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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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RE: Oh come on...
By Tony Swash on 12/17/2011 11:22:19 AM , Rating: -1
So let me get this straight. The company that did the following:

- revolutionised the computer market by creating the Apple II

- revolutionised the interface of poplar and affordable PCs with a simple to use GUI OS

- revolutionised the mp3 player market with the iPod

- revolutionised the music business with iTunes

- revolutionised the technology retail business with the Apple Retail Stores

- revolutionised the mobile phone market with the iPhone

- revolutionised the software business with the App Store

- revolutionised the tablet market with the iPad

has done nothing particularly original?

That the work that Apple did over the last decade to achieve all this can be dismissed as merely buying a few components and tying it all together in a clever sort of way?

Interesting perspectives. Perhaps if Apple had managed to do one or two of those things it might be possible to plausibly downplay what Apple does but for them to hit such a relentless string of balls out of the park, to me, indicates that something about Apple is different, very different to other companies (many of whom would love to just to have one such hit).

Given that we are entering a decade when Apple will probably be the dominant and defining force in technology you may want to revise that view a bit, if you want to understand anything about the world you are about to live in. I would have thought it was painfully obvious that, other than during the lost decade when it was run by bozos, Apple has done some some really exhilarating stuff, stuff that changed the world and changed a lot of markets and product sectors profoundly. That the last decade in particular has seen some sort of stunning acceleration at Apple.

How it did that stuff is, I think, profoundly interesting, it's the question that will be examined again and again when this period of technology history is written. How did Apple do it? We have the privilege to be living through these events so I feel we should all make an effort to truly understand what is going on, and not fall back on simplistic half truths even if they are very reassuring to one's world view.

RE: Oh come on...
By themaster08 on 12/18/2011 5:43:47 AM , Rating: 2
Ask yourself these questions...

If Apple were to go out of business today, how would that have an effect on business and the economy?

If Microsoft were to go out of business today, how would that have an effect on business and the economy?

Perhaps the answers should put the true importance Apple in the technology world into perspective for you.

RE: Oh come on...
By Tony Swash on 12/18/11, Rating: 0
RE: Oh come on...
By themaster08 on 12/18/2011 8:23:24 AM , Rating: 3
As opposed to living in denial?

Clearly you have no understanding of how insignificant Apple are within business.

Early this year they discontinued their XScale line of rack-mounted servers, solidifying their commitment to business application.

Whilst the iPhone may be growing in business adoption, there are viable alternatives that could easily be used instead that would have no impact upon the business. Can you name me a true alternative to Microsoft Small Business Server for small/medium size businesses?

Can you name me a true, affordable alternative business operating system that is fully integrated for self as well as centralised management?

Your silly dream of self management is absurd. You've clearly never worked in IT. Collaboration of information, files, ideas, security, productivity, communication always have, and always will rely on centralised management of IT systems. Do you really think that each node becoming its own email, file, print, management, name server is viable? You're an absolute fool. The best product and the only viable option for many businesses, that caters to all if the aforementioned needs, and much more, is the Microsoft Windows and server products. Nothing else comes close.

Your view is far too engaged in the general consumer outlook. You're unable to open your mind any further because you're unable to fathom the true complexities of I.T infrastructure. You've used Windows at work and hated it. For all you know the infrastructure could have been built on Linux. I've seen many a company run their back end through a half baked Linux mess, having a profound negative effect in the performance and reliability of their Windows nodes. Just because the IT department at your place of work were crap, that doesn't make all I.T administrators, all configurations and infrastructures based on Microsoft's products bad. That's your own personal experience based upon your own place of work. That doesn't account for the millions of other infrastructures and administrators, does it? Your view is like that of a child. Grow up.

I'm all for making the experience more pleasant for the end user. Self management is the exact opposite of that.

RE: Oh come on...
By themaster08 on 12/18/2011 8:25:26 AM , Rating: 2
Sorry, that should be XServe, not XScale.

RE: Oh come on...
By DeluxeTea on 12/18/2011 9:56:10 AM , Rating: 2
Way to dodge the question and inject another "Apple is earning mounds of cash so it is more important than anything" argument there, Swashie.

RE: Oh come on...
By powerwerds on 12/18/2011 9:54:24 AM , Rating: 4

Apple excels at selling consumer electronics. They have established a reputation for their focus on ergonomics which allows them to package the same electronic components as other companies but sell them at a premium price. This is their business success in a nutshell. Same components, yet because of the well thought out packaging and ergonomics, people pay premium, Apple profits.

I guess I'm disagreeing with you here, because what you call technology, I call consumer electronics. Your post and sentiment and history commonly hail Apple as a "dominant and defining force in technology," and I think "you may want to revise that view a bit." Did you read the article Mr. Sir? Apple does very little research. They are very far off from defining any new technology. For me, Apple is a pretty far ways off from technologically dominant. Do they dominate some sectors of consumer electronics? Yes. Not only are they not responsible for the technology in their consumer electronics, they are very very seldom offering the best technology available in said consumer electronics.

For me, Apple is a top tier consumer electronics company, sure. For me, Apple is just really not what I consider to be technologically dominant or defining. For me, if I am going to give some technology some credit, its just a tad asinine to apply it to some packaging (Apple cred due) and not to the actual technology within (Apple cred not due).

I actually can't stand Apple or your views, and I wish you would get a clue "and not fall back on simplistic half truths even if they are very reassuring to one's world view." Strictly speaking, Apple doesn't make the technology mmmk? They repackage it nice and tidy for you to buy at premiums mmmk?

RE: Oh come on...
By Tony Swash on 12/18/11, Rating: 0
"And boy have we patented it!" -- Steve Jobs, Macworld 2007

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