Wireless chip giant Qualcomm (NASDAQ: QCOM) designs many of the industry's best wireless chips, but it doesn't manufacture those designs itself. Instead, it works closely with contract chip manufacturers to build those chips on its behalf. Over the last three product generations, Qualcomm has relied exclusively on Samsung (NASDAQOTH: SSNLF) to manufacture its premium Snapdragon processors, having moved away from Taiwan Semiconductor Manufacturing Company (NYSE: TSM). However, it's widely believed that TSMC will be the sole manufacturer of Qualcomm's upcoming premium smartphone platform, the Snapdragon 855.
While losing that manufacturing contract is clearly a negative for Samsung's contract chip manufacturing efforts (and a positive for TSMC), investors shouldn't lose sight of the fact that Samsung is still building significant amounts of chips for Qualcomm. Let's take a closer look at exactly what's going on.
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It's not just about the premium tier
A typical smartphone vendor offers products at a wide range of price points, from phones that cost north of $1,000 to products that go for $100. There are also plenty of price points in between. A merchant chip vendor like Qualcomm builds a correspondingly broad range of processors to suit the performance, feature, and cost needs of the different types of phones that its customers -- the smartphone manufacturers -- plan to sell.
You might have noticed, then, that Qualcomm just announced a few new mobile platforms. For high-end smartphones ("high end" in Qualcomm's terminology is a step down from "premium"), the company released the Snapdragon 730 and a gaming-oriented variant, known as the Snapdragon 730G. The Snapdragon 665 is aimed at midrange smartphones.
The Snapdragon 730 and Snapdragon 730G are built using an 8nm (nanometer) technology, while the Snapdragon 665 is produced with an 11nm technology. Since Samsung is the only contract manufacturer that has 8nm and 11nm manufacturing processes, you can be sure that these chips are being manufactured by Samsung.
What could the future hold?
Qualcomm hasn't disclosed what manufacturing technology will be used to build the follow-on to the Snapdragon 855, a product that's expected to come to market in volume during the first half of 2020. However, there's a solid chance that Qualcomm will use Samsung's upcoming 7nm technology to build that chip. After all, on Feb. 21, 2018, Qualcomm and Samsung "announced their intention to expand their decade-long foundry relation ship into EUV (extreme ultra violet) lithography process technology, including the manufacture of future Qualcomm Snapdragon 5G mobile chipsets using Samsung's 7-nanometer (nm) LPP (Low Power Plus) EUV process technology."
Now, the companies didn't specify which 5G chipsets would be built using Samsung's future 7nm technology -- this could very well be in reference to Qualcomm's post-Snapdragon 855 premium chip or it could simply mean that Qualcomm plans to build the successors to the Snapdragon 730 (and, eventually, Snapdragon 665) using that 7nm technology.
Nevertheless, I'd be willing to wager that given the strong chip manufacturing relationship that exists between the two companies, Qualcomm will continue to rely on Samsung for a large portion of its smartphone chip manufacturing needs for the foreseeable future.
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