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Will Samsung's Next Giant Phone Feature a Qualcomm Processor?

By Sam Mattera - Jul 22, 2015 at 4:20PM

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Samsung's decision to ditch Qualcomm for the Galaxy S6 took a toll on the chip giant's stock. Will that change with its newest handsets?

Samsung (NASDAQOTH: SSNLF) is about to release two new smartphones, one of which could sport a processor from mobile chip giant Qualcomm ( QCOM 4.99% ).

Samsung Galaxy Note. Source: Samsung.

Samsung is expected to unveil two new phablets -- phones with gigantic screens -- next month: The Galaxy Note 5 and the Galaxy S6 Edge+. The relative success (or failure) of these handsets will ultimately show up in Samsung's bottom line, but the phones could be equally important to Qualcomm investors.

Another in-house solution or a return to Qualcomm?
Samsung's Galaxy S6 and Galaxy S6 Edge represented a radical departure from its previous Galaxy smartphones. Covered in metal and glass, both handsets offered significant cosmetic improvements over their predecessors, but lacked Samsung's signature removable battery and expandable storage. There were also some big changes on the inside.

Since the release of the Galaxy SII in 2011, Samsung had been a major buyer of Qualcomm's Snapdragon mobile processors. Samsung had used its own Exynos chips in some international variations, but in North America and several other markets, it consistently chose Qualcomm's latest chip. The same held true for the Galaxy Note line. The current iteration of the Galaxy Note, the Galaxy Note 4, sports a Qualcomm Snapdragon 805.

But all versions of the Galaxy S6 are equipped with Samsung's own Exynos 7420 rather than Qualcomm's competing Snapdragon 810. Investors have wondered whether this would be a one-time move or the beginning of a long-term trend -- if Samsung would eventually return to Qualcomm or stick with its own processors for the foreseeable future. The Galaxy Note 5 and its curved counterpart, the Galaxy S6 Edge+, represent Qualcomm's next opportunity to win back the Korean mobile giant.

Samsung-focused blog SamMobile has been a fairly reliable source for information on Samsung's mobile ambitions. Earlier this month, it reported that while Samsung intended to equip the Galaxy Note 5 with its own Exynos 7422, the Galaxy S6+ Edge would sport Qualcomm's Snapdragon 808. Regardless of the phone's sales, it would've been a major win for Qulacomm in the sense that it would leave open the possibility of the Snapdragon line returning to the Galaxy brand in a big way. But earlier this week, SamMobile recanted and reported that the S6 Edge+ would use Samsung's own Exynos 7420, the same chip as the smaller Galaxy S6 Edge. Investors will have to wait for the phones' official unveiling to know for sure.

The loss of Samsung has taken a toll on Qualcomm
Despite the continued growth in the mobile sector, Qualcomm has been a disappointing underperformer for most of the last two years. It's suffered from other issues (notably in China), but its recent break with Samsung has taken a toll on its stock in 2015.

In January, Qualcomm trimmed its full-year outlook. It cited several factors, but drew particular attention to the fact that its Snapdragon 810 would not appear in a "large customer's flagship device" -- an obvious reference to Samsung and its Galaxy S6. In April, Qualcomm cut its outlook again, and once again cited Samsung's decision to ditch the Snapdragon.

The market probably isn't expecting a Snapdragon in any of Samsung's 2015 phones. When questioned by an analyst about the upcoming Note 5 on the company's last earnings call, Qualcomm CEO Steve Mollenkopf said the company did not expect to win the phone. "We anticipate a similar share picture than what you see today on the [Galaxy S6]," he said.

A Snapdragon in the Galaxy S6 Edge+, then, could provide some nice upside for Qualcomm investors. If it's not there, it won't be much of a shock, but it could lend further credence to the notion that Qualcomm has lost Samsung as a Snapdragon customer. While Mollenkopf didn't expect to win the Note 5, he was optimistic about the Galaxy S7. "Now, next design cycle... I think we feel that we have a very competitive roadmap," he said.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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