Apple Inc. (NASDAQ:AAPL) is in nothing but a complicated relationship with Samsung Electronics Co. Ltd. On the one hand, they rely on each other for the success of the iPad and iPhone; on the other, they have swallowed up two-thirds of the smartphone market in the U.S. by being stiff competitors in tablet and smartphone sales. What gives? The complications simply come in the composition of Samsung’s business.
Apple Inc. (NASDAQ:AAPL) actually has a very rewarding relationship with Samsung’s component and electronic parts business. That is the part that was not necessarily part of the patent-infringement lawsuit that concluded last week. On that side of the business, all is well – about 26 percent of component cost for the iPhone goes to Samsung – including the processor, memory and displays. On the other side, Apple’s component business makes up 8 percent of Samsung’s estimated profit for the group, according to Morgan Stanley.
The problem for Apple Inc. (NASDAQ:AAPL) has been Samsung’s mobile division. it might be under the same company name, but as Reuters reported it, a legal loss by one division doesn’t affect the company as a whole – the CEO of the company, who oversees the components side, was not at the company meeting that discussed the U.S. jury decision against the mobile division.
But Apple Inc. (NASDAQ:AAPL) knows the delicate balance between defending its innovations and alienating an imporant partner in its empire. Patent analyst and commentator Florian Mueller stated in a blog post, “Apple isn’t that stupid (to risk its Samsung parts deal). Apple’s agreements with Samsung will ensure that Samsung has no choice but to comply and supply.” He seems to think that Apple has made, and continues to make good-faith attempts to settle the case with Samsung’s mobile division to keep the relationship with the components division harmonious.
But why shouldn’t Samsung then stop making components for Apple Inc. (NASDAQ:AAPL) and make it shop for another suppllier? “Samsung’s other customers would lose faith if it turned out unreliable. And since Apple threatened Samsung with litigation two years ago, it’s had plenty of time to identify alternatives,” Mueller wrote.
As long as Samsung’s two divisions remain divided, the battle will continue. But if the mobile division gets decimated by Apple Inc. (NASDAQ:AAPL), that may actually open up more innovation for consumers with perhaps very new designs and appearances that will distingish them from Apple. Which is what Apple CEO Tim Cook said was the company’s plan all along: “For us this lawsuit has always been about something much more important than patents or money. It’s about values. We value originality and innovation and pour our lives into making the best products on earth. And we do this to delight our customers, not for competitors to flagrantly copy.”