While Samsung has gained ground against Apple in the smartphone market, the iPhone maker's new chip strategy could make it even harder for the Korean tech company to keep revenue in the black. The one-time Apple exclusive chip supplier is having to cede some manufacturing of Apple A series processors to Taiwan Semiconductor Manufacturing.
Samsung has been the sole manufacturer of Apple's A Series chips since 2007, processors the Cupertino company has relied on for everything from iPods to iPhones. But that exclusivity has come to an end, as Apple taps partners in Taiwan.
Taiwan Semiconductor Manufacturing will produce an unspecified quantity of A8 processors for the next generation of Apple products and it may have a hand in the production of the still-unannounced iWatch, which is rumored to be in production in Taiwan. While Apple has supplied the specifications for the processors, it has been Samsung who has sent the designs down the production line.
Samsung's own chip, the Exynos series, has seen weak demand and only adds to the struggles the company will face when it loses some of its Apple logic chip business to rival TSMC.
In its earning report for the second quarter of its 2014 fiscal year, Samsung said demand in several of its other sectors was having a negative impact on its large-scale integrated circuit (LSI) products.
"The weak demand for smartphones also affected the System LSI and the display businesses that provide key components, which led to decrease in shipments and lower than expected profitability," stated Samsung.
Samsung's loss of business to TSMC and weak demand for its LSI products has led Lee Seung-woo, IBK securities analyst, to project that Samsung will lose approximately $850 million in 2014.
Along with high-end electronics, Samsung's LSI products and its computer memory and LED technology account for a large sector of its business. Samsung's semiconductor operations have been around since 1974.
Samsung hasn't just taken hits in its war for the inside of smartphones, it's been having trouble keeping its footing in the mobile market in general. In China, the world's biggest mobile market, Samsung lost its No. 1 spot as smartphone seller to Chinese rival Xiaomi.
"Undoubtedly this was helped by an anticipated, temporarily under-strength Samsung performance during the quarter," said Jingwen Wang of Canalys Research. "But that is only half the story -- Xiaomi has also executed on its strategy to grow volume shipments. It has delivered compelling products at aggressive price points, focused chiefly on its locally relevant MIUI software features and services, backed by effectively targeted marketing."
