Michael Coreleone once said “Keep your friends close and your enemies closer.” Apple and Samsung took the Godfather’s quote to heart and applied it to their business strategy. Although both companies are currently embroiled in a massive billion dollar legal battle, Apple and Samsung are dependent on one another for valuable parts of their business. Currently, all iPads and iPhone 5’s contain Samsung ARM-based processing chips. Likewise for Samsung, Apple represents 80% of their microchip revenue.
It does not make good business sense to rely on your primary competitor for key components of your product line. Apple is beginning to realize this, they have begun move away from Samsung as a key supplier and are in the process of sourcing other suppliers for processing chips. Various online reports show the frontrunners for the creation of future Apple chips as Intel and Taiwan Semiconductor. Intel recently signed a deal with Altera, a Silicon Valley based manufacturer of integrated circuits, to develop microchips on their behalf. By partnering with Altera, Intel shows that it is able to handle large scale production of microchips, the type of scale that a partnership with Apple would require. Since 2011, rumors have circulated that Apple is pursuing a partnership with Taiwan Semiconductor as a potential replacement for Samsung. Taiwan Semiconductor is the largest contract chip manufacturer in the world, with a market capitalization of about $90 billion. According to MacRumors.com, Taiwan Semiconductor will be the manufacturer of its A7 chips, which will be used in the upcoming iPhone 6, due to debut in 2014.
Samsung has begun to counteract Apple’s decision; it is looking to establish partnerships with various technology companies to mitigate the loss of revenue from Apple’s move. Currently, the only publicly identified alternative has been NVIDIA, a top manufacturer of graphic processing units.
From a strategic partnering perspective, Samsung should consider its Apple replacements carefully. Samsung will be looking for companies that can replace the lost Apple revenue, become strategic partners (i.e. a company that can help create new opportunities for business and innovation), and have potential for rapid growth, ideally without becoming another competitor. Of course, they’d probably prefer that their next partners don’t constantly sue them either.