On Monday, AMD and Samsung announced a licensing agreement whereby Samsung would license AMD Radeon graphics technology to be incorporated into future Samsung chips. If you missed the announcement, that’s likely because it came on the opening day of Apple’s WWDC, which of course garnered massive coverage. But for all the intense interest in Apple, the AMD announcement may actually have some massive ramifications that could reshape not only the mobile market, but many other consumer markets as well.
“AMD (NASDAQ: AMD) and Samsung Electronics Co., Ltd. today announced a multi-year strategic partnership in ultra low power, high performance mobile graphics IP based on AMD Radeon graphics technologies. As part of the partnership, Samsung will license AMD graphics IP and will focus on advanced graphics technologies and solutions that are critical for enhancing innovation across mobile applications including smartphones.”
he big picture
So what does this mean? Samsung has had designs on being a major player of chips powering smartphones, not only for its own phones, but as a supplier to other makers as well. Indeed, its Exynos chip sets have actually powered many of Samsung’s phones – but not its flagship phones shipping in the US or parts of Europe. For those devices, Samsung understood it needed the best performance possible, and for that it used the top rated Qualcomm Snapdragon chips – hands down the best chips available. As a result, Exynos has been relegated to powering lower tier devices.
One of the major failings of Samsung semiconductors in the past has been its graphics performance. With this agreement, Samsung has just licensed arguably the best performing GPU in the industry – the AMD Radeon. If Samsung can integrate the high level graphics performance of Radeon into an Exynos device, it would have a much more competitive chip. And together with Samsung’s emphasis on building its 5G modem capabilities, it could leverage such capabilities to great advantage in future high end devices.
Why is this critical? One of the fastest growing segments of the smartphone market is in gaming, and the advent of 5G is expected to increase that even further. Indeed, many new devices tout how well they play games, much like PCs have for years. One reason Qualcomm has been so successful with its chips is that they play games better, and at higher resolution, than any other. If Samsung Semiconductor could produce a competitive chip, it would create a real market competitor in high end chipsets for smartphones and could also be useful in powering other “smart” devices, like TVs, vehicles, appliances, etc. as more and more intelligence makes its way into these products.
Samsung Semiconductor, where this licensing agreement resides, is a separate and distinct entity from the Samsung Mobile and Consumer divisions, and in theory there is a separation between them. But Samsung as a huge holding company prefers that the various groups leverage as much of their own components as possible. If Radeon can improve the performance of the Exynos chipset enough, it could become the engine powering new smartphones in mature markets where maximum performance is critical. And it would limit Samsung’s dependence on other suppliers.
The longer-term outlook
I expect Samsung licensing of AMD technology will have several longer term effects.
First, it will allow Samsung Semiconductor to be a major player in chipsets for higher end phones, where it only supplies mid range devices currently. Samsung semiconductor is one of the largest suppliers of memory chips worldwide, but getting deeper into the CPU business is more stable and potentially more lucrative than the often wild swings of commodity memory markets.
Second, Samsung really does want to be self sufficient in its mobile and consumer divisions. Bringing out a chip to compete with Snapdragon means Samsung could increase its margins, as well as limit its reliance on Qualcomm. Concentrating on the graphics engine that drives not only gaming but also much of the video and editing functions could make a major impact.
Third, I expect the graphics capability that Radeon offers Samsung to make its way into its smart TVs and similar home entertainment devices, where the need for graphics power continues to grow.
And there is one other possibility. One of the major components of creating a true AI learning engine, needed for many products from autonomous driving to robotics, is a large arrays of GPU processors. The Radeon technology could certainly provide a base from which Samsung could greatly expand its AI prowess by building out very large, low power AI arrays for its own products as well as for other makers.
Winners and losers
I expect it will be 1-2 years before we see the full results of this agreement make it to market. But to me, it looks like AMD and Samsung could both come away as big winners. AMD could get a significant revenue stream for the high volume of parts Samsung will produce. And Samsung will be much more competitive in the market with its own high performance chips.
But there will be some losers as well. Ultimately, this could have negative implications for Qualcomm, which currently supplies chips to Samsung. It not only stands to lose a major customer but could also face a new competitor in supplying commodity chips to other mobile device makers. Other losers may include the various commodity chip suppliers, primarily in China (e.g., MediaTek, HiSilicon/Huawei), that will now face a much more competitive Samsung Semiconductor.
Overall, this is a good move for Samsung, and perhaps an even better one for AMD. Long term they should both be winners unless somehow Samsung can’t make it work. I deem that unlikely, but only time will tell how well they do at upping their game and how others in the marketplace, particularly Qualcomm, respond.