Report: Samsung raises iPhone and iPad processor prices by 20%

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By Scott Reyburn

Technology corporation Samsung is raising the prices for the processors found in Apple’s iPhone and iPad devices by 20 percent, according to a report from South Korean newspaper Chosun Ilbo.

Chosun Ilbo says it’s the first time Samsung wanted to increase the price of processors found in Apple’s phone and tablet devices, but doesn’t add a reasoning for why Samsung wanted to raise prices.

“Samsung Electronics recently asked Apple for a significant price raise in (the mobile processor known as) application processor,” said a person familiar with negotiations between Samsung and Apple. “Apple first disapproved it, but finding no replacement supplier, it accepted the (increase).”

Despite Apple just reporting its best ever September quarter in revenues and profit, the 20 percent increase in cost for the processors that go in Apple’s mobile devices could hurt the company’s gross margin. In 2012 Apple reported a gross margin of 44.7 percent in Q1, 47.4 percent in Q2, 42.8 percent in Q3 and 40.0 percent in Q4. According to Jefferies analyst Peter Misek, the iPhone 5 cost in materials is $293, meaning at an average selling price of $650, the handset has a gross margin of 55 percent. A teardown of Apple’s recently released iPad Mini by IHS revealed that the Mini costs about $188 to build, and with a $329 sticker price, Apple would have a 43 percent gross margin for each tablet sold, reported AllThingsD.

The report read that Apple purchases all of its application processors (APs) used in iPhone and iPad devices from Samsung, with 130 million processors coming from the South Korean company last year and more than 200 million this year.

Apple and Samsung have a long-term contract with each other until 2014 that sees Samsung supplying APs to Apple.