Samsung Said to Return to Qualcomm Chips in Next Galaxy S

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Samsung handheld devices on display inside a supermarket in South Africa.

Photographer: Waldo Swiegers/Bloomberg
  • Qualcomm said to get about half of Galaxy S7 chip orders
  • Samsung foundry gets order to make new Snapdragon 820 chip

Samsung Electronics Co. has decided to return to using Qualcomm Inc.’s most powerful chips in its new high-end smartphones, a year after turning away from the U.S. company’s products and triggering a slump in its earnings and stock price.

Samsung, the biggest maker of smartphones, is planning to use Qualcomm’s Snapdragon 820 application processor chip in some versions of the next Galaxy S, people with direct knowledge of the matter said. The South Korean company, which will show off the latest models next month, will continue to use its own processor in about half of that line, with phones for China and the U.S. mostly using Snapdragon, the people said. They asked not to be identified because the companies haven’t officially announced their decision.

Samsung Said to Return to Qualcomm Chips

For Qualcomm, winning back at least some of Samsung’s high-end business is a vindication of the performance of its parts after the company’s 810 processor wasn’t chosen for the current Galaxy lineup. The San Diego-based chipmaker needs more orders from Samsung, which accounts for almost a quarter of the smartphone market, to turn around sales that have slumped an average of 16 percent during the last two quarters.

Shares Rise

The decision to at least partially return to Qualcomm may help Samsung’s unit that manufactures chips for other companies. The two companies said this week that Samsung’s foundry business received orders from Qualcomm to make the 820 using advanced techniques that allow chips to draw less power and perform better. The 14-nanometer process is the same one being used to manufacture Samsung’s own Exynos 8 processor.

“Samsung may have wanted to exclusively use its own Exynos chips for S7
smartphones, but it also had to think about its foundry business,” said Song Myung Sup, a Seoul-based analyst at HI Investment & Securities Co. “Samsung didn’t have much choice but to pick Qualcomm to secure its processor chip capacity.”

Samsung pared earlier gains in Seoul and closed little changed at 1,132,000 won in Seoul, compared with the benchmark Kospi’s 1.1 percent decline. Qualcomm shares gained 3.5 percent to $47.73 in New York.

Application processors are the main semiconductor component in smartphones, running everything from the operating system to games and the camera. Samsung, also the world’s second-largest maker of chips, has been increasing its reliance on the semiconductor unit for earnings growth as Apple Inc. and Xiaomi Corp. gain smartphone market share. Samsung posted fourth-quarter profit last week that fell short of analysts’ estimates.

Partners, Rivals

Samsung’s decision to use more Qualcomm parts underscores a complicated relationship between the two and highlights the interdependence of companies in various parts of the smartphone supply chain. While Samsung’s phone unit has been one of Qualcomm’s biggest customers, part of its chip business competes directly with Qualcomm for orders from that phone business with its own designs.

Another part of the South Korean company’s semiconductor unit wants orders to manufacture parts for Qualcomm, which outsources production.

“It’s a win-win strategy for both,” said Greg Roh, an analyst at HMC Investment Securities in Seoul. “Qualcomm had to rely on Samsung’s most advanced foundry technology, while it also brought back half of the Galaxy S7 chip orders. For Samsung, it won a big client for its foundry business.”

The S7 phone will have a 5.1-inch front screen, and the S7 Edge will have a 5.5-inch screen stretching down the sides, one of the people said. Samsung plans to release the products for sale in March, another person said, compared with the S6’s April release last year.

Representatives of both companies declined to comment about future plans.

Qualcomm is also the biggest provider of modems that convert cellular signals into voice and data. Qualcomm’s Snapdragon processors, combined with its cellular baseband chips, have dominated the market for smartphones and made it one of the biggest beneficiaries of the explosion of mobile Internet use.