SEOUL Qualcomm Inc said on Thursday Samsung Electronics Co Ltd will become the sole manufacturer of its new flagship mobile chip, a major boost for the South Korean tech giant as it vies for deals with bigger rival TSMC.
The deal, which some analysts estimate is worth over $1 billion, comes as Samsung, a major Apple Inc supplier, is heading into another profit drop this year due to slowing demand for consumer electronics and components.
"This is very significant because never before has Qualcomm used foundries other than TSMC to make high-end chipsets," Maybank Kim Eng analyst Warren Lau said.
Samsung could gain more than $1 billion in revenue from the Snapdragon 820 orders at its Taiwanese rival's expense, he said.
Taiwan Semiconductor Manufacturing Co Ltd (TSMC), which has counted Qualcomm as its top customer, said on Thursday it expected falling demand in high-end smartphones in the current quarter after posting a better than expected quarterly profit.
Qualcomm said in a separate e-mail statement to Reuters that Samsung was the sole manufacturer for the new Snapdragon 820 mobile processors.
Though Qualcomm's order alone will not rejuvenate Samsung's earnings, the deal suggests gathering momentum in the Korean firm's efforts to grow its foundry business to diversify its revenue stream.
The firm is relying more on components such as chips and displays as rivals Apple and Huawei Technologies Co Ltd [HWT.UL] undercut sales and margins of the world's top smartphone maker.
TSMC dwarfs Samsung's foundry business in terms of revenue, but the two firms are competing fiercely for orders from high-end customers including Apple Inc. Samsung's 14-nanometre technology has helped the firm gain ground against TSMC and pick up new clients.
Maybank Kim Eng's Lau said Qualcomm would likely increase orders to Samsung for other Snapdragon chips that would launch later this year, and it would be a key client once the South Korean firm started mass production based on the 10-nanometre technology under development. Qualcomm's orders could also attract more customers away from TSMC to Samsung, he said.
Smaller chips reduce power consumption, improve performance and lower costs by allowing more to fit on a single wafer.
Samsung said the Snapdragon 820 used its 14-nanometre manufacturing process, which it also used to make its own Exynos processors. They would be in products in the first half of the year, Samsung added in a statement, without revealing the value of the contract.
(Reporting by Se Young Lee; Editing by Stephen Coates)