Samsung forces Apple to pay 20% extra for mobile processors, while Apple makes HTC pay $8 per device royalties

If you are Samsung, what do you do when one of your largest customers (Apple — they purchase billions of dollars worth of components from Samsung each year) is attacking you through litigation? You make them pay more for the parts they buy from you!

You see all the processors used in Apple iOS devices (iPhone, iPad, and iPod touch) are Apple processors but they are fabricated (i.e. manufactured) by Samsung. And, according to a report by MarketWatch, Samsung has recently increased the price of processors it makes for Apple by 20%.

Quoting “a person familiar with negotiations between the two tech giants”, MarketWatch claims Apple first rejected Samsung’s price hike but eventually agreed when it realized that Apple couldn’t find anyone else to fulfill the orders:

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 best part? Samsung has a contract with Apple to fabricate Apple processors until 2014. Seeing as Apple bought an estimated 130 million processors from Samsung last year and will buy an estimated over 200 million by the end of this year, the 20% price hike by Samsung will easily offset the $1.05 billion it is being forced to pay Apple. Though the price increase and legal fine are probably (mostly) unrelated, it is hard to not see this as karma for Apple.

In other news, rumor has it the recent Apple-HTC patent licensing agreement will have HTC pay Apple a good amount of per device royalties.

Quoting “conversations with industry sources”, Sterne Agee analyst Shaw Wu claims Apple will be paid $6 to $8 per Android device that HTC sells. That will result in $180 to $280 million changing hands per year between the two companies, if HTC continues to sell the 30-35 million Android devices a year. It should be noted, however, that HTC is quickly falling behind as an Android vendor so how long Apple will enjoy that fruits of its legal prowess is anyone’s guess.

[via BGR (1), (2)]

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  • Ashraf

    @AT: Did you results talk about newer products? You may be right — I haven’t researched it — but from off the top of my head, Samsung used to supply the screens but isn’t that big of a supplier anymore. They are more memory chips, storage, and processors.
    @jayesstee: We *can* tell them to stop something we don’t like. Any shareholder of a public company has the right to contact management to give them a piece of our mind. The issue is management doesn’t have to listen until a majority of shareholders speak up. The challenge here is convincing a majority of the shareholders that you or I know what is better for the company than management.

  • jayesstee

    @Ashraf: You said:
    “@jayesstee: Why…? You do realize that the people who own these companies are the shareholders. Keep in mind corporations aren’t people in and of themselves — they are owned by people like me and you.”

    If we “own” them, why can’t we tell them to stop some of the stupidity?
    Answer: Cos’ we don’t really own them, they just use our money (via savings, pension funds and possibly direct investments). We don’t have a say.
    If there was the potential for a crippling fine, they would clean up their act(s) “over-afternoon” (faster than overnight!)

  • AT

    @Ashraf: Samsung does supply Apple with iPad screens. iPhone screens are harder to determine. I Googled “Apple parts” “Apple teardowns” “Samsung parts in Apple products” to confirm what I read and heard from the past.

    As the manufacturing process can be very fluid when it comes to suppliers, sub-contractors may purchase from rivals (under license) to maintain production.

  • Ashraf

    @AT: While you are right about the memory chips, Samsung doesn’t do most, if any, of iDevice screens. Screens are mostly handled by LG and Sharp, as far as I know.
    @zingorules: I highly doubt it. People have come to expect a certain price point from Apple. Apple has enough margin to absorb the extra cost and that is what they will do in my opinion.
    @jayesstee: Why…? You do realize that the people who own these companies are the shareholders. Keep in mind corporations aren’t people in and of themselves — they are owned by people like me and you.

  • jayesstee

    These guys are playing a form of “Monopoly (TM)” with our money. The National Governments should put a high tax (99% ?) on all these transactions.

  • zingorules

    I want to see if this actually effects the prices of Apple products in any way.

  • AT

    Who did not see this coming? Seriously. Who?

    And doesn’t Samsung manufacture most of the touchscreens used by Apple. Let’s not forget the memory chips.

    If Samsung lowers prices on their own devices, that would be the real kicker.