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.

  • DarthDisney

    Guess you shouldn’t have acted like Assholes Samsung, eh?

  • Grunt_at_the_Point

    Apple is hedging it bet. It needs more than one chip partner to foster competition and to insure an adequate supply chain. Apple does the same thing with its displays. I would not read to much into the TSMC partnership. Samsung internal parts are better than most. Apple is smart enough to not cut off its nose to spite its face.

    • Kr00

      It’s more about making a point to Samescum. You don’t rob from your biggest client and expect them to take it on the chin. Samescum know only one God, money. Gotta hit em where it hurts. I think they’ve got the point.

  • aardman

    There is a direct link between Samsung’s CEO being a convicted felon and the problems currently besetting Samsung: It’s sociopathic behavior. The inability to perceive or acknowledge that certain actions you contemplate will offend, hurt or damage other people leads both to criminal acts, and incomprehensibly and incredibly stupid business decisions. Such as decisions that turn your biggest customer into your greatest enemy.

  • Adrayven

    Umm lesson, for Samsung? Don’t pee where you eat?

  • Fernando Teixeira

    could it be one of the reasons Samsung had low profits this last quarter?

    • Robert Trance

      Nope, that 25% decline came out of declined mobile devices’ sales

  • Andy Shorrock

    This is what happens when you try biting the hand that feeds you Samsung.

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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