Galaxy S phones said to return to Qualcomm

Samsung Electronics has decided to return to using Qualcomm’s most powerful chips in its new high-end smartphones, a year after turning away from the US 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 US mostly using Snapdragon, the people said. They asked not to be identified because the companies haven’t officially announced their decision.

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 per cent 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 Mr Song Myung-sup, a Seoul-based analyst at HI Investment & Securities. “Samsung didn’t have much choice but to pick Qualcomm to secure its processor chip capacity.”
Samsung Electronics’ shares gained as much as 1.2 per cent before turning little changed in Seoul. Qualcomm shares gained 3.5 per cent to US$47.73 (S$68.73) 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 and Xiaomi gain smartphone market share. Samsung’s fourth-quarter profits, posted last week, 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.