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What is Apple spending to drop Samsung as a supplier?

BusinessBlog
by Damon Poeter, 08 Nov 2012Blog
What is Apple spending to drop Samsung as a supplier?

Apple's feud with Samsung might just be costing both companies a lot more money and missed opportunities than the fines and legal costs accrued in their patent battles in various jurisdictions around the world would indicate.

We learned this week that Samsung may be delaying the construction of a planned logic fabrication facility as it digests the possibility of losing out on future chip orders from Apple. The company is reportedly "likely to put off the construction" of its Line-17 fab in Hwaseong, South Korea.

Now a rumour is circulating, that says Apple may have recently given billions of dollars to a financially struggling supplier of iPhone components, as part of an effort to avoid having to rely on Samsung for those parts.

Mobile analyst Horace Dediu of Asymco theorised on Wednesday that Apple may have shovelled over a cool $2 billion (£1.3 billion) to struggling Sharp last quarter to ensure that the supplier, which Apple has tapped to provide the touchscreen displays for its new iPhone 5 in lieu of former supplier Samsung, survived in order to actually deliver those parts.

Dediu reckons Apple's October revelation that it had $2.3 billion (£1.4 billion) in expenditures over its forecast indicates some unusual activities. Apparently, Apple earmarked the bulk of that sum for "product tooling, manufacturing process equipment, and infrastructure."

The Asymco analyst, putting two and two together, figured that an asset-swap covering "slush fund" payment to Sharp - which had, according to Fortune, haemorrhaged $1.3 billion (£816 million) over the first half of 2012 - may have been necessary to get production of the iPhone 5 displays up and running.

So how dire was the situation? The same article posits that Apple was up a creek just a few weeks ahead of the iPhone 5 launch when "August came and went and the displays from Sharp were AWOL." In September, Sharp somehow found the resources to fire up its factories and start producing the components, but until Dediu supplied his theory, how that happened was a bit of a mystery.

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