Samsung Seeks Broader Chip Base as Apple Cuts Loose

Samsung Electronics Co is looking to supply chips to more Chinese and other emerging smartphone makers, the head of its system chip business said, to counter any fall-off in demand from Apple Inc (NASDAQ:AAPL), which is weaning itself off Samsung chips used in its iPhones and iPads.

Samsung and its main U.S. rival, and biggest customer, together account for more than half the global smartphone market, and the South Korean group is the main supplier of mobile processors, or application processors (AP), powering both Apple devices and its own range of Galaxy phones and tablets.

But, as Apple looks to be less reliant on its rival for parts for its gadgets - it is already buying fewer Samsung memory chips and display screens as the two have gone to war over patents - concerns have grown that Samsung may see its processor revenues tumble.

"As there are just two smartphone makers that are doing really well, chipmakers supplying them have grown in tandem. So we plan to bolster our relationship with those key customers," Stephen Woo, president of Samsung's System LSI business, which makes processors for Apple products, said in an interview.

Supplying processors for Apple products has been the mainstay of Samsung's system chips business.

Goldman Sachs (NYSE:GS) estimates Samsung's AP chip sales to Apple will rise to 9.3 trillion won ($8.8 billion) this year, or nearly 80 percent of Apple's spending on Samsung processing chips, memory chips and flat screens. But that could tumble to just 2.5 trillion won next year, as Apple will shift 30 percent of its AP business from Samsung and eventually 80 percent by 2017, according to Goldman.

"(We) should diversify our customer base and are making such efforts already, adding some Chinese customers," Woo told Reuters ahead of his first keynote speech at the annual Consumer Electronics Show in Las Vegas on Wednesday.

China's Meizu, one of the local smartphone newcomers, uses Samsung's Exynos quad-core chip for its MX smartphone, and Lenovo's K860 LePhone is also powered by Exynos.

Still, Samsung's mobile processor business is almost entirely tied to the fortunes of Apple and its own mobile business - the Galaxy range. By comparison, chip rivals such as Qualcomm Inc (NASDAQ:QCOM), Texas Instruments and Nvidia have a broader client base - from LG Electronics Inc and Nokia to HTC Corp, Huawei Technologies Co and Google's Motorola (NASDAQ:GOOG).

"We see emerging players who have potential to grow in smartphones and we will continue to make efforts to supply them with our chips," Woo said.


The mobile processor market, driven by roaring sales of smartphones and tablets, is a bright spot for a semiconductor industry that is struggling with falling computer sales. Research firm Gartner estimates the mobile processor market will grow 30 percent this year to $13.5 billion and hit $16.5 billion next year.

To strengthen its chip capability, Samsung bought UK chipmaker CSR Plc's mobile phone connectivity and location technology for $310 million last year, and it is now looking at how it can improve modem chip technology, especially the baseband chip solution that enables wireless devices' radio communications.

"Baseband is a very important segment, but we don't have it. Given its importance, we're reviewing various options," Woo said, suggesting Samsung could be scouting for potential targets.

Qualcomm is the biggest baseband chip company with nearly 50 percent of the market, followed by the likes of Mediatek, Texas Instruments and Broadcom.


Chipmakers are increasingly seeking to produce a single chip solution that combines AP, modem chip and connectivity chips that support Wi-Fi, Bluetooth and near-field communication functions, in one chipset. This combo-package is popular among low-end smartphones as it allows phone makers to cram various chips into compact devices.

Woo said Samsung, however, was not considering expanding into a single chip solution and will instead continue to focus on pure AP chips favored for high-end phones, as it allows manufacturers to differentiate their hardware offerings with various chip combinations.

The explosion of mobile devices has opened a big opportunity to Samsung as Intel Corp, the world's top chipmaker, struggles to crack the mobile processor market dominated by the makers of ARM Holdings licensed chips. Samsung is the biggest maker of ARM-based chips, such as Apple chips and Samsung's Exynos brand.

Intel's market share in mobile devices is just 1 percent, as UK chip designer ARM holds a near monopoly.

Woo said Samsung was not looking to break into the desktop computer or server processor market - which Intel dominates, but is under threat from ARM-based chips that boast low-power consumption and compact design.

"For the time being, our focus will pretty much be on enhancing our AP offering, especially for high-end mobile devices," he said.

($1 = 1062.9500 Korean won)

(Editing by Ian Geoghegan)