Last April, Apple sued rival electronics maker Samsung, accusing the company of creating devices that copy the look and feel of hardware and software found on the Apple iPhone and iPod. Samsung executives replied by filing a complaint accusing Apple of violating patents related to mobile devices.
Yesterday, Samsung continued that strategy by asking the U.S. International Trade Commission (ITC) to ban the import and sale of devices including Apple’s iPhone and iPad. As The Wall Street Journal reports, the suit appears to be part of a broad strategy by Samsung to fight Apple’s lawsuit over the design of its smartphones and tablet computers with a barrage of litigation around the world. So while Apple is moving toward seeking a preliminary injunction in the initial case—filed in April in a federal court in San Jose, Calif.—that might limit Samsung’s ability to sell its smartphones and tablet PCs in the U.S., Samsung has countersuits pending in a number of countries along with its filing with the ITC.
What’s interesting here—other than the two strategies, of course—is that although Apple and Samsung are smartphone and tablet computer competitors, they also have a customer-supplier relationship. Indeed, Apple is Samsung’s largest customer, and is expected to purchase nearly $8 billion in components from Samsung this year.
Naturally, then, news of the lawsuits and counter suits prompts some observers to speculate that Apple might try to end its supplier relationship with Samsung. However, as The Journal article explains, such a move would be costly to Samsung’s chip business. It would also be challenging for Apple to find other suppliers able to deliver sufficient parts at Samsung’s volume and price.
Nevertheless, rumors abound. For example, there is speculation that Apple plans to move away from Samsung for supplies for its custom-built ARM processors. According to an AppleInsider item, the shift could begin starting with the “A6” chip in 2012, when Apple may transition production of its custom ARM chips to a new chipmaker. Apple executives have said that they expect the relationship with Samsung to continue, and Samsung executives decline requests to comment on the situation.
In the end, there are two interesting dynamics at work here. The first, is what can potentially happen when rivals also have customer-supplier relationships. This is nothing new, however, as we’ve also watched similar stories develop in both the cellphone and A&E markets.
I’m most interested in the approaches used by Apple and Samsung. So on the one hand, Apple has focused on its ability to design distinctive—and, ultimately, extremely sought-after—products. Customers are excited about new designs and line up around the block to purchase these new products as soon as they are available. Taking that approach has allowed Apple to charge premium prices and reap larger profit margins. On the other hand, Samsung has focused on technology patents rather than design, and consequently has concentrated on developing components, related technologies and manufacturing capabilities.
It seems that, so far, Apple’s strategy has paid off. After all, the company has been able to boost both its profit margins and its sales in recent years. And while Apple clearly has its rivals, it also dominates the market.