Samsung's Qualcomm contract will help it make up for anticipated loss of business from Apple

Samsung recently announced that it has started manufacturing Qualcomm's new Snapdragon 820 processor. The contract is expected to help the company's chip foundry make up for an anticipated loss of business from Apple.

The foundry business of Samsung which makes logic chips as per customer requirements was boosted in 2015 after it resumed producing processors for Apple's iPhone. However for the 2016 models of the iPhone, analysts expect the business to shift to industry leader Taiwan Semiconductor Manufacturing Company (TSMC).

Keon Han, an analyst at Credit Suisse explained that a similar situation had occurred in 2014, when Samsung was left with idle capacity by Apple, leading to a loss of about $1bn (£694bn, €916bn) for Samsung's logic chip business. He added that this time around, the losses would not repeat as the Qualcomm contract would coincide with the potential loss of work from Apple, amounting to "a swap".

According to estimates, the logic chip business of Samsung which makes chips for products ranging from phones to television screens – for both the South Korean parent and outside customers – generated about $10bn in revenue in 2015. From this amount, Apple accounted for approximately 17% on income. However, the company's total revenues – according to a preliminary guidance given last week – were more than 15 times at $166bn.

Samsung's earnings from its smartphones business have declined over the past two years and to make up for the same, the company is relying on its components businesses. For the Qualcomm contract, it would use an upgraded, lower-power version of its 14-nanometre FinFET technology, The Financial Times reported.

For the American semiconductor company, the Snapdragon 820 presents a second chance to revive itself after previous flagship, the Snapdragon 810 had disappointing sales, primarily because it was not made part of Samsung's high-end phones due overheating concerns.