Samsung clinches huge Apple iPod contract for media processor

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Samsung clinches huge Apple iPod contract for media processor

Seoul (South Korea) – In perhaps the biggest single contract win in the short history of the MP3 player industry, Samsung has wrested control of a new contract to supply media processor components for Apple’s iPods – presumably including its video-capable models, as well as iPod nano, for which Samsung already supplies NAND Flash memory. Last week, Apple’s previous media processor supplier, PortalPlayer, sadly announced it had lost the contract that some analysts say constituted between 90% and 95% of that company’s business; and in so doing, that company may conceivably exit the business altogether.

Samsung’s bold stroke was announced yesterday by its senior vice president for technical marketing, Jon Kang, at a session of the SEMI Strategic Business Conference curiously entitled, “Dynamic Duo of the Mobile / Consumer Era.” Attendees were apparently under the impression that “duo” meant NAND Flash and DRAM, but obviously, Kang had another pair in mind.

According to figures from iSuppli, Samsung is already the world’s #1 producer of NAND Flash memory in revenue, with a staggering 50.4% market share. The rest are split up between Toshiba, Hynix, and four other manufacturers. But analysts including iSuppli estimate 40% of Samsung’s NAND Flash business already comes from Apple. As early as last September, iSuppli’s senior analyst Chris Crotty predicted that only Samsung would have the market position to be able to negotiate prices down to be competive.

Last September, Crotty reported on Apple’s surprise selection of PortalPlayer to supply the non-standard PP5021 chip for iPod nano. PortalPlayer was expected to follow up on this chip with an updated PP5024. With shipping already well under way last year, the PP5024 was that company’s first system-on-a-chip (SoC) designed exclusively for Flash memory MP3 players, integrating not only the media processor, but also a unique mixed-signal peripheral input/output system. Initial prices were set at $9.95 for quantities of 10,000 per month, which is certainly well within Apple’s sales volume.

But Apple’s choice of PortalPlayer’s media processor affected its choice of other components as well, according to iSuppli. Moving to a more Samsung-centric design could conceivably have a positive affect on the iPod nano’s entire cost of materials, just the integrated circuits for which iSuppli estimated to cost Apple over $77 per unit. Furthermore, iSuppli predicted, Samsung could leverage its unique position to bundle its own media processor along with its NAND components, at a more attractive discount. Already, Apple was paying Samsung about $54 per nano for each pair of NAND flash components, but even that was a steep discount compared to Samsung’s competitors. Only Samsung, Crotty believed, could be in a position to use volume sales and perhaps bundling to drive down costs even further.

Similar discounts, Crotty stated in iSuppli reports, probably already forced one supplier, Rio, from the NAND market, and was likely to do the same in the future. Clearly, his predictions came true this week. Whether Apple’s move will have a direct impact on street prices is uncertain, though probably unlikely. But the choice will definitely have an effect on contracts for other suppliers of iPod nano components, including those whose selection had already been determined by having previously chosen PortalPlayer for the media processor.

At the SEMI meeting yesterday, Samsung’s Kang wore his company’s victory on his sleeve. Reportedly calling his company’s media controller chip “the PortalPlayer killer,” he openly gloated to attendees, saying, “I knew PortalPlayer would take a dive…I knew that we would win this design.”