Apple is ready to plug any loopholes in its supply chain to avert shortages, as it has placed a $7.8 billion order for key components used in hand-held devices from Samsung Electronics Co. for this year.
WSJ reported that Apple is sourcing liquid crystal displays, processors and NAND flash memory chips from Samsung. The completion of the contract will crown Apple as Samsung's largest customer.
Apple has lined up key products like its next version of iPad and iPhone 5. iPad 2 is due this April while iPhone 5 is expected to arrive by June this year. The current strategy to block its share of LCD displays could give Apple more mileage. Even as slew of tablets have been launched since CES 2011 with companies like HTC, Motorola, Samsung, LG and HP joining the bandwagon, a squeeze in supply of key components can be the undoing for many manufacturers.
In July 2010, Reuters had reported that LG Display was not able to meet Apple's growing demand for LCD displays fueled by the demand for its tablet iPad as well. LG Display CEO Kwon Young-soo had then said: Demand (from Apple) keeps growing and we can't meet it all. Apple may have to delay launches of the iPad for some countries due to tight component supplies and strong demand. We are considering increasing production lines for iPad products but overall supply is likely to remain tight until early next year.
DigiTimes had reported in December that LG Display will land an estimated 35 million iPad panels order in 2011 while Samsung and Chimei Innolux will each receive orders for 15 million units. It estimated that iPad shipments will reach 65 million units in 2011.
Also in December 2010 Nikkei had reported that Sharp Corp. will invest 100 billion yen or $1.2 billion build new production facility for small and medium sized LCD display. It was also reported that Apple will fund a portion of the investment.
Also PC Magazine quoting Korea Times reported in January that Samsung had signed an agreement with Apple to quadruple production of processors with fallout being that Samsung's semiconductor division will be manufacturing more chips for Apple rather than their own line of Galaxy devices. The report also stated that Samsung was investing $3.6 billion to expand its fabrication plant in Austin, Texas. Apple's A4 systems-on-a-chip (SoC) is manufactured by Samsung.
With Tim Cook, Apple's COO, filling in for Apple CEO Steve Jobs -- who is on medical leave -- smooth supply chain is his brainchild. Cook joined Apple in 1998 to straighten the operational morass that Apple was in during that time. CNN had reported that when Apple introduced the Nano in 2005, which had ushered in a revolution because of the use of flash memory, Cook was able to accurately forecast Nano's demand and had prepaid $1.25 billion to lock-in suppliers like Samsung and Hynix to effectively cater to the market through 2010.
While Apple is due to face stiff competition from new Android-based tablets like Xoom and Samsung Galaxy Tab 10.1 and webOS-based HP TouchPad, Apple has got an ace up its sleeve which reveals that the company is not just about design but also about operational management.