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Samsung Electronics Concerned about Struggling System LSI Business
Samsung Problems
Samsung Electronics Concerned about Struggling System LSI Business
  • By matthew
  • August 8, 2014, 08:27
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The Samsung Exynos 5 octa processor.
The Samsung Exynos 5 octa processor.

 

According to industry sources and overseas media outlets on August 6, Samsung Electronics' System LSI division is expected to record operating losses this year. In an August 5 article posted on its website, the Wall Street Journal quoted IBK Securities analyst Lee Seung-woo saying, “I expect the business to post a loss of 877 billion won [US$847 million] this year, a sharp reversal from an operating profit of 203 billion won [US$196 million] last year.”

In the second quarter of this year, Samsung's operating profits in the semiconductor area amounted to 1.86 trillion won (US$1.79 billion), just a little less than 2 trillion won. The Korean tech giant did not separately announce its Q2 performance in the non-memory semiconductor business. But experts the related industries think that Samsung recorded an operating profit of more than 2 trillion won in the memory semiconductor business, while it posted an operating loss of around 200 billion won in the system semiconductor area.

The industry believes that Samsung's poor performance in the non-memory semiconductor business is mainly attributable to low demand from customers for application processors (APs) and semiconductor chipsets.

The reason for a decrease in demand for APs lies in reduced demand for Samsung phones. While it is not properly responding to increased demand for LTE chips and systems-on-chip (SoC), the tech company is increasingly using octa-core or quad-core processors instead of its own microprocessors, called the Exynos series. According to research firm Strategy Analytics, Samsung's share in the AP market nearly halved, decreasing from 12.0 percent in 2011 to 6.3 percent in 2013.

In semiconductor chips, which comprise a large proportion of the sale of non-memory semiconductors, a reduction in demand for chips used in Apple's iPhones dealt a serious blow to Samsung. Earlier this year, Apple changed its supplier for A8, an AP used in the iPhone 6, from Samsung to Taiwan Semiconductor Manufacturing Company and other chip makers. Since Apple accounted for 80 percent of Samsung's sales in the foundry business, a reduction in the business size became inevitable.

The Korean firm reportedly succeeded in obtaining an order to make Qualcomm's next mobile APs by touting the production process of 14 nm FinFETs. It is also possible for the company to receive an order from Apple to produce chips in the next model of the iPhone 6. However, industry analysts are saying that it will be difficult to anticipate any great results in the near future, in that it takes a long time to develop technology and rebuild trust of customer companies.

Meanwhile, Samsung previously said that it will mass produce the first AP late this year, in which the production process of 14 nm FinFETs was used, and 14 nm FinFETs are scheduled to be mass-produced in the latter half of next year. The industry thinks that the System LSI division may improve performance in the latter half of 2015.