The relationship between Apple, Inc. (NASDAQ:AAPL) and Samsung is a complicated as well as one. Samsung is one of the supply chain partners for Apple and also a competitor to Apple in the smartphone and tablet space.
The relationship has soured recently with the enormous amounts of patent infringement lawsuits filed against each other around the world. But, Samsung is said to be one of the display panel suppliers for Apple, apart from providing Flash and DRAM memory and making A6 processors.
Apple latest complaint against Samsung seeks to block the sales of Samsung Galaxy Nexus, which is powered by Google's Android 4.0 (Ice Cream Sandwich) operating system.Apple's alleges that the Samsung smartphone's feature to unlock phones by sliding an image and voice search for information has been copied from iPhone and its most-acclaimed voice assistant Siri.
"We believe that when analyzing suppliers Apple engineers first look for price, performance, capability, and reliability when selecting suppliers and that when possible they be non-Samsung subsidiaries. But in some case a shift is not possible, as the primary criteria cannot be met by another supplier," Jefferies analyst Peter Misek wrote in a note to clients.
Misek said Apple is funding a large portion of Samsung's Austin fab and is manufacturing the upcoming quad-core A6 app processor there.
So, if the spate of lawsuits continues, it would be difficult for both Samsung and Apple to conduct business together and would harm their supply chain ties.
It seems Apple is also aware of this issue and has been considering other suppliers and trying to reduce its reliance on Samsung. As a result, Apple has shifted display production and that another Asia display company has now become a large panel supplier.
Apple would also like to dual-source its chip production to minimize risk and to gain price concessions, especially as Misek estimates that Apple would require more than 250 million app processors in calender 2013.
"We believe Apple has purchased $500 million to $1 billion of equipment for the manufacturing of iPad 3 and iPhone 5 displays, Misek said.
Apple may use this facility for the vast majority of the iPad 3 displays. The price that Apple will be able to procure these panels at will be lower than expected as the capital commitment by Apple likely necessitates below market pricing.
The analyst noted that Apple and its new partner have a modified IGZO (indium, gallium, zinc) technology to achieve 330 dpi, which is sufficient for an HD display while not using IPS nor having to include dual-bar LED backlighting. This should lead to several design advantages, namely the device can be thinner, battery life should be improved, and the overall experience for users should be meaningfully improved.
Misek, who has a "buy' rating and $599 on Apple shares, said the IGZO technology is perfect in that it offers near-OLED power consumption while having a lower cost and thinness that is only 25 percent greater than OLED.
"All else equal, we see Samsung losing share in Apple's supply chain and other Asia suppliers gaining share," added Misek, who also said Apple would likely add TSMC as a supplier in addition to Samsung when it starts the production of the A7 chip in 2013.