Apple Is Blasting A Multi-Billion Dollar Hole In Samsung’s Business
As consumers, it seems to most of us that all Korean gadget giant Samsung makes is TVs, Android phones, Android tablets, some computers, and commercials featuring LeBron James or hipsters in iPhone lines.
But actually, Samsung also has a pretty big business making the guts of gadgets for other companies.
During the quarter that ended October 25, Samsung generated $8.2 billion in revenue through its semiconductor business. Samsung profited more than a billion dollars during the quarter on those revenues.
One of the companies Samsung makes semiconductors for is Apple.
In fact, Apple is a huge Samsung semiconductor customer.
Digitimes Research estimates that Apple’s iPod, iPhone, and iPad made up about 81 percent of the processors Samsung made in 2012.
The chart’s title is “Samsung Application Processor Production Allocation,” and this is what it looks like:
As you can see, Apple is a pretty big customer of Samsung’s gadget guts business.
But that’s all changing … and fast.
After a year in which Samsung smashed Apple’s grip on the smartphone market with with its incredibly popular Galaxy S3 and a huge marketing budget, Apple is in turn leveling its own bazooka at Samsung.
It’s taking its gadgets guts business elsewhere.
Today, news came out that Apple signed a deal with Taiwan Semiconductor Manufacturing Co (TSMC) to produce the A6 X microchips Apple puts in its newest iPads.
Apple is expected to bring much of its microchip orders to TSMC over the next few years. 9to5Mac says Apple will order the guts for its MacBooks, iPads, and Apple TV from TSMC.
There have also been reports that Apple will begin outsourcing more chip manufacturing to Texas Instruments — or maybe even start building chips on its own.
By the end of 2014, Dediu and other Apple watchers expect Apple’s patronage of Samsung to be completely finished.
This will be a big blow to Samsung’s semiconductor business.
Here’s another chart from Dediu. Look at all that white space in 2014:
Over the past 12 months, Samsung revenues were ~$173 billion.
Its semiconductor business only accounted for $25 billion+ of that — and it included more than just microprocessors, but also memory upgrades, etc.
So Apple’s swift reduction is only a moderate-sized setback relative to Samsung’s overall revenues.
But it’s still a few billion dollars per quarter.
And that amount of money can add up after a while — especially if Samsung can’t keep up the momentum it’s created selling its own phones.