[News] Samsung Faces Profit Challenges as Huawei Joins Apple in Achieving Tech Independence

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According to a report from Chosun Biz, Huawei has followed Apple’s lead in achieving self-sufficiency in application processors (AP chips) and operating systems (OS). This technological independence allows the company to reduce OS royalty payments to external providers and lower production costs through in-house chip manufacturing, giving it a significant advantage in product price competitiveness.

The report highlights that, in contrast, Samsung Electronics faces increasing challenges in maintaining price competitiveness for its smartphones, as it continues to rely on external vendors for both AP chips and OS.

Huawei’s latest Mate 70 series, launched on November 26, features the company’s self-developed AP chip, as the report notes. Notably, the Mate 70 is also equipped with an independent OS, “HarmonyOS Next,” which does not use Google’s Android.

It is worth noting that the price of Huawei’s Mate 70 is lower than the launch price of its Mate 60. Huawei priced the Mate 70 at RMB 5,499 yuan (approximately USD 730), a 21.4% reduction compared to the Mate 60’s launch price of RMB 6,999 yuan (approximately USD 930), as the report indicates.

According to the report, with smartphone innovation reaching its limits, affordability and value for the price have become crucial factors for consumers. In this context, technological self-reliance is becoming a new way for manufacturers to enhance price competitiveness.

Apple Maintains Price Stability Amid Competition by Self-Designed AP Chips and iOS

Apple, which has consistently used self-designed AP chips and its iOS, has kept iPhone prices stable for three consecutive years. From the iPhone 14 in 2022 to this year’s iPhone 16, Apple has not raised prices, as the report emphasizes.

In contrast, Samsung has kept the price of its Galaxy S24 base model unchanged. However, the report points out that the Galaxy S24 Ultra saw an 8.3% price increase compared to its predecessor, reflecting the rising cost of components such as AP chips.

According to the report, Samsung reportedly faces rising costs from Qualcomm’s AP chip pricing every year when launching new models. Although Samsung has its own Exynos AP chip, low production yields have limited its bargaining power with Qualcomm, as the report notes.

The report, citing GSMArena, highlights that Samsung is expected to rely solely on Qualcomm AP chips for its Galaxy S25, set to launch next year. This decision stems from ongoing yield issues with Samsung’s own Exynos 2500 chip.

Samsung’s dependence on chips from external suppliers, coupled with difficulties in fully passing on rising AP chip costs to product prices, has negatively impacted the profitability of its Mobile eXperience (MX) division. According to the report, although the division’s revenue for Q3 this year grew by 1.7% year-on-year, reaching KRW 30.52 trillion (approximately USD 22.8 billion), its operating profit declined significantly, falling by 14.5%.

The Advantages of a Proprietary OS

A proprietary OS, that is exclusively developed and controlled by a single company for use on its own devices, not only eliminates royalty payments to external providers but also creates new revenue streams within its ecosystem, as the report notes. For example, both Google and Apple charge around 30% in fees for in-app purchases within their respective OS ecosystems.

The report points out that although Samsung once attempted to develop its own OS, Tizen, the company eventually abandoned the project and now uses Google’s Android.

According to the report, citing sources, it is difficult for Samsung to launch devices with a proprietary OS when users are already accustomed to the Android-based app ecosystem.

Read more

• [News] Samsung Rumored to Abandon Exynos 2500, Equipping Entire S25 Series with Snapdragon
• [News] Huawei to Launch HarmonyOS Next Today, Confronting Apple’s iOS and Android

(Photo credit: Samsung)