Samsung tied in fight with Apple over supply chain control as only 10% of Galaxy S4 units have Exynos chip
To secure it can continue making enough Galaxy S4 phones and meet user demand Samsung is now buying more components than ever and the next huge battle between the industry’s two giants might not happen in courtrooms but with suppliers.
"The next round of the post-patent battle for them will be over component supplies," NH Investment & Securities analyst Lee Sun-tae said. "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 manufactures a lot of the components for the Galaxy S4 including the AMOLED display, memory chips, battery and its core, the Exynos 5 Octa processor. However only one in ten Galaxy S4s ships with the Samsung-made Exynos chip. The remaining overwhelming majority of S4s actually runs on the Qualcomm-made quad-core Snapdragon 600 chip (including the US version of the phone). Qualcomm is a major Apple supplier.
That outsourcing of components, though, has the downside of Samsung using its differentiation factor. It bet on flexible displays promising to roll out bendable screens by the end of 2012, but that turned out too ambitious and now, one year later, the company has no schedule for flexible screens and has officially denied the Galaxy Note III would have such a display. LG on the other hand is promising a device with a flexible screen by the year end.
There is one thing in this whole situation Samsung understands very well and it is how its smartphones business quickly became a core driver of profits and is now spending more on marketing than research and development. So far, that’s working out great, but the competition gets tougher by the day.