Samsung will ship half its processors to Apple in 2011

January 28, 2011 10:40 AM EST

Apple and Samsung are old frenemies. The last thing Samsung wants to do is damage Apple's 'iBusiness', despite the popularity of its own Android-powered Galaxy range. Samsung will this year quadruple the number of advanced mobile processors it sells to Apple -- handing over half its manufacturing output to Cupertino's ascendant iOS family.

"Samsung has agreed with Apple to quadruple monthly shipments of its mobile AP chips to 20,000 sheets throughout this year from 5,000 last year," said an industry source, citing Samsung’s suppliers as reported by the Korea Times.

Cool runnings

Apple currently uses its self-designed A4 processor inside the iPhone 4, a chip it developed using acquired internal expertise and that of Intrinsity, which Apple also later acquired.

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Built for Apple under contract by Samsung using that company's 45nm process, the A4 (which starts with the ARM Cortex-A8 CPU) is now inside the iPhone, iPad, iPod touch and Apple TV. These are low-power but powerful chips, a lot of brains in machines that won't fry.

In a sense, the deals between Apple and Samsung define the phrase, "Frenemy". The two are modern business allies, who compete and cooperate all at the same time.

The two firms have a relationship that goes all the way back to 1999, when Apple invested $100 million in order to expand Samsung's flat-panel display production capacity. This was to protect component supplies for the iBook (then a type of Mac, rather than a virtual bookstore) and PowerBook laptops.

Samsung also makes screens and memory for Apple devices.

Apple prepares for quadrupling demand?

The Korea Times tells us Apple was receiving about "5,000 application processor sheets per month from Samsung," this will now increase to 20,000 sheets. This also implies Apple is preparing to deal with quadruple the demand for iOS devices this year. Today, Apple sells two iPhones every second.

Samsung said today it aims to sell 60 million smartphones this year -- will this target be confounded by Apple-created shortages within its own internal supply chain?

Speaking during its most recent financial call this morning, Samsung said it expects "intensified price competition for set products and price declines for major component products" in 2011.

Samsung heads for the hills

Samsung is also building a $3.6 billion chip processing factory in Austin, Texas, the company said.

This is highly interesting in light of Apple COO, Tim Cook's recent disclosure that Apple has an outstanding $3.9 billion component supply deal -- with persons unknown.

Cook was scant on detail of that deal, though he did refer to it in his talk with analysts, saying, "with the A4 chip, we didn't feel like we had to invest in the fab itself and build the fab because we felt like they were good options in the market for doing that, but not good options in terms of buying a design, and so we really focused on design."

In the past, Apple has arranged similar deals to secure SSD flash memory and display components. The new deal sees a series of smaller payments planned going forward.

"These payments consist of prepayments and capital for process equipment and tooling. And similar to the flash agreements, they're focused in that area we feel is very strategic," Cook said.

Interesting as it is to speculate on Cook's admissions on the basis of the spike in Samsung's share price which emerged on January 17, on the eve of Apple's fiscal call, Apple named no names. There's no saying Samsung is the beneficiary. Many think Apple's paid various makers in order to secure displays for its future devices.

Samsung's move to open a factory at the heart of what has become known as "Silicon Hills" is of some interest. The number of mobile and tech industry firms with a presence in the region is growing fast, with at least one major US mobile telco based up the road in the same state.

Korea Times says it this way: "In an apparent scheme to ship more of its mobile processors to Apple, Samsung is building a $3.6 billion chip plant mainly to produce non-memory chips in Austin, Texas, according to Samsung officials."

Join which dots?

Which raises a new set of speculations. Speculations I will quite openly admit constitute a huge stretch -- see where they take you...

  • We all know Apple's Lion OS will borrow many of the most logical elements of the iOS.
  • We also know that iOS developers are finding it fairly straightforward to re-design their iOS apps for sale at the Mac App Store.
  • This means they are creating Apps which run just as happily on an Intel processor as on a Samsung-produced Apple-designed A4 chip.
  • Traditional OS X designers, too, are developing ever more experience on Apple's mobile processors -- even Microsoft is pondering Office for your iPad.
  • Apple has learned well how to manage transition...
  • Just how deeply strategic is the relationship between Apple and Samsung? Will Apple's insistence on controlling the "whole widget" one day extend all the way to the processor inside all its machines?

What do you think? You know the drill -- speak your speak in comments below. I'd once again like to invite you to follow me on Twitter so I can let you know when these items are published here first on Computerworld.