“Whoever controls flash is going to control this space in consumer electronics,” Jobs said at the time, according to a source familiar with the discussions.
The success of that deal led to Samsung supplying the crucial application processors for the iPhone and iPad. Initially, the two companies jointly developed the processors based on a design from ARM Holdings PLC, but Apple gradually took full control over development of the chip. Now Samsung merely builds the components at a factory in Texas in the US.
The companies built a close relationship that extended to the very top: In 2005, Jay Lee, whose grandfather founded the Samsung Group, visited Jobs’ home in Palo Alto, California, after the two signed the flash memory deal.
The partnership gave Apple and Samsung insight into each other’s strategies and operations. In particular, Samsung’s position as the sole supplier of iPhone processors gave it valuable data on just how big Apple thought the smartphone market was going to be.
“Having a relationship with Apple as a supplier, I am sure, helped the whole group see where the puck was going,” said Horace Dediu, a former analyst at Nokia who now works as a consultant and runs an influential blog. “It’s a very important advantage in this business if you know where to commit capital.”
Samsung declined to comment on its relationship with a specific customer.
As for Apple, it reaped the benefits of Samsung’s heavy investments in research and development, tooling equipment and production facilities. Samsung spent US$21 billion on capital expenditures last year alone and plans to spend a similar amount this year. By comparison, Intel Corp spent about US$11 billion last year, and Taiwan Semiconductor Manufacturing Co Ltd (TSMC) expects to spend US$9 billion this year.
However, component expertise, cash and good market intelligence did not assure success when Samsung launched its own foray into the smartphone market. The Omnia, a Windows-based product introduced in 2009, was so reviled that some customers hammered it to bits in public displays of dissatisfaction.
Meanwhile, Samsung publicly dismissed the iPhone’s success.
“The popularity of iPhone is a mere result of excitement caused by some [Apple] fanatics,” Samsung’s then-president, G. S. Choi, told reporters in January 2010.
Privately, though, Samsung had other plans.
“The iPhone’s emergence means the time we have to change our methods has arrived,” J.K. Shin, head of Samsung’s mobile communications division, told his staff in early 2010, according to an internal e-mail filed in a US court.
Later that year, Samsung launched the Galaxy S, which sported the Android operating system, and a look and feel very similar to the iPhone.
Jobs and Cook complained to top Samsung executives when they were visiting Cupertino. Apple expected, incorrectly, that Samsung would modify its design in response to the concerns, people familiar with the situation said.