S9 halts Samsung run of progress but semiconductors stand strong

Samsung’s run of reporting record quarterly results has come to an end as sluggish sales for its flagship S9 device hit a wall.

Analysts had been predicting this would be a tough quarter for the device, some believing this would be the weakest launch for years, and it appears the fears have become reality. With sales of roughly $52.1 billion for the three months, a decline of 4% year-on-year, Samsung at least offered somewhat accurate guidance in a note a couple of weeks ago.

“Second quarter revenue fell due to softer sales of smartphones and display panels, despite robust demand for memory chips,” said Samsung in the earnings statement. “The continued strength of the Company’s memory business contributed to the higher operating profit. Net profit was little changed from a year earlier due to higher income tax.”

While this is certainly not an ideal situation for the business, at least it is not alone. The iPhoneX has also been experiencing sluggish sales, as the continued trend of flat innovation and limited differentiation continues. Apple might have been able to avoid the dip over the last couple of years, selling on its brand more than product innovation, but it seems not even the iLifers can continue to blindly follow the iChief down the trail of mediocrity any more. No-one is permanently exempt of global trends.

For the short-term future, the story is unlikely to change significantly, but there is a light at the end of the tunnel. With 5G networks set to be switched on over the next couple of years, manufacturers will soon be able to begin a refreshment cycle of devices, with flagship products being marketed as ‘5G Ready’. The consumers insatiable appetite for data and the need for speed will likely spur on the need to update devices.

This might not be the best time for the devices division, Samsung does at least have the burgeoning, if not as sexy, semiconductor unit. The NAND and DRAM markets continued to be big earners for Samsung, despite commenting on weak seasonal demand. With global cloud trends continuing to surge, front-line suppliers to the data centre industry are not going to be going hungry any time soon.

For servers, demand for SSD for data centres is forecast to remain strong, while for enterprise, adoption of high-density server SSD over 8TB is expected to continue. The adoption of SSD is expected to expand into more sectors and all product segments are projected to use more high-density eStorage, perhaps explaining the South Korean drive for innovation in the semiconductor market.

According to Yonhap News Agency, the South Korean government has pledged roughly $1.34 billion to the semiconductor industry over the next ten years, to support the country’s position in the global standings, but also to capitalise on the expected growth in the segment. The semiconductor space is considered to account for roughly 20% of the country’s exports.

“In order to have South Korea maintain its reputation as the world’s top semiconductor powerhouse, we will support the development of the chip industry by focusing on three strategies,” said Paik Un-gyu, Minister of Trade, Industry and Energy.

The three pillars of the strategy are the development of next-generation materials that will replace existing memory chips, the seeking of combined growth of fabless and foundry businesses, and hosting production lines of global semiconductor companies. Samsung will almost undoubtedly benefit from government interest in this area.

Samsung’s flagship business unit, its smartphone division, has had a rough couple of years, owing to a global slowdown on devices and also its own engineering ‘difficulties’, but this decline is not something which we should be surprised at; the writing has been on the wall as consumers start to favour refurbished or second devices, while also extending the lifecycle of their current devices. But on the positive side, Samsung is collecting profits through diversification.

Investors will moan about the deficit in sales and profits, but a burgeoning semiconductor division and a device refreshment cycle on the horizon, it could be in a worse position.

Qualcomm chases out big thinking board member

Qualcomm has announced it will not re-nominate Paul Jacobs to the Board of Directors after the executive made the decision to explore the possibility of making a proposal to acquire Qualcomm.

Jacobs has been working at the chipmaker since 1990, holding the position of CEO between 2005 and 2014, and also serving as Chairman of the Board. But it seems ambitions of trying to take the company private where too much for the other 10 board members, who have said in a statement they would consider his proposal should it come to fruition.

“These opportunities are challenging as a standalone public company, and there are clear merits to exploring a path to take the company private in order to maximize the company’s long-term performance, deliver superior value to all stockholders, and bolster a critical contributor to American technology,” Jacobs said in a statement.

It seems Qualcomm can’t keep itself out of the news right now, as President Trump might be called upon again to beat back the ambitions of foreign investors. According to the FT, Jacobs has been in discussions with several global investors, including the Softbank Vision Fund. Considering Softbank’s apparent intentions to diversify into the technology world this would seem like a fair rumour to believe, though sources close to the situation have pointed to a personal relationship between Jacobs and Softbank CEO Masayoshi Son as a means to facilitate the deal.

Perhaps an interesting twist to the story will be the foundations of the Softbank Vision Fund. While walking the road to raise $100 billion of committed capital, the wannabe investors knocked on the Qualcomm doors, with the chipmaker more than willing to contribute. Qualcomm dollars underwriting its own buy-out might cause a few complications.

This statement of intent is by no-means a guarantee Jacobs will be able to raise interest or the funds to forge an assault on the chipmaker. And you thought the Qualcomm soap opera had reached the final chapter.

More semiconductor consolidation as Marvell buys Cavium for $6 billion

US networking and wireless chip company Marvell is dropping $6 billion on Cavium, which also makes chips that do similar stuff.

Both companies work largely behind the scenes, designing SoCs that control things like storage units, networking products and wireless connectivity. Here’s how the announcement describes the deal.

‘The transaction combines Marvell’s portfolio of leading HDD and SSD storage controllers, networking solutions and high-performance wireless connectivity products with Cavium’s portfolio of leading multi-core processing, networking communications, storage connectivity and security solutions.’

The rest of it is the usual M&A talk about synergies, scale and end-to-end solutions. “This is an exciting combination of two very complementary companies that together equal more than the sum of their parts,” said Marvell CEO Matt Murphy.

“This combination expands and diversifies our revenue base and end markets, and enables us to deliver a broader set of differentiated solutions to our customers. Syed Ali has built an outstanding company, and I’m excited that he is joining the Board. I’m equally excited that Cavium’s Co-founder Raghib Hussain and Vice President of IC Engineering Anil Jain will also join my senior leadership team. Together, we all will be able to deliver immediate and long-term value to our customers, employees and shareholders.”

“Individually, our businesses are exceptionally strong, but together, we will be one of the few companies in the world capable of delivering such a comprehensive set of end-to-end solutions to our combined customer base,” said Cavium Co-founder and CEO, Syed Ali. “Our potential is huge. We look forward to working closely with the Marvell team to ensure a smooth transition and to start unlocking the significant opportunities that our combination creates.”

As they said Murphy will be the CEO of the combined company, with Ali adopting a more strategic role as an advisor and board member. The semiconductor sector has been subject to consolidation for some time, with the mega-acquisition attempt by Broadcom of Qualcomm set to be one of the biggest acquisitions ever if they pull it off.

Broadcom reportedly eyes Qualcomm in $100bn deal

Broadcom has been one of the more active pursuers of acquisition in recent years, and it’s appetite doesn’t seem to have been satisfied as it apparently lines up a $100 billion shot at Qualcomm.

According to the Financial Times, Broadcom is on the verge of making a move for Qualcomm. At the time of writing there haven’t been any official moves, but sources close to matter believe it will happen before too long. Whether the bid is positively received by Qualcomm or regulators remains to be seen, but this seems to be another expensive chapter of the consolidation story in the semiconductor market.

On the acquisition trial to date we’ve had Qualcomm splashing $47 billion on NXP Semiconductors, Softbank writing a $32 billion cheque for ARM, Analog Devices spending $14 billion on Linear Technology and Intel buying various different business as it builds its credentials in the IoT world. It certainly is a fluid segment, but whether the deal will ruffle the feathers of regulators is almost a certainty.

Between the two businesses there is a bit of overlap when it comes to wifi and Bluetooth technologies. This might prove to be a bit of a stumbling block for the deal, though considering Broadcom needs to make some moves to better prepare itself for the next wave of 5G euphoria, the team might be likely to make some remedies. A combination of the two companies could make a combined entity with a market capitalization in excess of $200 billion.

And it certainly is doing its best to get in the good books of US officials. Only a day or so prior to the Qualcomm acquisition rumours, Broadcom announced it would initiate a redomiciliation process to change the parent company of the Broadcom corporate group from a Singapore company to a US corporation. Even President Trump was invited to the announcement.

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“We believe the USA presents the best place for Broadcom to create shareholder value,” said CEO Hock Tan. “We expect the tax reform plan effectively to level the playing field for large multinational corporations headquartered in the United States and to allow us to go all in on US redomiciliation.  However, we intend to redomicile to the United States even if there is no corporate tax reform.”

The move to redomicile in the US might have been viewed as a means to smooth the edges of the $5.9 billion Brocade acquisition which is making its way through the regulatory process, but it would appear Tan has bigger fish to fry now. Whether the move to redomicile has any material impact on the regulatory process remains to be seen, though it certainly helps President Trump follow up on his promise to bring US companies back to the US.

Considering quite a lot has happened since Trump’s victory in the US election, you’d be forgiven for forgetting a few of the campaign promises. One of those promises was to reinvigorate the US job market by bringing US companies back into the US. Success has been limited thus far, though a redomiciliation of Broadcom would be a positive step.

We’re almost positive rubbing Trump the right way to get favour on any potential Qualcomm deal won’t be the primary driver for Tan’s redomiciliation move, but if it is a side-bonus, all the better.