Samsung – The Chips are Down?

Most upside for MediaTek

• Samsung is having trouble with more than just high bandwidth memory (HBM) as it appears that it is considering not using its Exynos processor in some of its 2025 smartphones which will benefit Qualcomm and potentially MediaTek.
• It is no secret that Samsung has struggled with its in-house applications processor for some time and with Qualcomm returning to a custom processor and MediaTek competing more closely, it has been falling further behind.
• Furthermore, it has also been struggling with yields for its processors on its leading-edge nodes meaning that Exynos is both not very competitive and more expensive to make in-house than outsource.
• I view this as the latest symptom of a chronic illness that Samsung has been suffering from for many years which I refer to as engineering disease.
• This is the tendency to make everything in-house regardless of whether or not it makes strategic or business sense to do so.
• Another chronic sufferer is Google which has spent billions making consumer devices which have never made any real impact and from which shareholders have received nothing but losses.
• However, recent months have seen signs of some improvement as it has been working more closely with Google and a potential move to use 3^rd parties in its high-end devices would improve the outlook further.
• The most obvious winner is Qualcomm which already has a very strong position at Samsung where its latest Snapdragon 8 Elite is likely to feature strongly in the 2025 lineup.
• However, Samsung understands as much as anyone the kind of dependencies that result from single-sourcing, and so I think that it will be also looking elsewhere.
• Here, MediaTek is a viable option as the company and its products have come a long way in recent years and is snapping at Qualcomm’s heels in terms of its performance.
• For example, according to early benchmarks (somewhat unreliable), MediaTek’s Dimensity 9400 is 13.3% slower on GeekBench 6 single core and 9.2% on multicore.
• Given the jump that Qualcomm has registered with its 8 Elite using its new custom processor, this is a good result for MediaTek.
• These are early scores and as such, there will be mitigating circumstances, but the early indicator is that the Dimensity 9400 is able to stay in touch with the 8 Elite as a contender to power high-end smartphones.
• Qualcomm already has a very strong position with Samsung and so it looks to me as if MediaTek has the most to gain relatively should Samsung not use its in-house processor in its high-end smartphones in 2025 and beyond.
• However, when it comes to broadening the business into areas outside of smartphones, Qualcomm has a big lead as it is already the standard processor in automobile infotainment units and head-mounted Metaverse devices and is mounting a credible challenge to Intel and AMD in PCs.
• MediaTek is not sitting still and its partnership with Nvidia may present a serious challenge, but it is probably 2 years behind in terms of getting to market.
• The net result is that Qualcomm’s path to long-term revenue growth is clearer to see meaning that while the valuations are similar, Qualcomm is a lower-risk investment on this theme.
• This is why I continue to own Qualcomm and remain very happy to sit on my position.