Mon, May 20, 2013 - Page 14 News List

A stretched Samsung chases rival Apple’s suppliers

Reuters, SEOUL

Hostess Dee Hsu, left, and actor Ethan Ruan hold Samsung S4 mobile phones as they pose for photographs during a press conference in Taipei on Thursday.

Photo: mandy Cheng, AFP

Overtaking Apple Inc as the world’s leading maker of smartphones has stretched Samsung Electronics Co’s in-house supply lines, and the South Korean firm is now courting some of its rival’s main parts suppliers.

After costly courtroom battles over technology patents, the two gadget giants are now going head-to-head over securing the best supply of parts as they jostle to rule the US$253 billion smartphone market. The two took 100 percent of the industry’s profit in January-March, Canaccord Genuity data show.

Trampling on Apple’s supply patch could make life tough for the US firm as it prepares for its next product line-up including a cheaper iPhone for emerging markets such as China. Having Samsung muscle in on its suppliers could drive up costs and lead to component bottlenecks, disrupting product launches.

Samsung’s huge in-house supply chain — providing parts from displays and powerful processors to memory chips and batteries — has been a core strength in its war for smartphone supremacy. As it now looks to widen its lead with products spanning both the high and cheap-and-cheerful ends of the market, Samsung’s supplies have become stretched, prompting it to hunt elsewhere to ensure it is not caught short.

“The next round of the post-patent battle for them will be over component supplies,” said Lee Sun-tae, an analyst at NH Investment & Securities. “Who wins access to the best performing components in class in large quantity — that’s the key ... and explains why Samsung is shopping for components more than ever.”

Samsung has made overtures to traditional Apple partners such as Japanese display maker Sharp Corp and South Korean chipmaker SK Hynix.

Samsung, which buys most of its mobile screens from its Samsung Display unit, last year placed orders with Sharp for high-resolution LCD screens for its popular Galaxy range of products, though it later canceled the order, said two people familiar with the matter, asking not to be named as the negotiations were confidential.

Sharp, in which Samsung bought a 3 percent stake earlier this year for US$110 million, said last week it was seeking to boost sales to the South Korean firm, potentially souring the Japanese company’s ties with Cupertino, California-based Apple.

Samsung is also using more chips made by Qualcomm, another major Apple supplier, in its flagship Galaxy S, which went on sale late last month.

Some other suppliers who provide parts to both Apple and Samsung include Toshiba Corp in NAND memory chips, Sony Corp, in image sensors, and Corning Inc for its Gorilla Glass used in iPhones, iPads and Galaxy products, industry data show.

STMicroelectronics and Bosch, the only mass producers of pressure sensors used in navigation features, supply those parts for the Galaxy range, and could be tapped by Apple for future products, according to research firm iSuppli.

Samsung still buys the majority of its components in-house, and the overlap with Apple on external suppliers is, so far, limited. BNP Paribas estimates that more than 80 percent of component profits generated by Galaxy S4 sales go to Samsung itself and its units.

However, even a tiny overlap can be damaging as smartphones are constantly upgraded to more powerful computing and media devices — allowing users to take pictures, shoot video, play music, game online, watch TV and navigate — raising the need for more and smarter components.

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