Samsung Is Making Far Fewer Chips For The IPhone, And Now Its Business Is Getting Kicked From Two Ends

Samsung gumi factory worker testing galaxy s5SamsungA factory worker testing two new Samsung Galaxy phones.

Samsung is still making about 40% of the processors used in the iPhone 6, according to an analysis by iSuppli that was provided to Re/code. iSuppli is a research firm that tears down gadgets and determines how much they cost to produce.

A few months ago, reports started coming out that Apple was shifting its chip business from Samsung to a company called Taiwan Semiconductor Manufacturing (TSMC). The Wall Street Journal reported in August that this was a big blow to Samsung’s business along with its declining smartphone sales. Until now, Samsung made most of the processors for Apple’s iPhones and iPads.

Apple designs its own chips for iPhones and iPads using architecture from the British company ARM. It then has someone else like Samsung actually make the chips based on those designs. Even though Samsung and Apple are rivals, Samsung was making a lot of cash by building chips for Apple. Now most of that business is going to TSMC instead. That’s a huge blow to Samsung.

So now Samsung is getting kicked from two ends. Its smartphone sales are declining as people in emerging markets decide to buy Android phones from companies like startup Xiaomi. Those phones can do pretty much everything Samsung phones can do, but they only cost about half as much.

XIAOMI SMARTPHONE MI4 lei jun ceoREUTERS/Jason LeeXiaomi CEO Lei Jun shows the company’s smartphone sales growth. It now sells more phones than Samsung and Apple in China.

Samsung’s latest financials tell it all. For last quarter, Samsung reported operating profit of 7.9 trillion won, or about $US7 billion US. That was down from 9.53 trillion won in the year-ago quarter. Revenue for that quarter was $US52.35 trillion won ($51 billion US), down from 57.46 trillion won in the year-ago quarter. It blamed increased smartphone competition and declining chip sales for the decrease in sales.

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