Apple's Jobs Razzes Chip Partner Samsung

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Toby Burditt for Bloomberg Businessweek

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Apple has done far more with these chip smarts than Samsung's own product teams. In January 2010, Apple unveiled its A4-equipped iPad; Samsung waited two months before debuting a smartphone—the Galaxy S—based on the same underlying chip technology. With the new iPad 2, which features a faster dual-core processor, Apple is expected to once again rely heavily on Samsung's chip technology. But the South Korean company isn't using those designs in its own tablets yet. In fact, Samsung's answer to the iPad 2—the Galaxy Tab 10.1—will use a chip from Nvidia. "It does seem like Apple is getting the good stuff first," says Linley Gwennap, a chip analyst and founder of the Linley Group. "But it's probably as much to do with Apple executing better in developing and delivering their products to market."

Willy Shih, a professor at Harvard Business School and an expert in chip design and manufacturing, points out that Samsung is a massive conglomerate that has to balance the needs of various parts of its businesses. The division that produces chips for Apple and other customers must keep these companies' product plans secret from the parts of Samsung that build consumer products. "If you want to supply memory or chips, there is a sort of separation that happens in the industry," Shih says. "Those games are played in a particular way, and Samsung will treat those manufacturing operations as distinct from its own operations." In other words, Samsung's Galaxy Tab 10.1 engineers might have had no better an idea of what was in the iPad 2 than the oohing, aahing crowds at Jobs' keynote on Mar. 2.

Jobs has touted the benefits of tightly integrating chips and software, which helps Apple build devices that use power and memory more efficiently. Close watchers of the semiconductor industry expect that Apple's designs will diverge more from Samsung's in years to come. Apple recently has purchased two chip companies, including last year's acquisition of Intrinsity, effectively creating a large, in-house group of chip whizzes. "With each generation, Apple is putting more and more of their own resources into" chip design, says Gwennap.

Samsung has come to depend on Apple's orders to keep its factories full, says Lam of iSuppli. Company executives could be concerned that Apple might find a second supplier, perhaps Taiwan Semiconductor Manufacturing (TSM), to make its chips. "There are a lot of rumors around that," says Harvard's Shih. Yet Apple has come to rely on Samsung for on-time arrival of the most crucial components in its phones and tablets.

Unless Apple decides to diversify its chip supply soon, Samsung's best option may be to keep on grinning, bearing the abuse, and cashing the checks from Cupertino. "It's just going to be one of those complex relationships," Gwennap says. "It's a very 21st century kind of thing."

The bottom line: Jobs keeps beating up on Samsung, which makes crucial iPad innards. Yet experts say the relationship is likely to survive.

Vance is a technology writer for Bloomberg Businessweek.