iPhone’s Component Ecosystem: Samsung

In an earlier post, we looked at the major suppliers for iPhone’s components. Starting with this post, over next couple of weeks we will analyze the major players in the iPhone’s component ecosystem.

We begin with Samsung (0593Q:London Stock Exchange), which accounts for approximately $76 or 30% of iPhone’s total component cost in the 8 GB version. South Korean giant Samsung Electronics Co., Ltd. has a substantial global presence in the Digital Media, Telecommunication Network, Digital Appliance, Semiconductor, and LCD markets. It is the world’s leading manufacturer of DRAMs, SRAMs, and flash memory. An iPhone carries the following Samsung supplied components:

* Advanced RISC (ARM) applications processor
* DDR SDRAM
* NAND flash memory

Among these components, NAND has the highest dollar share. It is estimated that iPhone carries NAND Flash worth $24 and $48 in the 4GB and the 8GB versions, respectively. Apple’s choice of Samsung for NAND memory hasn’t come as a surprise. Samsung also supplies NAND flash memory for Apple’s iPods.

Just an aside on NAND for the un-initiated. NAND is a nonvolatile solid state memory that has a better storage density (number of storage cells per unit of silicon area) than the traditional NOR memory. It has therefore become the popular choice of storage for applications where mobility, power use, speed, and size are critical factors. It is great for storing pictures, music, or data files without power and is therefore a critical component in the iPhone.

In March this year, after many months of price declines, the prices of NAND flash memory chips started rising and are expected to grow or at worst stabilize over the next year. With Apple’s competitors trying to launch their own products that compare to the iPhone (even Samsung has launched its own version of the iPhone), there is inevitably going to be greater demand for NAND flash memory.

So, in a nutshell, how does the iPhone impact Samsung? On the positive side, if analysts estimate that Apple might sell 3 million units this year and 10 to 12 million in 2008, and up to 40 million in 2009 hold good, Samsung’s deal with Apple can fetch it close to $228 million this year, $760 million in 2008, and 3 billion in 2009. iPhone might also open the market for Samsung components when similar models from competitors start streaming in the market. On the flip side, increase in demand might stretch the production capacities of Samsung in the short term. Though Samsung plans to invest $3.5 billion in its Texas plant to meet this growing demand for NAND chips, mass production will not start until second quarter next year.

Investors, however, seem to be giving Samsung a better chance at success. Samsung’s stock price in the London Stock Exchange has done well in the past one month compared to the first half of 2007 when it had slipped by more than 5 percent.

[Related reading: iPhone and the Future of Samsung]

This segment is a part in the series : iPhone’s Component Ecosystem