Samsung holding Apple's innovation hostage, warns IHS
Samsung is the market leader in memory, while Apple (NASDAQ: AAPL) has no memory making capabilities and refuses to use Samsung as a memory supplier, limiting Apple's ability to innovate, according to a new report by IHS.
"While the argument can be made that Apple sees some benefits by not sharing critical prototype design information with Samsung, the fact remains that Apple limits its options by not doing business with Samsung, which places Apple at a disadvantage," said Mike Howard, senior principal analyst for dynamic random-access memory (DRAM) and memory at IHS.
At the same time, the memory industry is consolidating, with only three major DRAM suppliers and four NAND developers remaining. "As Apple's memory suppliers get bigger because of consolidation, they are likely to gain more bargaining leverage. This is a trend all memory buyers will face, and Apple--even with its heft--is not exempt," Howard added.
The few major memory suppliers left are reluctant to develop custom products for Apple, which makes innovation and differentiation more difficult. Apple is at the mercy of its suppliers, observed IHS.
Because Samsung makes its own memory, displays and application processors, it controls production of the major components of its smartphones and tablets, enabling it to make custom memory products for its devices, noted IHS.
"Apple's options to address its memory challenge fall roughly into one of three categories: greenfield, partnership or acquisition. In effect, this means it could buy a memory design company to develop its own custom memory products; it can partner with memory companies; or it can acquire a large existing memory producer," explained IHS.
The most likely acquisition target for Apple would be U.S.-based Micron, which recently acquired Japan's Elpida for $2 billion. The purchase nearly doubles Micron's share of the DRAM market, giving it 28 percent of the market, according to a report by Bloomberg.
"All told, Apple faces significant memory challenges down the road, IHS believes. And while numerous paths are available for the maker to strengthen its handicap, it's impossible to overlook the importance of memory as a critical component for years to come in the devices that Apple makes," IHS concluded.