Should Samsung dump Apple as a customer?

[thermal]

Thanks to Apple, Samsung cannot sell their tablet in Europe for the time being. Should Samsung send Apple a message and refuse to do business with them out of principle?

 

[Stuntman]

If Samsung stops selling parts to Apple, how much will Samsung lose? If Samsung cannot sell products in Europe (or more likely will have to delay the launch), how much will Samsung lose? They will have to choose the one that most financial sense. I don't know the numbers, so I cannot say.

 

[B2L]

I would say yes, but overall it would be a bad business decision on their part. Apple is expected to purchase $7.8 billion in Samsung components this year alone. They are currently Samsung's largest customer.

 

[ardchoille]

Heck no, don't dump them. Teach them a lesson about "pooping in one's own nest".. raise the prices of the stuff Samsung supplies to Apple to compensate for the lost sales

 

[jroc]

Money talks... and ....

Knowing how I am I would. Then again...money talks and....

Just saw an article the other day where they arent using LG anymore for the screens, but Samsung.

 

[EarlyMon]

These sort of supply agreements are almost certainly under strict contract control.

Samsung is the Samsung business and they are without a doubt looking at their options very carefully.

The outcome of this is going to prove interesting to say the very least.

 

[thermal]

I would say yes, but overall it would be a bad business decision on their part. Apple is expected to purchase $7.8 billion in Samsung components this year alone. They are currently Samsung's largest customer.

There's more to life than money: there's the principle of the issue as well.

 

[ardchoille]

These sort of supply agreements are almost certainly under strict contract control.

True, perhaps Samsung need to add a "if you sue us our prices will increase" type of clause to future contracts.

 

[Vihzel]

Business contracts. Breach of contract is NOT GOOD and Apple can easily sue for the breach... so Samsung loses even more billions to Apple.

Smart business decision.

 

[cds0699]

There's more to life than money: there's the principle of the issue as well.

There is a difference when it's a company as large as Samsung. They have investors and financial interests to protect. They can't simply make decisions based on principle.

 

[EarlyMon]

There's more to life than business: there's the principle of the issue as well.

But which principles apply? Western ones?

I've spent significant time in Korea - their businesses are protected by their government like you would not believe - and their legislative rhetoric includes wording that reminds of the days of privation and starvation during foreign occupation.

This is a battle that Apple will regret - this time, their lawyers were too clever by half.

Or - they both already mapped out an end-game for this and we won't know the details for 10 months.

For all we know, Apple accompanied this move with offsetting orders to more than double or triple Samsung's losses.

Not a far-fetched thought - suppress a competitor in a market where you might be able to control prices as opposed to being crushed out of a business segment altogether.

Deals in the tech industry are like quantum effects - they're not stranger than you imagine, they're stranger than you can imagine.

But the day one Korean loses his job and faces privation over a move by Apple is the day where this game will change significantly.

 

[Stuntman]

There's more to life than money: there's the principle of the issue as well.

This is business we're talking about here.

 

[EarlyMon]

This is business we're talking about here.

Some businesses are completely unprincipled - while some companies are.

And then there are the company principles that may not match those assumed by the statement.

I know of one multinational firm that can, has and will give princely sums to protect their name image - while others operate on other principles and just don't care.

Question here is which will Samsung care about - total short-term profits at the end of the day - or insistence on prestige of not being locked out of a market at the end of this round?

Both affect the bottom line just in different ways - so I'll ask again - whose principles? What's the business?

 

[mrsbelpit]

About 4% of Samsung's revenue comes from Apple. It seems that apple is shopping around for a new supplier right now, anyway, and my emotional reaction to this is that I would love to see sammy cut them off because it would be AWESOME. But Samsung has a business to run, and would not breach a contract.

 

[EarlyMon]

But Samsung has a business to run, and would not breach a contract.

Unless the penalty is less than the losses they'll suffer otherwise.

Hypothetically - if it cost you X amount in penalties to breach that contract - but you could screw Apple and increase your demand in their place by creating a shortage of iProducts - and your projected win is X - would you?

 

[mrsbelpit]

^I think they also have a reputation to uphold, and they would come out looking like the proverbial bigger man, thus earning additional respect. But then again, you don't want to look like a doormat, either, so, excellent question.

 

[Vihzel]

Hypothetically - if it cost you X amount in penalties to breach that contract - but you could screw Apple and increase your demand in their place by creating a shortage of iProducts - and your projected win is X - would you?

I'm not sure how you would increase demand for your own product. Wouldn't demand increase dramatically for the iProducts since there's a shortage of them? I remember when the iPad 2 was released... demand was huge because there was a constant shortage. I don't know how many of those people decided to get an Android tablet instead because of an iPad 2 shortage. Those people just wanted iPad 2s even more and as a result, would pay a higher amount of Ebay for them.

The thing that I would be worried about for intentionally breaching a contract out of principle would be losing my job. I know my stockholders would not be happy with losing billions simply due to "principles" and I believe that I would become a liability because who knows when the next time will be when I breach another contract intentionally and lose more billions for the publicly traded company?

That would seem to be like a career limiting move because I would probably get fired and have to find a position at another job with them knowing that I intentionally breach contracts out of "principle". All hypothetical of course.

 

[EarlyMon]

I'm not sure how you would increase demand for your own product. Wouldn't demand increase dramatically for the iProducts since there's a shortage of them? I remember when the iPad 2 was released... demand was huge because there was a constant shortage. I don't know how many of those people decided to get an Android tablet instead because of an iPad 2 shortage. Those people just wanted iPad 2s even more and as a result, would pay a higher amount of Ebay for them.

The thing that I would be worried about for intentionally breaching a contract out of principle would be losing my job. I know my stockholders would not be happy with losing billions simply due to "principles" and I believe that I would become a liability because who knows when the next time will be when I breach another contract intentionally and lose more billions for the publicly traded company?

That would seem to be like a career limiting move because I would probably get fired and have to find a position at another job with them knowing that I intentionally breach contracts out of "principle". All hypothetical of course.

Again - what principle are you restricting your point of view to - a personal one?

Honesty is the best policy?

Or the principle of protecting your shareholders?


Playing hardball is often seen by analysts as having courage that your own products are that good - and can make your shares rise - not decrease because you breached one of many thousands of contracts.

And - contracts are breached fairly often - it's why they come with penalty clauses.

This creates demand for iProducts (as well as many others):

• Our product is in such high demand, you have to wait to get one!

Consumer translation: it is that good.

This lessens demand for things:

• That product is no longer available because they tried to rip off their supplier - who just happens to make the same kind of product that is available now.

That's exactly the sort of battle that Apple has started over Sammy products - there would actually high principles indeed to not lay down and take and position your rhetoric in the market (both on Main Street as well as Wall Street) to turn the tables and do the same.

And it would be far from a career-limiting move. It would be seen as the sort of move by a person in business to do business and not just follow the rules on paper.

And it would not be a move made in a vacuum - it would be a senior management move made with consultation from marketing, legal - oh, how there would be legal counsel involved first! - and from board members, if not officially, then on the golf course.

And these power plays work precisely because there is a large contingent of any buying market that keeps it simple: I was choosing between A and B, they were out of A, so I choose B.

Rebuttal - You wanna know why they were out of A?

Common answer - No, not really - I bought one of my choices, I don't have to time to play fan and look back - I've moved on to my next purchase.

And the buyers that are brand holdouts won't affect your numbers. The guy wanting an iProduct might get 10 times as pissed off for not getting one, but he won't buy 10 iProducts to make up for anything.

Nor, with all of his ranting and complaining, will he influence further sales of iProducts.

Instead, he'll likely create a Streisand Effect local to those he knows, and will drive others into believing that only raving loons care about iProducts.

~~~~~~~

Depending upon a combination of market projections, legal strategies and corporate culture, breaching the supply contract in an effort to beach Apple could be possessive of the highest standards in business principles: financially rewarding for the practitioners and shareholders and swaying market opinion to your product.

If successful, that's the stuff dream bonuses are made of.

Business ethics, properly exercised and recognized, are often higher than personal ethics.

It's a matter of consistency.

Suppose you promise to loan me $20. We agree, we shake hands.

Then, I kick you in the crotch and rip off your jewelry.

And after you're well enough to rise, I looked you in the eye, smiled and demanded - on principle - while shaking your hand and calling you pal, that you give me that $20 you agreed to supply to me.

I've never met anyone who would go for that (except out of fear of being kicked again).

Most people would say the $20 promise died during the attack - and that that was a principle.

Business principles are simply uncomfortable because they define goals in no uncertain terms and don't hide their nature.

Again - I ask the question - what principle would be violated were Samsung to breach this contract under the scenario I've laid out?

~~~~~

PS - Re-think your ideas about price vs. supply and demand. Apple could try to increase prices - but it would put nothing in their coffers if they could not supply the demand due to a lack of parts.

Clarify your thinking, you'll see that your eBay comment actually works in my argument's favor.

Not a dime made on eBay goes into Apple's or Samsung's coffers, beyond that for the purchase price in their country of origin.

Increase price - reduce demand -> EVERY time.

Without parts - eliminate supply -> EVERY time.

 

[Bob Maxey]

Deals in the tech industry are like quantum effects - they're not stranger than you imagine, they're stranger than you can imagine.

I could tell tales out of school. I dealt with odd and curious things regarding Rockwell Modem Chip Sets and our LCD manufacturers. When lots of manufacturers must purchase a finite resource, it is like the western water battles.

Perhaps one day I'll write an epic tomb. Perhaps tell about the bomb found in an employee's locker when the fine folks from Ireland visited. One could certainly run with that paring.

You are correct, Early . . . it is amazing things happen at all.

 

[chris2k5]

No Samsung would be crazy to dump their biggest customer.

If anything, Apple has Samsung pinned. Motorola knows they are next which is why they ran to Google for protection. If anything, Samsung should have been more original in their designs so they didn't come off as copying.

 

[EarlyMon]

Apple having Samsung pinned is a matter open to future historians.

 

[_mw_]

If anything, Apple has Samsung pinned. Motorola knows they are next which is why they ran to Google for protection. If anything, Samsung should have been more original in their designs so they didn't come off as copying.

*blink*

I don't see how a company with the second largest IP portfolio after Microsoft needed protection. Nor do I see how it's so easy to differentiate on a basic geometric shape. It's a flat rectangular touch screen device. Maybe they should have put spikes on it, or made it triangular?

 

[Bob Maxey]

Apple having Samsung pinned is a matter open to future historians.

Yes indeed. Samsung sells lots of stuff to Apple, but there is no reason to say it will always be that way. If I were a vendor or manufacturer, Apple would be a highly desirable company to do business with.

I know for a fact, I/we could build iPads here in Utah. We have the smarts and lots of people to do assembly. Nothing special about the iPad

 

[NatesMom]

Unless the penalty is less than the losses they'll suffer otherwise.

Hypothetically - if it cost you X amount in penalties to breach that contract - but you could screw Apple and increase your demand in their place by creating a shortage of iProducts - and your projected win is X - would you?

As much as I would love to see Sammy give Apple the bird, I don't think they can do that. The semiconductor division (which is who makes the money by supplying the components to Apple) is a different entity than Samsung's mobile division. I read somewhere that the mobile division is just like any other customer of Samsung's foundry business and are not given preferential treatment of any of their components. Nor, as someone noted, do I see how a shortage of supply would suddenly decrease a competitor's demand and increase yours.

However, I do see Samsung being aware of their deteriorating relationship with Apple and are probably expanding their foundry business to find a 'new' Apple-like company to do business with.

I'm sure they can't severe their ties any time soon. I don't know if Apple can find any other company that can make DRAM and flash memory in the scale & quality as Samsung.

 

[jroc]

No Samsung would be crazy to dump their biggest customer.

If anything, Apple has Samsung pinned. Motorola knows they are next which is why they ran to Google for protection. If anything, Samsung should have been more original in their designs so they didn't come off as copying.

More like Google wanted those Motorola patents...what are you even talking about?