Dilemma for Samsung in relationship with Apple

As Samsung and Apple products go toe to toe, the two companies are now more dependent on each other than ever. Apple heavily leans on Samsung for parts, while Apple accounts for a notable chunk of Samsung’s revenue.

The relationship has presented a dilemma for Samsung, as it tries to strike a balance between friend and foe.

It has been about seven years since Apple turned to its rival Samsung Electronics for flash memory, seeking more energy-efficient chips to extend the popular iPod music player’s battery life. And since then, Apple has not only become Samsung’s largest client, but is also one of its biggest competitors in electronic devices.

Samsung has never specified which parts it supplies to Apple. But when consumers disassemble the iPod, iPhone, and iPad, Samsung’s A4 central processing unit, NAND Flash, DRAM, and liquid crystal display panels are there in plain sight. Industry sources also say Samsung is in the running with LG to become the main display supplier for the second version of the iPad. Apple will place an order worth of $7.8 billion in parts for future productions.

As for the iPhone 4, Samsung parts account for 27.5 percent of the device, which amounts to $187.51 per iPhone, according to iSuppli, a research firm.

While Samsung and Apple are more and more indistinguishable under the hood, they have competed fiercely in the tablet PC and smartphone markets. Samsung’s Galaxy S smartphone and Galaxy Tab tablet PC are giving Apple’s iPhone and iPad a run for their money.

In the smartphone market, Samsung has outsold Apple in Korea, but Apple remains far ahead globally. In terms of sales, the Galaxy S has been a lifesaver for Samsung’s mobile handset division, after its predecessor, the Omnia, was considered a failure.

“The Galaxy S last year prevented our company from suffering the failings of some well-known opponents of Apple’s aggressive position in the global smartphone market,” said a Samsung Electronics official. “Although the previous versions of the Galaxy S, such as the Omnia and Galaxy A, weren’t successful products, the Galaxy S has allowed Samsung to compete toe to toe with leaders such as Apple.”

When Apple CEO Steve Jobs announced he would take medical leave two weeks ago, rumors that he had less than six weeks left to live swept through the media. Samsung Electronics’ stock prices leapt to more than 1 million won ($887) during that period, marking its highest ever per share price.

“The relationship with Apple will continue to be positive and beneficial for Samsung Electronics because Samsung is probably one of the few companies that can live up to Apple’s standards,” said Shin Hyun-joon of Tong Yang Securities. “The environment is changing because Apple’s customers mostly consisted of die-hard fans who purchased the product for a higher price, but with the iPhone, that barrier has been broken and Apple’s products are widely used.”

The analyst predicts that Samsung is capable of reaching the top two in smartphone sales within a few years.

No one underestimates Samsung. It was only five years ago that the electronics giant dethroned industry-titan Sony as the biggest television producer in the world.

Since then, it has only strengthened other businesses, such as cameras and camcorders. Samsung’s semiconductor unit is due for a rebound as analysts expect DRAM prices to jump soon.

Yet Samsung still has many hurdles to overcome.

“Samsung is continuing to take the strategy of rolling out mass amounts of new products, then going ahead with one that succeeds in appealing to consumers,” said an analyst who asked for anonymity. “If it is to lead the industry, it will need to have one core product and go with it because the company is already enjoying its fine share of parts sales to companies like Apple.

“If it relies too much on parts sales and the client diversifies the supply source, Samsung will be faced with obstacles. What the company really needs is a proper attention-grabber that will reach the hearts of everyone around the world,” he added.

By Jung Seung-hyun [seungjung@joongang.co.kr]