Samsung’s semiconductor division has announced preliminary results ahead of its formal Q3 earnings call. 2015 has been a rough year for Samsung, overall, but the semiconductor unit’s performance should blunt those losses. Samsung claims to have earned an operating profit of $6.3 billion on semiconductor sales in Q3, up substantially from the $3.55 billion operating profit that it posted for the same quarter in 2014.
The vastly improved results were driven by two factors: favorable exchange rates and higher overall shipments. Samsung sold roughly 8% more volume this year compared to last, and its ASPs may have also improved, buoyed by the launch of the Galaxy Note 5 and the Apple iPhone 6s and 6s Plus. It shares the latter hardware with TSMC; Apple opted to dual-source its production last year after years of relying on a single vendor (usually Samsung) for its chip launches.
Some analysts have warned that the majority of this jump was driven by relatively pedestrian causes — namely, shifting foreign exchange rates. Still, we expect to see Samsung finish 2015 on a high note. Qualcomm is preparing to launch its Snapdragon 820, a 14nm chip built on Samsung’s semiconductor technology, and its share of the iPhone 6 business should stand it in good stead for the rest of the year.
As we previously forecast, this advantage is coming at the expense of TSMC, which has already stated it expects much more modest Q3 2015 results. Back in July, the company stated that it expected revenue to grow by no more than 2.2% for Q3, up to $6.75 billion. Like Samsung, TSMC should see a boost in the end of the year, thanks to Christmas sales and a fresh crop of Android smartphones. It’s not clear which manufacturers are going to adopt TSMC’s 16nm FF+ node as compared to Samsung’s already-shipping 14nm hardware, but 2016 should give the Taiwanese foundry fresh ammunition with which to compete. Both firms have already announced that they intend to enter risk production on 10nm by the end of 2016, though that means something different in foundry land then it does when Intel or AMD say it. Even if both companies meet their goal of Q4 2016 for early 10nm ramps, we don’t expect to see shipping 10nm solutions until the back half of 2017 at the very earliest.
Meanwhile, Samsung is still struggling to turn its phone business around. The company has lost significant low-end market share in recent years, thanks to competition from companies Xiaomi and Huawei. Strong profits from the semiconductor division and overall technical leadership can definitely help, but the Galaxy S6 / S6 Plus simply wasn’t the winning solution that the company hoped it would be. Now that Apple competes directly with Samsung in the large-screen device space, Samsung may want to revisit some of the features that made its devices preferred options — like, say, microSD cards and replaceable batteries.
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