Is Apple a Flash Chip Bully? (repost from extremetech.com)

Repost from ExtremeTech.com

A rather provocative article in The Korea Times claims that Apple is using its market power to bludgeon the NAND flash market. 

The claim is that Apple uses its iPod and iPhone clout to order a large amount of flash memory, then actually purchasing a smaller amount, the Times article charges [http://www.koreatimes.co.kr/www/news/tech/2009/11/133_56338.html].

“Apple has asked Korean semiconductor makers to produce a certain amount of chips for its digital products, only to actually purchase a smaller volume eventually,” according to a senior industry official quoted by the Times. “The company doesn’t make immediate purchases, but waits until chip prices to fall to the level the company has internally targeted.”

Unfortunately for the flash industry, Apple may be treating the flash market unfairly, but not illegally. The behavior that the article describes doesn’t seem to violate any U.S. antitrust laws (I can’t speak for Korea). If anything, Apple could be characterized as a bad business partner, if you’re a flash supplier. But if I were an Apple shareholder, I would cheer Apple’s allegedly heavy-handed negotiating tactics as just good business.

There’s a reason why flash memory and DRAM are both commodities: Everyone needs them, but no one is willing to pay for them. All Apple does is bundle 8GB of flash together with a slick operating system and a visually and tactilely appealing industrial design, and sells them like hotcakes. MP3 players aren’t that hard to design, even by a chip company—just ask SanDisk.

So far, Korean antitrust agencies haven’t stepped in. If they do, Apple’s business practices will be heavily scrutinized. Until then, however, I’m afraid Apple’s partners will simply have to knuckle under.

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