Apple and Samsung are riding high at the top of the smartphone market. Approaching a 50 percent share of all smartphones sold, the companies look untouchable right now. That mutual success is built upon a foundation of co-operation. Samsung has long supplied parts for Apple devices and you might argue that Apple has provided “inspiration” for Samsung devices. These giants of tech have a lot of fingers in other pies, from laptops to TVs and beyond, but the mobile space is where they have clashed.
Bringing considerable financial muscle to bear in the courtroom has led to the biggest legal battle in tech. This is a heavyweight clash the likes of which we’ve never seen, yet while armies of lawyers go to war in courtrooms around the globe, business continues to flow and phones continue to sell. But lately, the rumblings of a complete split have been growing louder. We’ve heard rumors that Samsung will raise prices or cut off the supply of parts to Apple. We’ve heard that Apple is courting new suppliers and preparing for change. Is a break up inevitable?
If you want to view Apple and Samsung’s partnership as a marriage then you could argue this legal clash is the messy divorce and the kids they’re fighting for custody over are the profits that were the fruit of their once cozy union. So what happens if they do go their separate ways?
Where did it all go wrong?
If we rewind a couple of years, all was rosy between the two companies. Samsung parts accounted for an estimated 26 percent of the iPhone 4. In 2010 Apple spent billions on components from Samsung and accounted for 4 percent of Samsung’s total revenue. Then Samsung released the Galaxy S smartphone which was hailed as a real competitor for the iPhone. With the Galaxy S, the stage was set. After Samsung finally began to climb the smartphone charts in 2010 and 2011 by creating increasingly iPhone-like devices, Apple decided to litigate.
Is Samsung the victim?
In most divorces there is a perception that one party is initiating proceedings. The person being divorced is often cast as a kind of victim and they get the sympathetic vote from bystanders. Whether it was a natural response or a premeditated strategy, there’s no doubt Samsung has donned the victim mantle here and it has proven to be a great move.
Samsung has always maintained that there is a firewall between its mobile and component divisions. The company did seek a settlement with Apple over the patent infringement claims when the issue first came up. Apple filed a lawsuit in April 2011 and won its biggest courtroom victory to date in California in August this year, which left Samsung with a $1.05 billion damages bill. In the aftermath Samsung released an internal memo stating, “We initially proposed to negotiate with Apple instead of going to court, as they had been one of our most important customers. However, Apple pressed on with a lawsuit, and we have had little choice but to counter-sue, so that we can protect our company.”
The line is that Samsung didn’t really want to break up in the first place. Apple has aggressively pursued court action and refused to try and talk things out. This has definitely caught the public’s imagination. Everyone loves the underdog and when you’re as wealthy and successful as Apple, it’s tough not to appear as a bully, even if your target is a hugely successful multinational electronics giant.
Slow and steady
The idea that these companies are at each other’s throats and execs are out for revenge is probably fantasy. The emotional side of this drama is played out in the comment sections of tech websites like this one, as people identify with one tribe or the other and argue on their behalf. Apple and Samsung are both far too focused on profits to be swayed by any other motivations and it’s naïve to think otherwise. Even Jobs’ famous “thermonuclear” outburst about destroying Android would only be pursued in so far as it served Apple’s interests in the marketplace.
It makes sense for the top two companies in the mobile space, the closest rivals, to spread their dependencies and push apart, but it is a slow process. If this was an emotional split then Samsung would cut off the supply to Apple overnight and cripple its business. Apple would cancel lucrative orders with Samsung immediately and gamble with suppliers elsewhere. The trouble is that both companies would lose money if they did that. Agreements are in place and Samsung can’t renege on them. Apple can’t afford to have supply issues, especially in the run up to the holiday season.
So they continue to occupy the same house, like a divorced couple waiting for the market to pick up before they sell. They are only together until they come up with better options. It’s one of many relationships of convenience in the world.
What happens when they split?
A complete parting of the ways could be good for both companies. Apple can invest some of its huge cash reserves into creating a robust supply chain with suppliers who aren’t competitors. Samsung can focus on its own growing phone business and channel some energy into the next big thing as the smartphone market approaches saturation. Provided the split happens gradually and neither side tries to unexpectedly pull the rug, then they can both emerge relatively unscathed.
The big caveat on that is the outcome of the legal drama. The patent war has tipped in Apple’s favor in U.S. courtrooms, but it’s less clear cut in the rest of the world, with some judgments going Samsung’s way. Barring a series of one-sided results, it doesn’t look like this will do either company any real long term harm, or good.
You could even argue that this slow, high-profile split has been good for both Samsung and Apple. The public loves a good feud. The entertainment industry even manufactures them because they’re good for business. A battle galvanizes support and generates tons and tons of publicity. Since this conflict started, Samsung has claimed the top spot in the smartphone charts and Apple has continued to increase profits. This split, no matter how acrimonious, hasn’t adversely impacted the only measure either company cares about – business is booming. The longer they can stretch this out, the better.