80% of Samsung’s microchip revenue comes from arch-nemesis Apple

80% of Samsung’s microchip revenue comes from arch-nemesis Apple

By Christopher Mims @mims June 3, 2013

Here’s a stellar example of how to keep your enemies close: a multi-billion dollar division of Samsung that makes “logic integrated circuits”—basically, the brains of all mobile devices and PCs—is almost entirely propped up by business from Apple,reports Digitimes Research.

In 2012, 80% of Samsung’s business for its foundries, the specialized factories where microchips are made, came from Apple. In the same year, Samsung spent $7 billion to upgrade those foundries, one of which, in Austin, Texas, is the plant that manufactures Apple’s current latest-generation processor for iPads and the iPhone 5. That plant received at least $4 billion of investment from Samsung in 2012.No doubt Apple wants to rely less on Samsung, given the ongoing patent disputebetween the two companies and their direct competition in the smartphone and tablet markets. All the better for Apple if it guts Samsung’s microchip business in the process.

How would Apple do that? Rumors have been swirling since summer that the next generation of microchips for Apple’s mobile devices will be made not by Samsung, but by its competitor Taiwan Semiconductor Manufacturing Company (TSMC). Those rumors appear to be gaining traction.

Microchip foundries are a tough business. Because they require huge capital expenditures, they have to produce chips at or near capacity to stay afloat. Samsung’s foundries would be left in the lurch if Apple abruptly moved its microchip business away from Samsung. Such a move could cost Samsung hundreds of millions of dollars. Ouch.

June 3, 2013 2:23 pm

Intel given big break in mobile chips challenge

By Simon Mundy in Seoul and Bede McCarthy in London

Samsung Electronics will use an Intel processor in the latest model of its popular Galaxy tablets, an important breakthrough for the world’s biggest chipmaker by revenues in its quest to challenge the dominance of Arm-based chips in mobile devices.

Samsung’s Galaxy Tab 3, which is expected to go on sale this month, will be the first time the South Korean company has used Intel chips in its tablet computers. Previous versions of the Galaxy Tab used chips that are based on Arm Holdings’ designs, though Samsung already makes PCs with Intel chips.

The move will provide an early boost for new Intel chief executive Brian Krzanich, who took the helm last month. Mr Krzanich admitted to shareholders that “we were slow to the mobile market” and promised aggressive action to address this error.

As mobile devices have eaten away at the market for personal computers, where Intel is dominant, the US company has come under pressure to develop a strong presence in the market for mobile application processors, but it has made little progress so far partly because until recently Arm-based chips were far more energy-efficient than those designed by Intel.

Jasmeet Chadha, an analyst at Sanford C Bernstein, said that the contract was the single most important to date in Intel’s mobile business. “Their previous wins have been from second- or third-tier players such as [Chinese phonemakers] ZTE or Lenovo,” he said.

Sector sales figures in the first quarter of this year demonstrated the urgency of the challenge facing Intel. Unit sales of tablets rose by 142 per cent year-on-year, and those of smartphones by 41.6 per cent, according to the research group IDC. By contrast, sales of personal computers declined 27 per cent.

But its deal with Samsung reflects the progress Intel has made in reducing the power consumption of its chips, representing a growing threat to its FTSE 100 rival.

Shares in Arm fell 7 per cent in London on Monday.

Ian Thornton, vice-president of communications and investor relations at Arm, said Samsung’s move was a reflection of a convergence in the market for PCs and large tablets, two areas traditionally owned by Intel and Arm respectively.

“In the same way you are beginning to see Arm-based chips going into things that you could call PCs then similarly you are beginning to see Intel getting some share into things where you would expect an Arm based chip.

“From our point of view that is fine. Diversity is good, that’s what we try and bring to the industry.”

Samsung itself is one of the producers of mobile processors based on Arm architecture, and its decision to source these components from a rival comes after admissions that it is struggling to keep up with strong demand for its mobile devices. This had already provoked speculation that it would source memory chips, which it also makes, from its South Korean rival SK Hynix. Samsung’s new Galaxy S4 smartphone sold 10m units within a month of going on sale on April 27, and its tablet sales increased 282 per cent in the first quarter from a year earlier.

“In order to meet the demand from our vendor/carrier partners and provide a consistent high-quality experience for customers, Samsung has sourced components, including chipsets, from trusted partners,” the company said.

June 3, 2013

Intel’s New Slogan Shifts Its Focus to the Present

By STUART ELLIOTT

THE “sponsors of tomorrow” have determined that consumers are more interested in the present than the future.

The Intel Corporation, which has been using “Sponsors of tomorrow” as its marketing theme since May 2009, is replacing the phrase with a less ethereal entreaty, “Look inside.” The new theme purposely echoes the “Intel inside” cooperative advertising program that Intel has been running since 1991 with companies like Dell, which buy Intel’s chips; the idea is for each theme to reinforce the persuasive effect of the other.

“ ‘Sponsors of tomorrow’ didn’t leverage our heritage as much as ‘Look inside’ does,” said Deborah Conrad, vice president and chief marketing officer at Intel in Santa Clara, Calif. “ ‘Look inside’ is a call to action, and ‘Intel inside’ says, ‘Hey, here I am.’ ”

The new theme also “serves all our new businesses and existing businesses,” she added, whereas “Sponsors of tomorrow” was perceived, not surprisingly, as less relevant to Intel’s current products.

Ms. Conrad acknowledged that “Sponsors of tomorrow” had “reached its limits” in engaging with consumers, although it remained popular internally at Intel.

Recently, “it didn’t do all it needed to do,” she said.

In addition to changing ad themes, Intel is changing how it assigns creative tasks to agencies. After experimenting the last two years with a “jump ball” approach — deciding case by case which of its roster agencies would create each campaign — Intel is reverting to the so-called agency of record model, designating Venables Bell & Partners in San Francisco as its lead creative agency.

“It was whoever had the best brief got the work,” Ms. Conrad said. “When you have a lot of different agencies taking the lead on a lot of different projects, it gets unruly and the work can suffer.”

Designating Venables Bell as the lead creative agency “is part of a bigger effort to get supercrisp, supersimple, about who we are and what our brand means,” she added. “Simplicity is the order of the day now.”

Venables Bell is, of course, pleased with Intel’s decision.

“It’s always a little tricky competing for every project you’re trying to win,” said Will McGinness, executive creative director at Venables Bell. “This allows us to focus on the brand and think more strategically.”

To that end, “Look inside” is a more strategic way to express the Intel brand promise of innovation, Mr. McGinness said, and will capitalize on “the tremendous equity in the word ‘inside.’ ”

“If you ask consumers what Intel does, what a processor does, they can identify it’s really important, equating it to the heart or brain of a computer,” he added, “which has a great emotional appeal.”

In fact, the first commercial to use the “Look inside” theme tugs at the heartstrings with a paean to the potential of young women. The spot promotes Intel’s partnership with 10×10, an initiative to educate girls around the world, for “Girl Rising,” a documentary that CNN and CNN International will telecast on Sunday.

“A girl is not defined by what her society sees,” the commercial declares. “A girl is defined by what she sees inside herself.” Intel, the spot concludes, “is fiercely committed to empowering girls everywhere through education.”

The jettisoning of “Sponsors of tomorrow” for “Look inside” is indicative of the elaborate efforts marketers make to ensure that their ad themes resonate with target audiences. A theme deemed memorable and effective can last for decades, as lines like “Just do it” (Nike), “Good to the last drop” (Maxwell House) and “We try harder” (Avis) attest.

Then, there are lines like “Sponsors of tomorrow.”

“It sounds like a parody,” said Allen Adamson, managing director of the New York office of Landor Associates, a brand and corporate identity consultancy that is part of the Young & Rubicam Brands division of WPP.

“It probably sounded great in the conference room” when it was first proposed, Mr. Adamson said, laughing. “But it’s a big promise, almost too big for most brands.”

That said, Mr. Adamson acknowledged that developing a great brand theme was difficult. “Too aspirational, and it’s not believable,” he said, “and if it’s too bold, it tends to be forgettable and not ‘sticky.’ ”

“One of the biggest challenges is getting something that connects back to your brand,” Mr. Adamson said. That explains the popularity of a strategy known as nameonics, in a hat-tip to mnemonics. Such themes incorporate the brand’s name to jog consumer memories, as in “Zestfully clean” (Zest soap), “It’s time for a Maacover” (Maaco) and “Have you found your Balance?” (Balance Bar).

Although many on Madison Avenue mock nameonics as corny, it has its fans.

“Tag lines are not supposed to be cute,” said Gary M. Stibel, chief executive at the New England Consulting Group in Norwalk, Conn. “They’re supposed to sell, by making it easier for a buyer to remember what it is they’re supposed to buy.”

Before a reporter told Mr. Stibel that Intel was abandoning “Sponsors of tomorrow” for “Look inside,” he offered that one of “two things that Intel has going for it” is the company’s association with the word “inside.”

The other advantage, he said, is an aural branding device, the chime sound that denotes Intel, which will continue in the new campaign.

“The only thing I would have liked better than ‘Look inside’ is ‘Listen inside,’ ” Mr. Stibel said.

Listening or looking, consumers will be hearing and seeing a lot of “Look inside.” Intel spent more than $53.8 million to advertise in major media last year, according to the Kantar Media unit of WPP.