Samsung Hikes Apple Component Price By 20%

Tyler Durden's picture




 

Two months ago, when we commented on Apple's pyrrhic courtroom victory in which it managed to halt sales of older generation Samsung smartphones - a "victory" which would backfire with Samsung phone sales soaring, while AAPL results missed, forcing the company to accelerate its product launch cadence to a ridiculous 3 months with news that the iPhone 5s is already in the works a month after the launch of the iphone 5 -  we said "The paradox here is that AAPL's victory is quite pyrrhic: if and when Samsung feels sufficiently threatened, it can just pull a Gazprom and halt the supply of mission critical components to the world's biggest publicly traded company." Naturally, the hyperbolic all out response would mean an immediate nuclear war of attrition between the two electronics giants. Instead Samsung would be even better served to show Apple who is boss in quantized increments. Today, it has done just that, forcing Apple to swallow a 20% price increase on hundreds of millions of Samsung application processors used in iPads and iPhones. "Apple first disapproved it, but finding no replacement supplier, it accepted the (increase.)" Game, set, match Samsung.

From Marketwatch:

Samsung Electronics , the world's largest technology firm by revenue, raised the price of mobile processor supplied to Apple Inc. AAPL -0.25% by 20% recently, Chosun Ilbo reported Monday, citing a person familiar with negotiations between the two tech giants.

 

"Samsung Electronics recently asked Apple for a significant price raise in (the mobile processor known as) application processor," the person was quoted as saying in the report. "Apple first disapproved it, but finding no replacement supplier, it accepted the (increase.)"

 

The two firms have started to reflect the new supply price recently, the report added, citing the same person.

 

According to the report, Apple buys all APs used for production of iPhone and iPad from Samsung Electronics with the volume estimated to be 130 million units last year and more than 200 million units this year.

 

Samsung Electronics has a long-term contract to supply APs to Apple until 2014, the report added.

Two things will come out this development:

i) Apple profit margins, as in go down materially; and

ii) Samsung leverage, as in surge.

Because Apple flexed its muscles in US-based courts, and won as was largely expected, in the process ushering "Patents Wars 2: The Asian Empire Strikes Back - Are The Tables About To Turn On Apple?" (they did), and also letting Samsung understand that a little mutual game theory defection may be useful to teach its unruly client a few lessons.

What is for now unknown, but is certainly the biggest risk factor for the world's biggest company by market cap, is how other supply chain verticals will take this retreat by Apple: if recent dramatic events in South African labor relations are any indication, expect every other Apple product supplier to attempt to squeeze incremental profitability out of their own existing relationships with the behemoth which will have no choice but to yield to a coordinated attempt at extracting concessions, now that the balance of power has shifted dramatically in the favor of the suppliers.

One thing is certain: Samsung has nothing to fear in terms of future legal escalation from Apple now or any point in the future.

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Mon, 11/12/2012 - 22:45 | 2974942 vast-dom
vast-dom's picture

Ergo NASDAQ needs to be adjusted down by 40%.

Mon, 11/12/2012 - 22:50 | 2974956 Pladizow
Pladizow's picture

And wait till silver is $200/oz!

Mon, 11/12/2012 - 22:56 | 2974969 vast-dom
vast-dom's picture

As in waiting for JPM's naked shorts to implode. 

Mon, 11/12/2012 - 23:25 | 2975024 TruthInSunshine
TruthInSunshine's picture

Apple's executives are meeting right now, devising on what grounds they are going to sue Samsung, and calculating highly speculative damages (never mind that they don't have a case that will survive summary judgment).

Apple absolutely has to resort to their new "when all else fails, sue everybody" business strategy. If Samsung and other suppliers continue to raise prices on components going into highly commoditized Apple iGadgets, it will crush Apple's net revenue.

Too bad Apple is just the designer, and manufacturers so few (if any?) components that are used in its iDevices. They've left themselves completely vulnerable to their benevolent suppliers.

Mon, 11/12/2012 - 23:35 | 2975037 Michaelwiseguy
Michaelwiseguy's picture

They're both foreign companies, so who gives a shit? 

230 hedge fund managers.

Mon, 11/12/2012 - 23:42 | 2975068 NidStyles
NidStyles's picture

Since when does nationality matter when making a profit on your investment?

Tue, 11/13/2012 - 00:15 | 2975091 TruthInSunshine
TruthInSunshine's picture

The real question is how long until Foxconn opens a subsidiary called Appel, that sells the exact same products that Apple does (since they will be made using the same components and made in the same facility), for 1/2 the price Apple charges?

Strike that, because it's really not as pertinent as it once might have been, now that Samsung and others are making products that are the equal of, and better, than any competing Apple products.

Apple has screwed its business model up so badly so quickly that it's actually truly remarkable.

What would Steve Jobs think of the Lightning Dock and other the crap Apple has introduced that has accelerated planned obsolescence while actually giving shit benefits (if not net-negative benefits) to its customer base if he were alive?

Tue, 11/13/2012 - 01:01 | 2975200 redpill
redpill's picture

Fair value is $85 a share, just like it was 3 1/2 years ago.

Tue, 11/13/2012 - 01:40 | 2975258 Ineverslice
Ineverslice's picture

 

yowza!

 

Tue, 11/13/2012 - 02:32 | 2975315 mr_T
mr_T's picture

In the end, Reggie will be proven right. Last Apple I bought was a IIe never again. At least they provide suicide nets for their iSlaves at Foxconn.

Tue, 11/13/2012 - 03:00 | 2975355 AldousHuxley
AldousHuxley's picture

Real R&D comes from specialized part suppliers. You need math and science long term investment there, not Master Bullshitting Assholes.

 

well Asian manufacturers are becoing global brand and US (we outsource all the real work) companies are findings themselves out of a job unless supported by the state corporate welfare.

 

Roman Empire crumbled when the barbaric mercenaries they hired became generals and when they revolted no Romans were in the talent pipeline.

Tue, 11/13/2012 - 07:55 | 2975516 old naughty
old naughty's picture

No Jobs...Less Cash...No Hopes.

Empire befell...

Tue, 11/13/2012 - 08:16 | 2975547 GetZeeGold
GetZeeGold's picture

 

 

Samsung....those rat bastards.

 

Tue, 11/13/2012 - 13:45 | 2976634 robertocarlos
robertocarlos's picture

Was that in your best George C Scott voice?

Tue, 11/13/2012 - 10:30 | 2975832 catacl1sm
catacl1sm's picture

Persian empires did the same thing. It worked great until growth ended and neither empire could keep their promises. Coming soon to an empire near you!

Tue, 11/13/2012 - 08:50 | 2975588 j0nx
j0nx's picture

Whoggie? That guy is always tooting his own horn for shit that an imbecile could figure out by using common sense. Analysis and research I can respect. Hubris, not so much.

Tue, 11/13/2012 - 10:07 | 2975771 Estrella
Estrella's picture

Mr_T, man you hold a grudge. The IIe came out in the 80s.

So, you are going to say, that ALL the other computers you have purchased since then (what, 30 plus years) were great machines, and ONLY the IIe was a lemon?

Still, I kind of get the point. I am also ticked off at Apple. Their OS has become ridiculously closed. Very Orwellian. Try getting a product up at the Apple store (the review process takes a month or longer.) I cannot use the iDevices as RAM disks, can't mount iDevices other then through iTunes, etc., etc. Apple is not interested in making general purpose computers but in selling iGadgets. Shame. (I speak as an Apple software developer and with around 20 of their products in my home.)

Tue, 11/13/2012 - 11:13 | 2976011 I only kill chi...
I only kill chickens and wheat's picture

Banshee music player on linux connects just fine to my gen2 itouch. Can manage music, load files whatever. No itunes for me.

Tue, 11/13/2012 - 09:04 | 2975608 mdtrader
mdtrader's picture

Lol Apple has $128 per share of cash and investments. 

Tue, 11/13/2012 - 02:11 | 2975294 A Nanny Moose
A Nanny Moose's picture

...how long until Foxconn opens a subsidiary called Appel, that sells the exact same products....for 1/2 the price Apple charges?

About 11 years ago..only it was LG

http://www.gizmodo.com.au/2012/09/check-out-lgs-ipad-from-2001/

Tue, 11/13/2012 - 00:26 | 2975145 sun tzu
sun tzu's picture

You mean it will crush Apple's gross profits and margins

Tue, 11/13/2012 - 00:49 | 2975153 TruthInSunshine
TruthInSunshine's picture

Technically, you are correct.

Practically, it will crush both, as one is derivative of the other, and component costs are an expense.

To be very precise, I should have said it will crush Apple's EBITDA.

 

Off Topic:  Billionaire (former?) John McAfee-in-Belize and on a[n alleged] rectally inserted, refined bath salts bender & murder spree, bitchez:

John McAfee Wanted for Murder

Tue, 11/13/2012 - 04:17 | 2975411 jballz
jballz's picture

Very former if he ever was a billionaire. Saw his house on the market a couple years ago, trying to eek out 20% of what he paid and lots of inuendo he was broke. 

I danced a jig when I saw that he is wanted for murder. Angriest day of my life damn near, installed mcafee and it crashed my whole system. Called tech support, said it was 50 bucks for assistance. Desperate, I paid it. 

Cocksucker on the phone when he finally picked up: "Oh. Yeah you have to reinstall"

"Reinstall Mcaffee?"

"No, you have to reinstall windows."

Motherfuckers. Been hating him ever since. Karma.

Don't know what sort of hell awaits Bill Gates, probably not enough torment in a third world prison for all the hating directed his way over the years. But Mcaffee...fuck him let him rot. I will even send him a christmas fuck you card to wherever shithole they drop him.

 

Tue, 11/13/2012 - 06:36 | 2975473 spentCartridge
spentCartridge's picture

Who's fault is it that you had to pay $50 to be told you need to reinstall?

Tue, 11/13/2012 - 09:48 | 2975714 mess nonster
mess nonster's picture

It reminds me of what the liberty movement os going to do to the Republican party.

Tue, 11/13/2012 - 00:34 | 2975154 Overfed
Overfed's picture

I don't think Apple has manufactured anything since the 80s or early 90s.

Tue, 11/13/2012 - 07:29 | 2975499 StychoKiller
StychoKiller's picture

Once, when I was riding my bicycle, I ran over a stick -- thought I was bad ass (until the stick flipped into the front wheel spokes...)

Mon, 11/12/2012 - 23:50 | 2975077 Michaelwiseguy
Michaelwiseguy's picture

Telephones have no Constitutional right to be answered. I use mine maybe 5 times a week.

I personally dislike the device because it has a habit of disturbing me.

Tue, 11/13/2012 - 00:26 | 2975144 nowhereman
nowhereman's picture

I only use mine to hang up on the debt collectors.

Tue, 11/13/2012 - 00:40 | 2975160 TruthInSunshine
TruthInSunshine's picture

5 to 7 cents on the dollar. That's a decent settlement rate assuming one wants to pay off their debt.

Anything more offered to the buyers of bundled & unsecuritized delinquent debt is mission failure. The entities that buy defaulted, unsecuritized debt from credit card companies and others pay from 5 to 12 cents per dollar for it, so the settlement rate I highlighted ensures they won't profit, and may possibly lose money.

MAKE SURE TO INSIST ON A COMPLETE & TOTAL RELEASE OF ANY FUTURE LIABILITIES ALONG WITH A WRITTEN GUARANTEE THAT NO ADVERSE CREDIT RATING IMPACT WILL RESULT (If one cares about such things).

Tue, 11/13/2012 - 08:55 | 2975598 j0nx
j0nx's picture

Right. Good luck with your list of demands. They will laugh and tell you to fuck off and then ruin your credit and take you to court most likely. Ask a debt vulture for a written guarantee about credit impacts before you pay them and see how fast they start to laugh. If you get a call from a debt collector then 9/10 times it's already too late to do anything about the credit impact.

Tue, 11/13/2012 - 11:55 | 2976171 TruthInSunshine
TruthInSunshine's picture

Good luck?

I actually pay my debts, as I live below my means, no matter how many/much or little/few resources I have, but I have personal knowledge of many people who have paid no more than 12 cents on the dollar to discharge unsecuritized debt this way, including several (less than a dozen but more than 4) who've discharged more than 100k in credit card debt (one person essentially paid 7 cents per dollar, on an aggregate average, to discharge 230k worth of debt spread across many credit cards).

I realize it's the internet and all, but if you really do check out the manner by which large, unsecuritized debts get satisfied, you'll discover this isn't as far fetched as it may seem.

"Screw you. How about if I pay you 8 cents or you get nothing when I file for personal bankruptcy" is very compelling in certain circumstances.

Tue, 11/13/2012 - 15:36 | 2977081 j0nx
j0nx's picture

Sure BK is always an option but I thought the goal was to save your credit here? You aint doing that by paying 8c on the dollar and by demanding a no credit impact before you pay them which is what I'm talking about. Half of the big stick that credit vultures carry around is our fear of them humping our credit score. BK is always the nuclear option anyway. And BK aint cheap either.

Tue, 11/13/2012 - 06:38 | 2975475 spentCartridge
spentCartridge's picture

Same deal with my doorbell.

Tue, 11/13/2012 - 08:33 | 2975572 Winston Churchill
Winston Churchill's picture

No checkee no workee.

Tue, 11/13/2012 - 02:25 | 2975312 WAMO556
WAMO556's picture

Maybe in 12 months, a year, 2, 3, 4 or more years. These banks aren't going to mplode any time soon without your Deposits going first and then your taxes to support them. Go ahead, hold your breath....they dare you.

Tue, 11/13/2012 - 03:15 | 2975371 devo
devo's picture

When is this going to happen?

Tue, 11/13/2012 - 08:19 | 2975551 JPM Hater001
JPM Hater001's picture

"And wait till silver is $200/oz!"

And wait till silver is $2000/oz!

 

There fixed.

Tue, 11/13/2012 - 08:58 | 2975600 j0nx
j0nx's picture

Keep dreaming. You PM hawks been saying this shit for 10 years now and silver still stuck at 30 something just like it always will be until or unless you sink JPM which frankly aint gonna happen. If silver ever reaches more than $50 oz then it won't matter because we will all have bigger problems to worry about since most likely the dollar will be worthless at that point anyway.

Mon, 11/12/2012 - 23:12 | 2975005 ACP
ACP's picture

Not a problem. The Fed will simply pile another QE on top of the QE that is on top of the QE that isn't working.

Mon, 11/12/2012 - 22:45 | 2974943 GCT
GCT's picture

Its not smart to bite the hand that feeds you or makes your components.

Tue, 11/13/2012 - 01:13 | 2975219 RockyRacoon
RockyRacoon's picture

Samsung seems to have hit upon a plan to get their legal fees back.   Hmmmm.

Tue, 11/13/2012 - 01:34 | 2975225 TruthInSunshine
TruthInSunshine's picture

Sony once owned the consumer electronic gadget market, in the wake of Sony's revolutionary and immensely profitable Walkman, until Samsung cut them down at the kneecaps, completely and brutally.

Contrary to whatever anyone says, it's a provable fact that the iPod, and no other product, was the product that saved Apple and allowed it the cash cushion to engage in the R&D needed to augment its existing portfolio of products and design new ones, and now Samsung is dialed in on Apple...

...eerie similarities that rhyme in terms of history, as Samuel Clemens might have opined.

Tue, 11/13/2012 - 06:13 | 2975462 Acet
Acet's picture

Sony cut themselves down when they went into content production (Movie Studios and the like) and let their Media division dictate to their Electronics division the features of their products while at the same time moving production to China.

The followup to the Walkman, the Minidisk was a proprietary locked-down POS and, at a time when people in the computing world were clamoring for a data storage solution (these were the times of the floppy disk and the ZIP drive), Sony didn't allow people to use them to store data. Sony continued with this policy of locking down their products to protect "content" (notice how Sony's DVD players were always the ones without any "undocumented trick" to remove Region coding), all the while they cheapened design and moved production from Japan to China, which meant that Sony's products, previously known for quality and reliabily, just became an overly expensive version of the same crap everybody else was selling (only worse, 'cause they were locked-down tight).

Fifteen years ago, Sony had made their name as a Consumer Electronics brand of quality and innovation that gave customers what they wanted. Now they're a sleazy Movie company with a me-too cheap electronics arm.

Tue, 11/13/2012 - 12:25 | 2976303 Aegelis
Aegelis's picture

Add to that Sony's purchase of the Massively Online Roleplaying game Everquest, which started out with a bang, but due to bugs that would never get fixed, horrible customer service, pay another $40 to play expansions (I think there were 12 last I checked), and a refusal to update the game with things like graphics and quests (aka stuff to do beside kill the same beast you did a thousand times before).  Blown opportunity gave Blizzard a leg up when they whiteboarded, "What didn't we like with Everquest?  Great, we have a list, let's build and update a superior game"

Mon, 11/12/2012 - 22:45 | 2974944 vinayjha
vinayjha's picture

Between AAPL and Samsung war, only China manufacturer will benefit.

http://www.freefdawatchlist.com/2012/11/premarket-gainer-and-loser-for-n...

Mon, 11/12/2012 - 23:04 | 2974986 rhinoblitzing
rhinoblitzing's picture

How long before AAPL has the Chinese knock off the chip...

China has completely given the WTO the finger and stuck it up our ass... and Russia just got let in the WTO a few weeks back while no one was looking. IP/Trade/Patent war between Russia and China should be interesting.

One of the questions Romney and his democraticly run campaign never asked, "Just what did you mean when you told Dimitri that you will have more flexibility after the election?"

 

Tue, 11/13/2012 - 01:54 | 2975274 Ms. Erable
Ms. Erable's picture

More flexibility = capable of bending over much further while spreading cheeks far wider.

Tue, 11/13/2012 - 15:07 | 2976981 NidStyles
NidStyles's picture

Samsung is made most outside of China. In fact they make efforts to manufacture in other countries than China, because South Korea and China do not get along very well.

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