Samsung hikes Apple chip prices by 20 percent: report

Samsung hikes Apple chip prices by 20 percent: report

Summary: After a series of courtroom battles and lengthy battles, Samsung has hiked the price of its chips, but seemingly to only one customer, Apple, its arch rival in the smartphone and tablet space.

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Samsung has hiked the price of its mobile processors by 20 percent, but to only one of the Korean technology giant's customers: Apple.

The report comes from The Wall Street Journal's MarketWatch, citing a person familiar with the negotiations between the two smartphone and tablet makers.

According to the report, Samsung requested an increase in the price of the mobile 'application' processor supplied to Apple, which the Cupertino, Calif.-based technology giant was forced to swallow as only Samsung provides the specific hardware required to make the shiny rectangles of various sizes to work properly. 

Citing the source:

"Samsung Electronics recently asked Apple for a significant price raise in [the mobile processor known as] application processor. Apple first disapproved it, but finding no replacement supplier, it accepted the [increase]."

The price hike has already gone into effect, the report said. Apple bought in the region of 130 million Samsung-made mobile processors last year and more than 200 million chips this year to keep up with demand of the iPhone 5 and the new iPads, such as the 7-inch iPad mini.

Samsung's contract to provide chips to Apple expires in 2014.

By then, it may be likely that Apple designs its own chips, gaining further control on its iPhone and iPad supply chain. Late last month, former Apple hardware chief Bob Mansfield was appointed a senior vice president of technologies, where he is charged with bringing the firm's semiconductor and chip-making efforts in-house, cutting out third-party suppliers such as Samsung. 

Also, Cupertino recently hired former Samsung and AMD chip veteran Jim Mergard, suggesting Apple wants to retain much of the functionality as provided by Samsung chips -- it would make sense as it would allow backwards compatibility with previous device versions.

We reached out to Samsung for a comment but did not hear back at the time of writing. Apple probably wouldn't comment even if we sent the firm a giant basket of muffins, but we put in questions to the company anyway.

We'll update the piece if we hear back.

Topics: Apple, Hardware, Processors, Samsung

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37 comments
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  • Sometimes I wonder about contracts . . .

    "Samsung's contract to provide chips to Apple expires in 2014."

    Sometimes I wonder why businesses seem so eager to accept the entire concept of contracts, as it generally means a great degree of inflexibility.
    CobraA1
    • Done properly

      it provides for far more stable trading. Would you prefer to know under what terms you were trading for a fixed period or leave it to chance? If apple allowed a clause where prices could rise by 20% mid-contract, I'm confident that they would also have get-out clauses. Unfortunately for them, they can't find a comparable source/chip for what they need.
      I don't know whether the contract was made public (unlikely) but I'd guess that without it, the price of these chips could have gone a lot higher!
      Little Old Man
      • The report is nonsense; there is no way to suddenly raise the price under

        ... those type of contracts. The more so it is not possible with Apple.

        And the initial "source" is just one of Korean newspapers, not any direct source within Apple or Samsung that MarketWatch could have.
        DDERSSS
        • Under what contracts?

          Unless you've seen the contracts in question, the obvious thing for us to do is ignore your comment completely.
          Feel free to publish links to the contracts so we can see the specific terms detailing the maximum price increases based on market conditions etc. If you can, I'll step back and call BS on the article. If not, what causes you to spout BS so much?
          Little Old Man
        • wha?!?!

          Because you assume the contracts don't have clauses for price adjustments or yearly options??? What kind of stupid contract would that be?
          rengek
        • I told you

          I said this would happen and the zealots all slammed me.
          you didn't believe me then and you are still in denial.
          It's amazing what cult followers will believe.
          while in the real world, contracts are not one-sided and pricing is negotiable.
          Samsung didn't get where they are by being a puppet manufacturer, they know how to do supply contracts.
          warboat
    • It's necessary

      Apple makes a huge number of devices -- they needed a guarantee of supply. Given that Samsung makes processors for themselves, and sells them outright, it's pretty risky on Apple's part to assume they'll be given priority access to Samsung's fab capacity for their customized (the A4 was a customized version of a Samsung SOC) and custom (the A5 and A6 are Apple in-house designs) parts. Thus, the contract.

      Samsung, on the other hand, has to plan capacity, build new or expand existing fabs as needed, etc. They have to grow their own business while meeting contract demands from any contracted buyers. They need that buy to be guaranteed for some time to properly make such decisions.
      Hazydave
      • How does Apple expect to keep up

        If they make their own chips they will surely fall behind. Just because they hire a few gurus doesn't mean they can stay ahead of the big boys in chip manufacturing. Intel is primed to take over the mobile market in 2-3 years...don't believe? Score some corn and watch the show.
        Rob.sharp
    • Nothing to wonder about

      Offer
      Acceptance
      Consideration

      You enter into a contract when you buy a 5 cent piece of bubblegum at the corner store.

      If you don't include all relevant details after that, you will have one heck of a time in the court room.

      The judge will ask himself/herself: What exactly did the parties contemplate or agree to?

      Samsung will probably need more and more of its ship capacity for its own products and does not care too much if it pi$$es Apple off. I guess they will try to make Apple pay for all those stupid law suits costs.

      Payback time?
      D.T.Long
      • Damn missing edit button

        should be chip capacity, not ship capacity. Does Samsung build ships too? ;-)
        D.T.Long
        • Actually, yes Samsung builds ships

          http://en.wikipedia.org/wiki/Samsung_Heavy_Industries

          According to Wikipedia, it "is one of the largest shipbuilders in the world and one of the "Big Three" shipbuilders of South Korea."
          illdini
          • Nice slogan?

            Samsung: from chips to ships?

            Copyrighted ;-)
            D.T.Long
        • Samsung ships it

          Samsung probably built half the ships that carry Apple products from Foxconn to the USA.
          warboat
      • From Anandtech:

        ""Samsung Electronics recently asked Apple for a significant price raise in (the mobile processor known as) application processor," the person was quoted as saying in the report. "Apple first disapproved it, but finding no replacement supplier, it accepted the (increase.)"

        Apple was, understandably, was unhappy with the price hike and initially refused to pay it. However, it came back and agreed to pay the additional costs when no alternative provider could be found."
        D.T.Long
    • It's almost over

      Apple has no choice as they don't produce a single part in any product they make
      The trip down the hill to oblivion is close at hand.
      sickntired44
    • Concept of Contracts

      Contracts are documented agreements that provide a description of the goods and services to be provided, and the payment terms. If there are any legal disputes contracts come in really handy, since verbal agreements are so hard to prove in court.

      But the "Term" of the contract usually defines the "MAXIMUM" period the agreement will last, and there are usually weasel clauses that either party can terminate at any time. It's a Samsung chess move because of the patent case. Quid Pro Quo, you try and shut me down and I will shut you down, or you try to take money from me and I will take it back from you.
      bigpicture
  • Hmmm ... The "Giant Basket of Muffins" approach ...

    ... while it may not always be effective, you still gotta like it ...

    Ludo
    Ludovit
  • Well...

    "Samsung has hiked the price of its mobile processors by 20 percent, but to only one of the Korean technology giant's customers: Apple."

    After all the biting the hand that feeds you... Honestly, is there anyone who didn't see this coming?
    Badgered
  • Round 2 goes to Samsung...

    This is brilliant. Apple will end up giving Samsung the money to pay the court-imposed fine back to Apple. Their strategy of litigation against Google's Android not directly but through OEM's including Samsung always baffled me. Especially since Samsung was an irreplaceble (in the short term) supplier of critical components. Myopic to say the least.
    Not being an Apple fan boy i have always respected the company's innovation and drive. But their latest beligerance based on highly generic or unoriginal patents had eraised a lot of good will towards the company. A generic pencil drawing of a tablet, a slide to unlock feature, etc. etc. Common... Throwing all of that money at the lawyers to enforce those dubious claims seeking the most rigid sanctions against the competitors, rather then spending it on true innovation smells of desperation and creative bancruptcy. US patent system is broken judging by the questionable patents Apple was able to accrue. But even for the valid patents the solution is to license and move ahead, not try to stifle competition completely, especially since Apple cannot possible manufacture enough products for everybody. It's a kindergarden stance of "If i can't have it, nobody can."
    The only hope is that Apple's new leadership will see the error of their ways and come back into the light.
    outre99@...
    • Rock and hard place

      "So, is samsung willing to licence all these crazy patents we managed to get signed-off?"
      "No Steve/Tim, they said we should shove them where the sun don't shine"
      "Well lets sue the sh*t out of them then"
      "Yeah great idea, errrrrr, what are we doing for chips going forward???"
      Little Old Man