Fri, Feb 22, 2013 - Page 9 News List

Apple and Samsung, frenemies for life

While lawsuits and public spats paint the relationship between the two tech giants as one of all-out rivalry, their close historical ties render the real situation far more complex than that

By Poornima Gupta, Miyoung Kim and Dan Levine  /  Reuters, SAN FRANCISCO and SEOUL

Apple’s worst fears were confirmed with the early 2011 release of the Galaxy Tab, which Jobs and others regarded as a clear rip-off of the iPad.

Cook, worried about the critical supplier relationship, was opposed to suing Samsung. However, Jobs had run out of patience, suspecting that Samsung was counting on the supplier relationship to shield it from retribution.

Apple filed suit in April 2011 and the conflagration soon spread to courts in Europe, Asia and Australia. When Apple won its blockbuster billion-dollar jury verdict against Samsung in August last year, it appeared that it might be able to achieve an outright ban on the offending products — which would have dramatically altered the smartphone competition.

However, Apple has failed to convince US judges to uphold those crucial sales bans — in large part because the extraordinary profitability and market power of the iPhone made it all but impossible for Apple to show it was suffering irreparable harm.

“Samsung may have cut into Apple’s customer base somewhat, but there is no suggestion that Samsung will wipe out Apple’s customer base, or force Apple out of the business of making smartphones,” US District Judge Lucy Koh wrote. “The present case involves lost sales — not a lost ability to be a viable market participant.”

Meanwhile, Samsung came under pressure from antitrust regulators and pulled back on its effort to shut down Apple sales in Europe over a related patent dispute.

A US appeals court recently rejected Apple’s bid to fast-track its case, meaning its hopes for a sales ban are now stuck in months-long appeals, during which time Samsung may very well release the next version of its hot-selling Galaxy phone.

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The legal battles have been less poisonous to the relationship than some of the rhetoric suggests.

“People play this stuff up because it shows a kind of drama, but the business reality is that the temperature isn’t that high,” an attorney who has observed executives from both companies said.

Still, the hostilities appear to have put some dents in the partnership. Apple is likely to switch to TSMC for the building of application processors, according to analysts at Goldman Sachs, Sanford Bernstein and other firms. However, analysts at Korea Investment & Securities and HMC Securities point out that Apple will not be able to eliminate Samsung as a flash supplier, because it remains the dominant producer of the crucial chips.

Apple declined to comment on the details of its relationships with any one supplier.

Meanwhile, both companies are deploying strategies out of the other’s playbook as they seek to maintain and extend their lead over the pack.

Samsung has developed a cheeky, memorable TV ad that mocks Apple customers, and dramatically ramped up spending on marketing and advertising, a cornerstone of Apple’s success. US ad spending on the Galaxy alone leaped to nearly US$202 million in the first nine months of last year, from US$66.6 million in 2011, according to Kantar Media.

For its part, Apple is investing in manufacturing by helping its suppliers procure the machinery needed to build large-scale plants devoted exclusively to the company.

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