Don't Believe the Rumors, Samsung Didn't Just Kill the Apple Car

By Markets Fool.com

For investors in tech giant Apple , it's like 2006 all over again.

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After its 2012-13 travails, Apple's shares and business have recently found a renewed sense of momentum reminiscent of the Apple of the mid-2000s. For instance, Apple grew its EPS nearly 50%in its most recent quarter. Its shares have also more than doubled in value over the past 18 months. Suffice it to say, Apple's en fuego at the moment.

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However, questions remain as to whether Apple can maintain this momentum, as it likely establishes fresh financial high-water marks in its current fiscal year. Apple Watch aside, many investors are looking to Apple's recently revealed automotive project to provide the antidote to Apple's swelling size and consequent dimming growth prospects. On that subject, Apple investors would do well to ignore a recent rumor concerning Apple arch-rival Samsung .

Samsung eyes electric cars
Recently, word surfaced that Samsung had purchased the automotive battery division of auto supplier Magna International. Samsung apparently plans to fold Magna's battery unit into Samsung's electrical components division, which is already producing batteries for automotive powers including BMW and Tesla.

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However, like its eventual entry into the smartphone market, this move has some predicting that Samsung is also positioning itself for an eventual entry into the electric car market that's enamored a number of tech's other most powerful players in recent months.

That certainly could be the case. Samsung's highly successful foray into the smartphone market was made easier by the decades of expertise it gained by specializing in the manufacture of critical smartphone innards like semiconductors and memory. And unsurprisingly, many see Samsung's move in purchasing Magna International's battery division as history setting the stage to repeat itself. However, it could simply be Samsung adding a potential growth driver into one of its already-existing units, as well. We just don't know enough right now to tell one way or the other.

Is this a threat to Apple though?
In terms of Apple's place in this story, one potential concern could be Apple once again having to pay Samsung to fabricate and/or supply it with critical components for its automotive initiative. Remember, although it suffers a bitter rivalry with Samsung, Apple also remains partially reliant on the Korean tech giant for several key parts of its iDevices.

Apple has tried repeatedly to shift the billions of dollars it spends annually on components away from Samsung as much as possible. Apple dropped Samsung as a memory supplier years ago, and with the iPhone 6 and 6 Plus, Apple split the fabrication of its critical A8 chips between Samsung and Taiwan Semiconductor for the first time ever.

Because of capacity and quality limitations at Taiwan Semiconductor, Apple has remained unable to fully extricate itself from Samsung. Worse yet, rumors have consistently claimed that Apple will have to use Samsung exclusively to make its upcoming A9 chip because of Taiwan Semi's inability to keep pace with Samsung's foundry upgrades.

By laying the foundation to potentially control a healthy portion of the global electric car battery market, it's easy to see how Samsung could be positioning itself for a similar captive supplier scenario in the electric automobile market with its Magna battery buy.

What really matters here for Apple
The above could certainly be the case. We won't know fully, as the race to innovate in automotive batteries is filled with companies large and small. However, given Samsung's obvious scale advantages, that could push large companies like Apple into its tentacles once more. However, that might not be the worst thing for Apple, either.

Although far from harmonious, Apple and Samsung have worked with one another for years, and there's no reason to think the two parties couldn't find a similarly acceptable arrangement in the automotive market. To me, the only potential systemic threat Samsung could pose to Apple Car in the context of this deal is if it were to leverage its relationship with auto contract manufacturer Magna Steyrto either its own benefit, or to Apple's detriment. I think that's hard to envision as well.

One key unanswered question if either Apple or Samsung enters into the automobile space is, who will actually make their cars?

East Asia has developed a vibrant ecosystem of electronics assembly partners to whom Apple and others happily contract out the low-margin business of assembling their hardware. However, this same kind of contract manufacturing is a relatively uncommon practice in the auto industry, except for Magna Steyr, that is.

According to a report in TheWall Street Journalthat broke the news, Apple executives have already held meetings with Magna's contract manufacturing team. With large-scale contract manufacturing hard to come by in the automotive industry, it's certainly understandable to be concerned by Samsung's recent dealings with perhaps the only company that could build Apple's Project Titan electric car.

However, it's important to note that Apple has probably already accounted for its potential manufacturing needs in the planning process, whether it uses Magna or another party. Anything else would be simply irresponsible on Apple's part. And given its penchant for utter domination of its supply chain, I don't see Apple overlooking this critical detail.

So, while Samsung's dealing with Magna could seem potentially problematic in getting Apple's automotive efforts off the ground, Apple investors probably shouldn't lose any sleep over this aspect of Apple's Project Titan storyline.

The article Don't Believe the Rumors, Samsung Didn't Just Kill the Apple Car originally appeared on Fool.com.

Andrew Tonner owns shares of Apple. The Motley Fool recommends Apple and Tesla Motors. The Motley Fool owns shares of Apple and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.