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Is the ‘iPhone effect’ a double-edged sword?

After Apple Inc. began selling two models of its newly-released iPhone, related industries in South Korea have shown mixed responses. Semiconductor manufacturers are benefiting as they have signed long-term contracts to supply chips to Apple, but mobile-phone makers are not sanguine because they face a tough competitor in the U.S. handset market.

On July 11, contract prices for NAND flash memory chips jumped 17.8 percent to 30.2 percent a month earlier to US$5.18 to US$6.03, the sharpest gain this year, according to Taiwan-based DRAMeXchange, Asia’s biggest e-market for the chips. Spot prices also rose by as much as 4 percent.

The NAND flash chip is a key memory chip in the iPhone and Samsung Electronics Co. and other South Korean chipmakers are major suppliers of the chip. According to U.S.-based research firm iSuppli Corporation, the iPhone consists of flash memory and a main processor by Samsung Electronics, rechargeable battery by Samsung SDI Co., condenser by Samsung Electro-Mechanics Co., and a chip varistor by Amotech Co. Costs of goods manufactured for an 8-gigabyte iPhone are valued at US$266. South Korean parts account for 30.5 percent of the cost. In the first week of iPhone’s launch, Apple sold some 700,000 units, two times higher than expected. By the end of next year, Apple aims to sell 12 million iPhones.

Dongbu Securities analyst Lee Min-hee said, “When looking at chip demand for iPhones, it’s still minimal. The demand is expected to increase, however, as other mobile phone makers are introducing models to compete with iPhones. The demand for high-capacity flash memory chips will also continue to rise,” Lee said.

Apple reportedly planned to introduce a low-price model of iPhone to target the segment of the market with handsets priced less than US$100. Such cheaper handsets are used by more than 80 percent of American consumers. Prices of iPhone, which combines a mobile phone, media player and wireless Internet device, are currently ranging from US$499 to US$599.

South Korean handset manufacturers are drawing up countermeasures. In March, Samsung Electronics introduced its new Upstage model, which combines a cell phone and a digital music player. Samsung also plans to sell its touch screen-based Smartphone F700 this autumn. LG Electronics Inc. is preparing to sell a revamped model of its Chocolate phone with more music functions. LG is also considering selling its touch screen-based Prada phone to the U.S. market. A Samsung Electronics executive expressed confidence in competing with Apple, saying “The sales target of iPhone is only 1 percent of the global mobile phone market.”

In the U.S. market last year, Samsung sold 12 million handsets based on a European technology standard, while LG sold 5.2 million such mobile phones.

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