Apple Inc. (AAPL) has a book value the likes of which no corporation has ever seen. After taking over Exxon Mobil Corp. (XOM) as the largest corporation in the world by market cap, Apple has firmly maintained its position.
The gap between Apple and the second-largest company in the world, Microsoft (MSFT), is approximately $500 billion, larger than the market cap of many of the most well-known companies in the world.
Meanwhile, in South Korea, Samsung isn’t a company so much as it is a galaxy filament dwarfing everything in its path. By some estimates, Samsung is responsible for 17% of that nation’s gross domestic product (GDP).
The businesses that Samsung isn’t in are few and mostly irrelevant. The conglomerate’s main subsidiaries include colossal life insurance, construction, and shipbuilding businesses, but far and away, one of its biggest moneymakers across the globe is also its best-known: Samsung Electronics.
- Apple is the largest company in the world by market cap, which reaches almost $3 trillion.
- Samsung is a smaller company than Apple, but one of the most powerful companies in the world and in South Korea, where it makes up a large portion of the country's GDP.
- The bulk of Apple's sales is from its iPhones. Though Samsung's smartphones account for the largest portion of its sales, the bulk of its operating profit comes from its semiconductor business.
Phoning It In
Samsung has a market capitalization of about $443 billion as of January 2022, not even a quarter the size of Apple’s. Apple sold $365 billion worth of phones, computers, tablets, and related devices in 2021. Samsung, up through its third quarter, has sales of $204 billion. That is still a quarter of sales behind Apple given their different financial year ends.
Samsung Electronics, and that’s the entity we’ll be referring to as “Samsung” throughout the remainder of this article, is not merely an Asian analog to Apple. Samsung has three divisions: consumer electronics, device “solutions,” and IT/mobile.
If those sound like synonyms, they aren’t. Consumer electronics in this context means big boxes: TVs, kitchen appliances, air conditioners, and washing machines. "Device solutions" refers to semiconductors, integrated circuits, LED panels, hard drives, and other components, rather than standalone devices. That leaves IT and mobile, which indeed includes the cell phones and tablets that are traditionally associated with Samsung, at least in North America.
Huge Margin on iPhones
Apple makes money on iPhones and MacBooks, more than anything else. The phones outsell the laptops 5.5-to-1, but the massive margins on the latter make the race more or less a wash.
Samsung’s profit center is more evident. Its mobile phones are responsible for 21% of the company’s operating profit. Samsung might beat Apple on market share for mobile phones (20% versus 14%), but Apple happily sells fewer phones than Samsung given that its profit margins on each phone sold are higher.
Apple's gross margin as a percentage of revenue in Q4 2021 was 42.2%.
That being said, other departments have begun to account for a greater portion of Samsung’s profits in recent quarters. It’s the oft-overlooked semiconductor unit that’s been leading the charge. For the third quarter of 2021, the unit accounted for 36% of sales and 64% of operating profit. Data storage is a valuable and increasingly in-demand commodity, and there are only so many places that supply it.
On Store Shelves and in the Courts
Apple and Samsung have a turbulent relationship. Nor is that dislike without justification. In 2011, Apple sued Samsung, arguing that the Galaxy S and Galaxy Tab ripped off the iPhone and iPad respectively. Samsung countersued a week later, claiming that Apple stole its wireless networking technology.
The companies ended up suing each other half a dozen times that year, in courts on four continents. In 2014, Apple won a $929 million judgment in its initial North American suit, which Samsung then appealed. In 2018, Apple won the lawsuit, in which Samsung had to pay $539 million in damages.
Later, Apple won a second lawsuit. That summer the companies reached some sort of a détente, dropping all suits outside the United States but continuing their courtroom battles in the country where litigation is the national pastime.
A Symbiotic Relationship?
What makes this case, or series of cases, unusual is that plaintiff and defendant have a lucrative and symbiotic relationship. Through its many subsidiaries, Samsung sells parts for the very Apple mobile devices it’s allegedly copying without authorization.
Apple at one point was Samsung’s biggest customer for several reasons, some of them strategic. Size means getting the first crack at supply, which means that in times of high demand, Apple can increase its orders with Samsung and let smaller competitors worry about where to find parts.
Samsung fabricated most of the A4 and A5 processors found in Apple’s mobile devices. However, those processors’ heyday was several generations ago. Whether in business or in life, no matter how lucrative and mutually beneficial a hostile partnership is, at some point the principals start seeking gratification elsewhere.
That’s why after years of rumors, in the summer of 2014, Apple finally made it official that it was doing business with Taiwan Semiconductor Manufacturing Company (TSM). Currently, Apple designs its own processors, all of which are manufactured by the Taiwan Semiconductor Manufacturing Company (TSMC).
Despite moving away from manufacturing chips for Apple, Samsung still makes the screens for Apple's phones and computers.
The Bottom Line
Apple is so big that it can live comfortably without Samsung. Similarly, Samsung doesn’t need to be an Apple vendor to flourish. As competitors in the marketplace, they’ve put life-changing electronics in the hands of hundreds of millions. As competitors in the halls of justice, they’ve spent enormous sums of money to assert their dominance. It’s a safe bet that both companies will continue to innovate for decades more.