With the latest releases of the Apple X and the Samsung Galaxy 8, we expected pretty intense rivalry. Maybe not so much seeing how Samsung is one of the major suppliers of components for the Apple X. The WSJ reports that Samsung “stands to make $110 from for each top-of-the-line, $1,000 iPhone X that Apple sells.” For example, Samsung “is the only significant manufacturer of the organic light-emitting diode, or OLED, displays Apple has adopted to create the iPhone X screen.” Furthermore,
An analysis conducted by Counterpoint Technology Market Research for The Wall Street Journal finds Samsung is likely to earn roughly $4 billion more in revenue from iPhone X parts than from components made for the Galaxy S8 in the 20 months after the new iPhones go on sale Nov. 3.
This suggests to me that Samsung’s real comparative advantage is in the cutting edge technologies embedded in these components. Like most electronics, I suspect there are substantial scale economies (and perhaps learning curve effects) in the production of these components. It can lower its unit costs be producing ever more units. It has vertically integrated into assembling them into phones so as to move down this cost curve. It hardly cares whether these components are in its own phones or are sold to downstream rivals to be included in the rival’s phones.