Samsung announced Monday that it will end its deal with Apple to provide displays for the Cupertino company’s various iDevices, according to The Korea Times. The Korean electronics maker claims that the decision to end the long-time agreement is not related to the two companies’ bitter and ongoing legal battles around the world, but is instead related solely to cost concerns as Apple continues to demand lower prices from its supply chains.
“We are unable to supply our flat-screens to Apple with huge price discounts. Samsung has already cut our portion of shipments to Apple and next year we will stop shipping displays,” a senior Samsung source, speaking on the condition of anonymity, told The Korea Times.
Samsung was the largest supplier of of LCDs to Apple for the first six months of 2012, with 15 million units, although Apple has begun to seek alternatives to Samsung for parts as the relationship between the two companies has disintegrated. Samsung supplied only 3 million LCDs to Apple in the third quarter of 2012, and Samsung executives predict that number will fall to 1.5 million in the fourth quarter.
Further, Samsung has had no involvement in the displays for Apple’s “iPad mini,” which is expected to debut tomorrow, October 23.
Samsung claims that the loss of Apple as a customer will not significantly impact the firm’s business. In addition to the already diminishing orders from Cupertino, other electronic divisions, including Amazon and Samsung’s own mobile unit have reportedly upped display orders recently, offsetting any loss from Apple.
“Although we are losing Apple business, Samsung looks safe as we found the right alternatives — Amazon and Samsung Electronics’ handset division,” the Samsung source stated.
Supporting the notion that Samsung’s decision may have been made primarily on economic grounds, The Korea Times reports that the margins on displays have fallen dramatically in recent quarters. Manufactures like Samsung were able to charge on average US$0.000063 per pixel on LCD displays before the launch of the third-generation iPad.
After the new iPad’s launch, which included a dramatic increase in pixel density, the price per pixel was more than halved, to $0.000030. As explained by Forbes, raw materials for manufacturing displays make up very little of the part’s final cost, with most capital tied up in creating and updating a company’s manufacturing facilities. This means that companies like Sharp, which already has display manufacturing facilities and is desperate for cash flow, can offer displays to Apple at increasingly lower prices.
In the case of Samsung, it appears that the price demanded by Apple simply fell too low. It is, of course, also quite possible that the legal battles between the two companies played a role in the decision making processes employed by Samsung’s executives, but the economic impact of Apple’s demands on its supply chain cannot be ignored as simply a cover for another line drawn in the sand.
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