Apple Plays Chicken With Samsung

Apple may be the largest tech company in the world by market capitalisation, but Samsung is ~20th biggest of any company in the world in terms of turnover with approximately $140billion in sales in 2010 vs Apple’s $65billion. Samsung are also one of Apple’s most important suppliers, selling $5.7billion of chips and other components to Apple in 2010 alone.

Today, Apple decided to sue Samsung for ‘copying’ the iPhone and iPad. Mental.

I really wouldn’t like to play poker against someone with the balls to sue Samsung, especially when they are an absolutely critical part of their supply chain. Even if a competitor tried to fill Samsung’s boots from today, it would likely take 9-12 months to get up to speed … and there’s no guarantee that anyone has the capacity or capability to do it at the right cost and scale. Apple are risking near total disruption to their business for the best part of a year! Samsung could simply decide to switch capacity over to its own products and flood the market with even cheaper models!!

Apple are clearly rattled by the success of Samsung and Android. Samsung can manufacture phones and tablets as good as Apple’s at a lower cost … slap on some free Android and global distribution with practically every electronics vendor of significance in the World and you begin to understand why Apple are willing to play chicken with their own supplier. The question is, what do Samsung value more … their sales to Apple or their sales of their own handsets and tablets. It is a difficult conflict of interest but I suspect selling their own products is already more profitable.

Many people feel it will be increasingly difficult for any smartphone manufacturer to differentiate themselves from the competition in the future. Apple’s technology lead has eroded to next to nothing and customers now have far more choice than ever. In the coming months Apple may actually be selling less powerful products than their rivals … albeit slightly slicker ones. It is unlikely that they can innovate sufficiently to keep the competition at bay, and Android already has 35-40% of the smartphone market and still growing strong. The lawsuits should have started before the rival manufacturers saw the value in making Android devices.

So perhaps we now understand why Apple is hoarding ~$60billion in cash (and growing). They feel they need this ‘war chest’ to either threaten the competition into backing off or simply acquire anyone who becomes too inconvenient. Even so, suing Samsung is possibly the bravest (and most stupid) move Apple have made to date! Will the two Goliaths collide or brake at the last second?

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