How Samsung’s ‘Internal Firewall’ Keeps It From Sabotaging Its Manufacturing Relationship With Apple
Apple just laid a royal beat down on Samsung in the U.S. court system over patent infringement. You’d easily think that the two companies are huge enemies that would gladly rip out each other’s hearts and drive over them with a steamroller.
Truth is, even though they’re enemies in the smartphone market, Apple needs Samsung’s components to build iPhones and iPads, and Samsung needs Apple to keep buying their parts to make money. Samsung products comprise 26 percent of the component cost of the iPhone, so to keep their smartphone and component manufacturing businesses separate, Samsung has created a strict ‘Internal Firewall’ to try to avoid conflicts.
After they lost their litigation with Apple, Samsung held an emergency meeting Sunday in Seoul, but a few key executives weren’t invited, including CEO, Kwon Oh-hyun, and COO, Jay Y. Lee. The reason for Kwon’s exclusion from the meeting is that his primary role is to be in charge of the components business, rather than the telecommunications.
By excluding certain Samsung VPs from meetings about telecommunications or components problems, Samsung is able to keep their two major businesses separate and keep their competitors semi-happy.
Companies like Apple, HTC, Nokia and Sony build their smartphones using Samsung’s RAM and displays. In order to compete in the smartphone market without completely pissing off their supply contracts, Samsung divides the duties of telecommunications and consumer electronics between their top executives.
Samsung’s Vice Chariman Choi Gee-sung led the emergency meeting along with the head of the mobile business JK Shin. It’s a strategy of not letting the right hand know what the left hand is doing, and it’s worked to some degree for Samsung, but we doubt whether it can be effective long term.
According to a Reuters source who took part in the emergency meeting, “(The) supply contract remains a separate issue from the litigation and there’ll be no change to it going forward.” During the Apple litigation, Kwon attempted to reach a settlement with Tim Cook before the jury reached a verdict, but was unable to do so.
Had Kwon known more about Samsung’s telecommunications business, could the two sides have come to an agreement? Or was it beneficial for Samsung that as the components supplier for Apple, Kwon’s relationship with Cook was probably more friendly than anyone else at Samsung?
Keeping Apple happy on the components end is important to Samsung who’s components sales are expected to hit $13billion next year. Both Apple and Samsung have tried to distance themselves from each other recently. It’s rumored that Apple is looking at LG to build the next iPhone and iPad displays, and they’ve purchased a lot of memory chips from Samsung’s rivals SK Hynix.
- Source Reuters