Apple Inc. (NASDAQ:AAPL) has gradually been shifting its supply chain away from competitor Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) for some time. The general view on this has been that it was a good thing that Apple was diversifying its supply chain. In a way, Apple’s return to Samsung for dynamic random access memory (DRAM) is a continuation of that diversification, and analysts at UBS say it signals a couple of positive things.
Checking Apple’s supply chain
In a note dated Aug. 28, 2014, analyst Nicolas Gaudois and his team said their checks confirm Apple has added Samsung back into its DRAM supply chain before the iPhone 6 launch. This makes the third DRAM supplier in the chain, as SK Hynix Inc (KRX:000660) and Micron Technology, Inc. (NASDAQ:MU) are the other two.
They say Apple Inc. (NASDAQ:AAPL) continues to use SK Hynix and Toshiba Corp (TYO:6502) (OTCMKTS:TOSBF) as its main suppliers for NAND flash. They add that the company appears to be using SanDisk Corporation (NASDAQ:SNDK) to a lesser extent as well.
The UBS team thinks that Apple no longer gets much of a discount for mobile DRAM compared to typical market pricing, and they think the little bit of a discount the company does get is compressing. However, they believe the company does still get a discount for NAND flash.
Why it’s a positive for Apple
The analysts note that within commodity markets, it doesn’t really matter which companies supply to which companies. The most important thing is supply versus demand, and they think that since Apple has sought a third DRAM supplier suggests two important trends within that segment.
First, they think tightness in the supply continues to be tight. They say Apple Inc. (NASDAQ:AAPL) will have to manage this carefully leading into its typical “bell-shaped” product launches. And second, they think it could be in preparation to increase DRAM density in the iPhone. They don’t think this year’s iPhone 6 will have higher DRAM density, however. They see it as being more likely for the second half of next year.
