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Apple Might Be the Bigger Loser in the Apple-Samsung Breakup

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By turning to other chip manufacturers, Apple might have to pay more than the ultra cost-competitive Samsung.

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It's widely considered to be one of the biggest head-scratchers in the tech industry: Apple (NASDAQ:AAPL), despite its bitter rivalry with Samsung (PINK:SSNLF), still spends billions of dollars each year ordering components made by the South Korean conglomerate.

But Apple appears to have finally made the decision to break up with Samsung. According to the Korea Times, the Cupertino, California-based company is leaving Samsung out of its project to develop its next-generation A7 application processors for future iPhones, iPads, and other mobile devices.

Previously, Apple had already reduced Samsung's role in supplying displays for its mobile devices, turning to the likes of LG Display (NYSE:LPL) and Sharp (PINK:SHCAY) instead.

An Apple A6 processor. Source: MacWorld Australia
''Apple is cutting the use of Samsung displays for its products. Now the deterioration of ties has expanded to chips. You should remember that the application business is one of Samsung's new growth engines in which the firm is heavily investing,'' an official at a leading parts supplier to Samsung told the Korea Times.

Given the fact the Apple has filed several lawsuits alleging that Samsung has ripped off some of its ideas for use in its Galaxy devices, it is unsurprising that Apple has finally decided to stop relying on Samsung as a chip supplier.

"Rightly or wrongly -- and one can have a debate about that -- Apple seems to believe that by using Samsung as their foundry partner, they are somehow being disadvantaged with Samsung having better visibility of its roadmap, what features it's going to implement, etc.," Dr. Richard Windsor, founder of the mobile-focused blog Radio Free Mobile and a former tech analyst at Nomura, tells Minyanville. He also notes that he believes Samsung does not actually take advantage of any knowledge it gains from the Apple relationship.

"In order for Samsung's semiconductor division to make Apple's chips, it's got to have access to Apple's roadmap, but I believe that info is not shared with the handset business. My conclusions from looking at Samsung is that there is an effective Chinese wall in the operations of its different divisions," says Windsor.

(See also: Samsung's Galaxy S4 Will Be the World's Fastest Smartphone, but Does That Really Matter?)

"Samsung has been a major memory chip supplier to mobile phone companies for many, many years. If any of these guys even got a hint that they were unfairly treated by Samsung in the same regard that people are worrying about with Apple, I think those customers would've disappeared a long time ago," Windsor continues.

"Memory is a commodity they can buy elsewhere. There are plenty of other options like SK Hynix (KRX:000660) and Toshiba (PINK:TOSBF). The fact that they go back to Samsung, of course, is because Samsung is a big gorilla in memory and can sell it cheaper than anyone else. But at the same time, they can take comfort in knowing that Samsung is operating as a proper company."
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No positions in stocks mentioned.
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