suggest that companies like Samsung were exploring similar multi-touch products to the iPhone back in 2007, but that Apple simply beat them to the punch, convincing the sole supplier (at the time) of thin multi-touch displays to sell all of its stock to Apple.  

The move ensured that competitors could not put a similar product out on the market for over a year.  At the same time, Apple was granted a patent on multi-touch gestures which had been published in peer-reviewed literature almost 20 years before, but which Apple had ported to the smart phone.

Apple's approach of innovation through supplier relationships, patenting other peoples' technology, and then using those factors to outsue and outsell its competitors has been an approach that has infuriated its rivals.  But it's hard to argue with the results -- Apple is now vying with Exxon Mobile Corp. (XOM) for the distinction of being the world's most profitable company.  Apple's critics may call its strategy diabolical, but if it's indeed diabolical it's certainly very good at being diabolical.

Sources: Reuters [1], [2]



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Another take on this subject...
By croc on 12/16/2011 3:55:09 PM , Rating: 2
...might be that Samsung, one of the best of the 'greedy capitalist pigs', has finally seen the wage situation in the USA as low enough that it can now hire the brains it needs at China-like wages. As an American, how do you feel about this? Happy to be able to have employment at any cost?




RE: Another take on this subject...
By rich876 on 12/18/2011 10:47:40 AM , Rating: 2
Nobody else has low wages like China, but I do agree Samsung should pay their workers a lot more. If only they could unionize, that would change. but in the South, people don't believe in unions.


"I mean, if you wanna break down someone's door, why don't you start with AT&T, for God sakes? They make your amazing phone unusable as a phone!" -- Jon Stewart on Apple and the iPhone














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