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Apple cuts memory chip orders to Samsung

Will try to make first batch of new iPhones as Samsung-free as possible, though it won't avoid its rival for long

By CAROLINE GABRIEL

Published: 10 September, 2012

READ MORE: Display | Memory | Semiconductor | Handset

Apple has been trying to reduce its dependence on components from its enemy Samsung for some time, and looks to be stepping up the effort for the upcoming iPhone. Samsung will not supply memory chips for the first wave of the new smartphones, because of a disagreement about pricing, sources told Bloomberg, nor will the Korean firm be an initial provider of displays.

It will be virtually impossible for a firm which buys memory chips on the scale that Apple does to avoid Samsung, the world leader, forever, but excluding the company from the first batch of iPhones sends a signal to the market, and boosts the strength of alternative suppliers. Another Korean firm, SK Hynix, is reported to be the chief beneficiary, with orders from Apple for mobile DRAM and NAND flash memory chips rising in recent months.


In displays, Sharp and LG are the favored providers, though neither managed to get the iPad HD's screen to the required quality and quantity in time for that gadget's first shipments, forcing Apple to turn to Samsung once again. AU Optronics is expected to enter the supplier list for the expected 'iPad Mini'.

However, although Apple has been introducing foundry TSMC as a second manufacturer of its processors, Samsung will be supplying those components for the first 'iPhone 5s', according to the Korea Economic Daily.

"Apple doesn't like to be dependent on Samsung -- there's no question about it," Lee Sun Tae, an analyst at NH Investment & Securities, told Bloomberg. But "there's only so much volume Apple can get from other vendors. They will probably have to come back to Samsung later on".

Apple accounts for about 9% of Samsung's revenue, making it the company's largest customer, and sales of memory chips and displays to Apple will probably account for 3% of its earnings per share this year, compared with about 4% in 2011, according to Sanford Bernstein estimates.

Apple will introduce its latest smartphone on Wednesday, and possibly a smaller iPad - though that could get its own event in October. Either way, the expected uptick in Apple sales these devices will drive will intensify the firm's supply chain pressures. As it diversifies its supply chain - to improve its buying power and ensure availability, not just to disadvantage Samsung - it is reported to be sourcing iPhone screens mainly from LG, Sharp and Japan Display, and displays for the smaller tablet from AU Optronics and LG.

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