People are silhouetted as they pose with mobile devices in front of a screen projected with a Samsung logo, in this file picture illustration. (Reuters Photo/Dado Ruvic)

Samsung Said to Drop Qualcomm Chip From Next Galaxy Smartphone

JANUARY 21, 2015

Samsung Electronics  will use its own microprocessors in the next version of the Galaxy S smartphone, dropping its use of a Qualcomm chip that overheated during the Korean company’s testing, people with direct knowledge of the matter said.

Samsung, the world’s largest smartphone maker, tested a new version of Qualcomm’s Snapdragon chip, known as the 810, and decided not to use it, the people said, asking not to be identified because the issue hasn’t been discussed publicly.

The decision is a blow to Qualcomm, the world’s largest maker of semiconductors used in phones, which has been supplying Samsung with chips that run the company’s best-selling handsets. The South Korean company, the world’s second-largest chipmaker, is trying to become more self-reliant and boost its own processor-making division as it spends $15 billion on a new factory outside Seoul.

The new Galaxy S, which is expected to debut in the first half of this year, will be equipped with Samsung’s most advanced chips, one of the people said.

A spokesman for Qualcomm declined to comment. Samsung declined to comment in an e-mail.

Application processors are the main semiconductor component in smartphones, running everything from the operating system to games and the camera. Qualcomm is also the biggest provider of modems that convert the cellular signal into voice and data.

Dominant chip

Qualcomm’s Snapdragon processors, combined with its cellular baseband chips, have dominated the market for smartphones and made the San Diego-based company one of the biggest beneficiaries of the explosion of mobile Internet use.

In its last fiscal year, sales at its chip division were $18.7 billion, a gain of 12 percent from the year earlier. Samsung is Qualcomm’s second-largest customer, providing about 12 percent of its sales, according to Bloomberg supply chain analysis.

Qualcomm said in April its latest 808 and 810 processors will start appearing in phones at the beginning of this year and will feature more advanced computing, graphics and radio capabilities.

Samsung is relying more on its 40-year-old memory-chip unit for earnings growth as sales of its Galaxy smartphones are eclipsed by Apple and Xiaomi. Buoyant demand for semiconductors, including from competitors in the phone business, and a falling won helped Samsung post fourth-quarter operating profit earlier this month that beat analyst estimates.

Samsung reinvention

The South Korean company is developing more advanced sensors and chips while reinventing itself as a purveyor of Internet-connected appliances and wearable devices. That market may be worth $7.1 trillion by 2020, according to researcher International Data Corp.

Vice Chairman Lee Jae Yong is overseeing the strategy shift as Samsung’s smartphone business, which sells every one of four phones globally, struggles to stay dominant against Apple’s new iPhones and Xiaomi’s lower-cost devices in China and India.

Samsung’s fourth-quarter operating profit probably slumped about 37 percent from a year earlier, the company said in a regulatory filing on Jan. 8.