Apple’s new production partners are bad news for Samsung’s chip business

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It’s not easy being Samsung!

After missing sales targets, and being knocked off the top smartphone spot in China by low-end rival Xiaomi, the South Korean Lex Luthor to Apple’s Superman is also apparently being hit hard by Apple’s embrace of other component makers for its devices.

In a recent press conference, Samsung executives admitted how its role as third party chip manufacturer (something which makes up half of Samsung’s microprocessor business) is being negatively affected by Apple’s decision to work with other partners like TSMC.

While Apple was not named, it’s pretty obvious who Robert Yi, Samsung’s head of investor relations, was referring to when he noted that, “Sales and profitability from System LSI (logic chip business) worsened as demand from main customers continued to decline.”

What this means long-term isn’t known, although Yi says that Samsung is likely to continue feeling the effects well into this year’s Q3. Earnings growth for Samsung’s chip business slowed from a brisk 82 percent in the year’s first quarter, to just 6 percent in the recent quarter. The company’s mobile division saw an even more dismal 30 percent year-over-year decline during that same time period.

Although Apple doesn’t quite look ready to step away from Samsung altogether, it’s no great surprise that the company would try and disentangle itself from Samsung in favor a company that doesn’t compete directly with it in markets like smartphones and tablets, or take swipes at it at every opportunity.

There’s a lesson in here somewhere, if only someone could spell it out.

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About the author

Luke DormehlLuke Dormehl is a UK-based journalist and author, with a background working in documentary film for Channel 4 and the BBC. He is the author of The Formula: How Algorithms Solve All Our Problems, And Create More and The Apple Revolution, both published by Penguin/Random House. His tech writing has also appeared in Wired, Fast Company, Techmeme, and other publications. He'd like you a lot if you followed him on Twitter.

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