Apple needs Samsung. Let me put it another way, Apple needs someone to manufacture the OLED screens on its brand new flagship smartphone the iPhone X (pronounced as iPhone 10). And Samsung, its biggest smartphone competitor — is the only company that can do it. We all know Samsung’s stock price fell last year when it had to recall an exploding phone and at the same time it’s defacto Chief Executive was sentenced to jail for bribery and embezzlement.

Most people know Samsung as the company that sells them smartphones, refrigerators¬† and TVs but the strongest part of its business was actually the components it builds for other companies namely memory chips, and displays including the OLED ( organic light-emitting diode) display that’s going into the iPhone X. In these two key divisions, Samsung has the ability to supply products quickly to meet a gargantuan demand.

The name of the game is Market Share

They of course supply their own devices with these components but they want everyone else to turn to them too and they are investing heavily with almost USD 19 billion on new plants in the next four years, to grab a part of the pie.

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In July this year, Samsung overtook Intel as the world’s biggest chip maker and their dominance in OLED is even more extreme. At the beginning of 2017, Samsung has over 90 percent of the OLED market share — basically a monopoly. Which means that when demand for OLED grows, like it has with the iPhone, Samsung grows too. Apple as you might guess hates this situation because Samsung is the only OLED maker in the world who can handle the demand for new iPhones, Samsung gets to set the price.

For reference, KGI securities estimates that Samsung is charging Apple around $120 -$130 for each OLED panel compared to all the LCD screens which only cost Apple about $45- $55 and this might be a contributor to the hefty $1,000 price tag on the iPhone X.

This sort of thing has to hurt Apple CEO Tim Cook, as his expertise is in supply chain — a process of how products get to be made and distributed to customers. When he joined Apple in 1998, he was instrumental in overhauling the supply chain and making it the most efficient in the world. Apple does this by outsourcing pretty much of its production to suppliers mostly in Asia who compete for their business.

Apple’s only Option

In case of OLED screens, Apple has no other choice but to go with Samsung. Apple wanted up to 80 million screens for the second half of 2017. No one else can do that, even Samsung barely has the capacity which is one of the reasons why the iPhone X comes out six weeks later than iPhone 8.

In order to bring its OLED costs down, Apple needs a serious competitor in this space. Which is why it is investing $ 2.7 billion in LG Display, basically a massive cash advance for them to build up their capacity. Google also has the same idea. It is investing $880 million in LG to break the Samsung monopoly.

For the near future though, it doesn’t add up as much, as Samsung is likely to be the major beneficiary in Apple’s OLED needs at least through 2019 and not to mention that they will also be making a huge number of Apple’s chipsets.

A strange relationship

Its one of the most strangest relationships in business. Apple and Samsung have been feuding for years, ever since  2010 when Samsung essentially copied the iPhone with their Galaxy S smartphone. The two companies have been blocked in a legal war for almost seven years that has cost Samsung $ 150 million dollars and may be even more.

In the end it all seems silly, because Apple is still shelling out millions upon millions to it’s arch rival for iPhone and iPad parts boasting Samsung’s huge profit and growth. The iPhone X is sort of the perfect symbol for all this messy relationship and it captures how the tech business works at its highest level. Its dysfunctional marriages like these, where Apple needs Samsung and the latter hugely profiting¬† for the business.

In other words, these two mega companies really need each other.

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