Samsung Poised to Supply Chips for Apple’s Next iPhone

Samsung’s new Galaxy S6 smartphones primarily use the company’s internally-developed Exynos microprocessors.

 

Associated Press

When Samsung Electronics Co.005930.SE 0.00% begins selling its flagship Galaxy S6 smartphone this month, it will deliver a major boost to the South Korean company’s logic-chip division, which designed and manufactured the advanced Exynos microprocessors that handle the S6′s computing functions.

Samsung’s decision to go primarily with its internally-developed Exynos microprocessors, rather than rely on Qualcomm Inc.'s QCOM -2.10% Snapdragon chips, will allow Samsung to pocket even more of the sales from the Galaxy S6 than it has on its predecessors.

But that may not be the logic-chip division’s only coup this year. According to a Bloomberg report on Friday, Samsung is also poised to manufacture the chips forApple Inc.'sAAPL +0.86% next iPhone, echoing an earlier report in The Wall Street Journal.

While Samsung isn’t commenting on the Bloomberg report, analysts came into the year expecting the Suwon, South Korea-based company to retake the lead in the so-called foundry business, which manufactures chips based on others’ designs.

For the past few years, Samsung and rival Taiwan Semiconductor Manufacturing Co.TSM +1.98% have been racing against each other to be the first to mass-produce chips with transistors measured at 14 or 16 nanometers. The smaller the gap between transistors, the more powerful the chip.

In January, Mark Newman, an analyst for Bernstein Research in Hong Kong, predicted that Samsung would win the contract for Apple’s new chips back from TSMC, which produced the chips inside the iPhone 6 and the iPhone 6 Plus using the then-leading technology, 20-nanometer chips.

Mr. Newman cited a fairly straightforward reason for his optimism on Samsung: TSMC was telling investors that it likely wouldn’t have its next-generation chip-manufacturing process ready in time for the next iPhone launch.

In an interview last October, Morris Chang, TSMC’s founder and chairman, all but conceded the fight, telling The Wall Street Journal that “TSMC would lose some orders to Samsung next year because of the lag, but we hope to recoup some of the lost businesses in 2016.”

That left Samsung as virtually the only viable player for Apple and Qualcomm, which design their own chips but outsource the manufacturing work to foundry players such as Samsung and TSMC.

In a note to clients last month, Sundeep Bajikar, a Jefferies analyst in San Francisco, said his own research indicated that “Qualcomm and Apple are likely to shift substantial portions of their foundry business from TSMC to Samsung.”

If that scenario plays out, expect Samsung’s semiconductor division — which already accounts for the bulk of the company’s profits — to take even more of the limelight in coming months.