Samsung Electronics has reportedly incurred costs amounting to about 9 trillion won for chip purchases from global application processor (AP) manufacturers, including Qualcomm and MediaTek. The analysis suggests that the exclusion of Samsung’s in-house AP, Exynos, from key products due to performance issues has increased cost burdens.

According to the Financial Supervisory Service’s electronic disclosure system on Dec.2, Samsung Electronics spent a total of 8.9898 trillion won (US$6.92 billion) on mobile AP solutions from the beginning of this year until the third quarter. This marks a 10.4% increase compared to the same period last year and accounts for approximately 6.7% of the total cost of goods sold, which amounts to 134.27 trillion won.

Considering Samsung Electronics’ use of MediaTek AP in mid-range smartphones, it can be inferred that the majority of the expenditure was allocated to the purchase of Qualcomm Snapdragon processors. The latest flagship models from Samsung, including the Galaxy Z Fold 5, Flip 5, and S23 series, also feature Qualcomm's Snapdragon 8 Gen 2.

The annual expenditure by Samsung Electronics on purchasing APs from Qualcomm and MediaTek has been on a rising trend, reaching 2.98 trillion won in 2019, 5.64 trillion won in 2020, 6.21 trillion won in 2021, and 9.31 trillion won in 2022. Given that the purchase cost has already approached 9 trillion won as of the third quarter of this year, there is an observation that the upward trend is likely to continue.

The market believes that Samsung Electronics’ exclusive reliance on Snapdragon processors, instead of the previous strategy of mixing Exynos and Snapdragon by region, is negatively impacting its smartphone business and adding pressure due to the absence of its in-house AP, Exynos. Relying on external suppliers for components makes production costs and inventory management more challenging compared to using in-house components, acting as a negative cost factor.

In 2018 and 2019, Samsung Electronics’ AP expenditure remained in the 2 trillion won range due to the successful integration of Exynos. However, in 2020, as the competitiveness of Exynos declined, the cost surged to the mid-5 trillion won range.

For Samsung Electronics, which is facing challenges in securing profitability due to the decline in memory semiconductor prices, this situation is considered unfavorable. As the smartphone business essentially plays a pivotal role, an increase in cost burdens could lead to an overall decline in the company’s competitiveness.

In the third quarter, 65% of Samsung Electronics’ total revenue, amounting to 44.02 trillion won, was generated by the Device Experience division, primarily focusing on the mobile business. The operating profit also recorded 3.73 trillion won, offsetting the losses incurred in the semiconductor sector and contributing significantly to Samsung Electronics achieving a profit. On the other hand, the DX division recorded sales of 16.44 trillion won and an operating loss of 3.75 trillion won in the third quarter.

Meanwhile, Samsung Electronics is planning to release the Galaxy S24 series, tentatively named, in January, featuring the Exynos 2400 from the System LSI division and the Qualcomm Snapdragon 8 3rd generation AP. The Ultra model will be equipped with Snapdragon, while the standard and Plus models will have either Exynos or Snapdragon, depending on the region.