Intel’s Entire Business Can Be Surpassed By Samsung’s Chip Division Alone

Samsung’s chip division could be almost twice the size of Intel’s entire business after it propelled Samsung to record second quarter earnings.

Accounting for more than 57 percent of its entire earnings, operating profit of 8.03 trillion Korean won ($7.21 billion) in its semiconductor division in the three months to June was reported by the South Korean electronics giant. Revenues came in at 17.58 trillion Korean won or $15.78 billion.

When it reported operating profit in its semiconductor unit of 6.31 trillion Korean won or $5.66 billion, more than Intel’s $3.9 billion figure, Samsung first overtook Intel in the first quarter of 2017. But slightly behind Intel were revenues of Samsung. But it is being widely anticipated that Samsung’s operating profit and revenues for its chip division, will surpass those of Intel’s whole business, for the first time in the second quarter.

The South Korean firm’s recently-released flagship Galaxy S8 has performed well and is still the world’s largest smartphone player. But it has been investing heavily in the chip business in recent times.

And as it doubles down on the division, it announced plans to invest $18 billion in South Korea in its chip business earlier this month.

“Based on its history, we believe Samsung is either entrenching itself in areas where it is a market share leader … or making a push to gain market share,” investment bank Stifel said in a research note Thursday.

Samsung produces that so-called NAND and DRAM chips which can be used in devices such as laptops and smartphones, through to data centers and a number of trends are driving the uptake of those chips. Prices are being pushed higher because there is rising demand but not enough supply. And the number of data centers are growing at the same time.

In the data center business, Intel has been particularly strong. Revenues in its data center group rose 8 percent in 2016 to $17.2 billion. And apart from Samsung, other players such as Nvidia and AMD are also posing challenges to Intel.

Saying that Intel has the “most to lose” in the “4th tectonic shift in computing”, investment house Jeffries downgraded the chipmaker from hold to underperform earlier this month. Firs, the industry shifted from PCs to mobile. But now internet of things, meaning loads of devices that are connected to the internet, as well as artificial intelligence is another shift that the industry is witnessing.

“As the incumbent with dominant share, we think INTC (Intel) has the most to lose,” Jefferies analyst Mark Lipacis wrote in a research note dated July 10.

And Intel is also being aware of changes in the semiconductor market. Aimed at servers and data centers called the Xeon Scalable Line, it unveiled a new line of chips earlier this month. Already a number of high-end customers are using the Intel product as Intel touted improved performance.

“While there are a lot of moving parts within the story, we think that an improving margin structure and continued focus on increasing operational efficiencies, coupled with a renewed focus on non-PC related growth markets will ultimately yield continuing improvement in profitability metrics,” MKM Partners said in a note on July 12.

(Adapted from CNBC)

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