Should Apple Dump Samsung and Produce Everything In-House? (AAPL, SSNLF)
Many business executives have argued about the benefits of outsourcing.
AllBusiness.com has published a list of those benefits, which include cost control (companies could spend more doing everything internally), efficiency and risk reduction.
In a perfect world, outsourcing would be as simple as that. In this world, Apple (NASDAQ: AAPL) has locked itself into production agreements with the firm that has become its chief rival.
Samsung (OTC: SSNLF), best known for producing the Galaxy line of smartphones, as well as the world's most popular television sets, is responsible for producing a number of key components for Apple.
According to The Wall Street Journal, those components can be found within Apple's most important products: the iPhone and the iPad.
Apple has tried to walk away from Samsung by turning to other suppliers, but Samsung is the biggest of the bunch. With years of experience supporting itself and other tech companies, Samsung is one of the only firms that is equipped to handle the manufacturing duties of a product as large as the iPhone.
Taiwan Semiconductor Manufacturing Company (NYSE: TSM) could help Apple in this regard. The supplier recently signed a massive deal to produce the A8, A9 and A9X processors for Apple, indicating that the Mac maker is already working on the next several iPhone iterations.
Apple has yet to confirm that a deal has been inked, but TSMC executives told The Wall Street Journal that it has been commissioned to produce some chips. This deal will not begin until 2014 -- roughly six months later than what was previously rumored.
Even if Apple can acquire future processors from TSMC, it may still struggle to obtain other components.
LG, for example, may not be producing enough displays to completely replace Samsung. Sony (NYSE: SNE) was supposed to come aboard, but Samsung screens are still reportedly appearing in some of the newer iPads.
In fact, Bloomberg reported that when developing the third-generation iPad, Apple chose Samsung because Sharp and LG did not meet the company's standards.
Apple is expected to make the switch to another supplier for the fifth-generation iPad and the second-generation iPad Mini.
That may not be enough to eliminate the firm's reliance on Samsung. Unless another supplier emerges, Apple may have no choice but to consider producing its most critical components in-house.
Louis Bedigian is the Senior Tech Analyst and Features Writer of Benzinga. You can reach him at 248-636-1322 or louis(at)benzingapro(dot)com. Follow him @LouisBedigianBZ
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