Samsung to invest $4 billion in Texas iPhone, iPad chip plant

Posted:
in iPhone edited January 2014
Samsung announced on Tuesday that it plans to spend about $4 billion to renovate its existing chip plant in Austin, Tex., where the company builds Apple's custom processors for the iPhone and iPad.

In addition to renovating the current facilities, the investment is intended to boost production of ARM-based chips used in smartphones and tablets, according to Reuters. Samsung is believed to be the sole supplier of Apple's custom processors found in the iPhone, iPad, iPod touch and Apple TV.

The South Korean electronics maker already announced in June that it plans to build a new logic chip plant in its home country to better serve customers like Apple. That project is projected to cost 2.25 trillion won, or $1.98 billion.

Samsung's U.S.-based ARM chip production was highlighted just last month within an AppleInsider-authored report -- Made in America: Apple's supply chain increasing US production -- that offered a closer look at how the iPhone maker's component suppliers have been increasing American production of electronic parts. IHS iSuppli estimates that Samsung Semiconductor's ARM processors account for 12.4 percent of the bill of materials for Apple's iPhone 4S.

Apple Chief Executive Tim Cook also highlighted Samsung's Austin plant at the D10 conference in May, when he was asked about the possibility of Apple building its products in America. The CEO said although many parts for Apple's products are built in the U.S., there is an "intense focus" on final assembly, and that he'd like for that assembly to take place in America if it were feasible.

A5 1


Though Apple relies heavily on Samsung for custom processors and other parts in its popular devices, there have been persistent rumors that the iPhone maker hopes to move away from its dependence on Samsung. In particular, last year Apple was said to have signed a foundry agreement with Taiwan Semiconductor Manufacturing Company to produce ARM chips for devices like the iPhone and iPad.

While some reports suggested that TSMC could begin building custom ARM chips for Apple as soon as this year, so far there has been no indication that anyone other than Samsung has received orders for the A5 chip found in the iPhone 4S or the A5X processor that powers the new third-generation iPad.
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Comments

  • Reply 1 of 48
    MacProMacPro Posts: 18,293member
    I hope much of that will be sourced else where by Apple sooner than later. That or Sammy really changes its ways and becomes a friend of Apple's again.
  • Reply 2 of 48
    While I am happy that this plant and production is based in the US, I would still rather that Apple use another company for this work. Perhaps Apple could help by prepaying for chips so that another US company could build another US plant to compete with/diversify from this one. Preferably a US based chip company such as an Intel or TI who does not compete with Apple in smartphones and tablets.
  • Reply 3 of 48
    sennensennen Posts: 1,465member


    Hmm, $4billion? Perhaps not a wise investment beyond the short-term.

  • Reply 4 of 48


    And there is the settlement for the Apple vs. Samsung case.

  • Reply 5 of 48
    andysolandysol Posts: 2,506member
    sennen wrote: »
    Hmm, $4billion? Perhaps not a wise investment beyond the short-term.

    Doesn't apple account for ~8% of samsungs chips produced? While the largest- and a big number- it's by no means crippling.

    Samsung willl be fine without Apple buying anything from them- And still extremely profitable. Notice I said without apple buying from them.... Not designing for them- they still need apple for that. :-)
  • Reply 6 of 48


    This investment is not just for Apple, Texas has been really good with attracting new start ups and I think this investment by Samsung is to ensure that the production source is actually closer to where the demand lies. 


     


    Many of these start up/big companies would require many chip runs until they get it right as well. So all and all it is good. 

  • Reply 7 of 48
    jragostajragosta Posts: 10,473member
    andysol wrote: »
    Doesn't apple account for ~8% of samsungs chips produced? While the largest- and a big number- it's by no means crippling.
    Samsung willl be fine without Apple buying anything from them- And still extremely profitable. Notice I said without apple buying from them.... Not designing for them- they still need apple for that. :-)

    Samsung had something like $10 B in profits last year. Apple buys something like $8 B from Samsung. If Samsung averages 40% gross margin on Apple products, that means that Apple accounts for 30% of the company's profits (and a much larger percentage of the profits for the divisions Apple is buying from).

    Losing > 30% of your total profits and a larger percentage of profits of key divisions is not 'fine'.
  • Reply 8 of 48
    mauszmausz Posts: 243member

    Quote:

    Originally Posted by jragosta View Post





    Samsung had something like $10 B in profits last year. Apple buys something like $8 B from Samsung. If Samsung averages 40% gross margin on Apple products, that means that Apple accounts for 30% of the company's profits (and a much larger percentage of the profits for the divisions Apple is buying from).

    Losing > 30% of your total profits and a larger percentage of profits of key divisions is not 'fine'.


     


    I doubt Samsung makes 40% gross margin on Apple products... Apple has been known to 'squeeze' its suppliers.

  • Reply 9 of 48
    cnocbuicnocbui Posts: 3,613member

    Quote:

    Originally Posted by Andysol View Post





    Doesn't apple account for ~8% of samsungs chips produced? While the largest- and a big number- it's by no means crippling.

    Samsung willl be fine without Apple buying anything from them- And still extremely profitable. Notice I said without apple buying from them.... Not designing for them- they still need apple for that. :-)


     






    You're right, Samsung desperately needs Apple's chip design expertise, otherwise they never could have brought the Hummingbird to market, or their line of Exynos SOC's like the quad core one in the Galaxy S III, or their new ARM A15 cored Exynos 5 SOC or ..... er, er...

  • Reply 10 of 48
    lkrupplkrupp Posts: 7,147member
    sennen wrote: »
    Hmm, $4billion? Perhaps not a wise investment beyond the short-term.

    Okay genius-stein, shower us with your enlightened knowledge.
  • Reply 11 of 48
    ksecksec Posts: 1,562member


    Samsung manages to come from No Where to 4th place in the Fab business as an IDM. And looking to displace UMC as the third. And Apple has been a large part of that.


     


    I just wish Apple could team up with Global Foundry or TSMC. There is a recent talk that TSMC is considering making a delicated Fabs for specific customers with a large enough investment. Sounds like a perfect deal for Apple.

  • Reply 12 of 48

    Quote:

    Originally Posted by jragosta View Post





    Samsung had something like $10 B in profits last year. Apple buys something like $8 B from Samsung. If Samsung averages 40% gross margin on Apple products, that means that Apple accounts for 30% of the company's profits (and a much larger percentage of the profits for the divisions Apple is buying from).

    Losing > 30% of your total profits and a larger percentage of profits of key divisions is not 'fine'.


    Those numbers are such crap you literally pulled them out of your rear. Apple's contract to Samsung is worth around 6% -8% of total Samsung revenue. So no, it would be much less than 30% of profits. Why do people seem to have this distortion Apple is propping up Samsung financially?

  • Reply 13 of 48

    Quote:

    Originally Posted by ksec View Post


    Samsung manages to come from No Where to 4th place in the Fab business as an IDM. And looking to displace UMC as the third. And Apple has been a large part of that.


     


    I just wish Apple could team up with Global Foundry or TSMC. There is a recent talk that TSMC is considering making a delicated Fabs for specific customers with a large enough investment. Sounds like a perfect deal for Apple.



    There are serious rumors that Apple wants to give the A chip business to TSMC, but that won't be able to happen until 2014+.

  • Reply 14 of 48
    mauszmausz Posts: 243member

    Quote:

    Originally Posted by thataveragejoe View Post


    There are serious rumors that Apple wants to give the A chip business to TSMC, but that won't be able to happen until 2014+.



     


    All stories which make the headlines about TSMC are always associated with delays (NVidia has had a lot of trouble because of TSMC). I highly doubt it they will have their production fixed in 2014+ as these delays have been haunting them for years. It would not be wise for Apple to move to any other supplier. Only Samsung can deliver the quality and numbers to them right now. For SoC's as well as memory and for that matter iPad Retina screens. Apple could simply not have had the business its having now without Samsung. There is not other supplier able to take their place, not previously and not in the near future.

  • Reply 15 of 48
    iqatedoiqatedo Posts: 1,606member


    The will surely be SVP's at Samesung who are looking very darkly upon certain other SVP's (or what ever they are called).

  • Reply 16 of 48
    galbigalbi Posts: 968member

    Quote:

    Originally Posted by jragosta View Post





    Samsung had something like $10 B in profits last year. Apple buys something like $8 B from Samsung. If Samsung averages 40% gross margin on Apple products, that means that Apple accounts for 30% of the company's profits (and a much larger percentage of the profits for the divisions Apple is buying from).

    Losing > 30% of your total profits and a larger percentage of profits of key divisions is not 'fine'.


     


    Talk about making up numbers.


     


    That is COMPLETELY FALSE.


     


     


     


    In other news, this Austin plant produces more than just logic chips and logic chips for Apple.


     


    It also produces NAND flash memory and DRAM chips.

  • Reply 17 of 48
    blastdoorblastdoor Posts: 1,928member

    Quote:

    Originally Posted by DrFreeman View Post


    I think this investment by Samsung is to ensure that the production source is actually closer to where the demand lies. 


     


     



     


    Problem with that theory is that most of the products into which Samsung chips are inserted are assembled in China or elsewhere in Asia. So putting a fab in TX means shipping the chips to China, putting them in a product, and then shipping the product back to the US. It would be likely easier to just build the chips in Korea. 


     


    It seems to me that the main advantage of being in Austin is that's where Apple's CPU people are. I guess a secondary advantage might be the Austin labor market. But I bet that Samsung made these plans to build in Austin because of Apple, before relations got so frosty. I bet if they had it to do over again, they would have made this investment in Korea. 

  • Reply 18 of 48
    emacs72emacs72 Posts: 356member

    Quote:

    Originally Posted by jragosta View Post





     If Samsung averages 40% gross margin on Apple products, that means that Apple accounts for 30% of the company's profits ...


     


     


    was this average of "40% gross margin" ever published and verified someplace?


     


    incidentally: in 2011, Samsung Electronics (not Samsung Group) revenue was 165 trillion KWR (or $143.7 billion Canadian in revenue and $14.2 billion in operating profit).


     


    http://www.samsung.com/us/aboutsamsung/ir/financialinformation/annualreport/downloads/2011/SECAR2011_Eng_Final.pdf


     


    as such, the Apple deal accounts for about six (6) percent of Samsung Electronics revenue or less than four (4) percent revenue for Samsung Group.

  • Reply 19 of 48


    Perhaps Samsung knows Apple WILL cut a deal and settle eventually, and this new factory will become the peace offering.


     


    Cook is not Jobs, Samsung believe that. My opinion that is.

  • Reply 20 of 48

    Quote:

    Originally Posted by jragosta View Post





    Samsung had something like $10 B in profits last year. Apple buys something like $8 B from Samsung. If Samsung averages 40% gross margin on Apple products, that means that Apple accounts for 30% of the company's profits (and a much larger percentage of the profits for the divisions Apple is buying from).

    Losing > 30% of your total profits and a larger percentage of profits of key divisions is not 'fine'.


    And Galaxy phone/tablet line is there to make sure Samsung Mobile and Semiconductor will not die should it loses Apple. Hurt, yes, but alive.

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