Samsung Cuts Costs
We have mentioned in previous notes that Samsung Electronics (005930.KS) has taken a different path this year in regard to its Galaxy S flagship smartphone line. While much press focus has been on features, 5G, and the potential end to the companion Galaxy Note line, we focus more on price, with Samsung lowering the price of this year’s model, the Galaxy S21 Ultra 5G by $200, or 14.3%, making it a bit more appealing to those that might be under a bit more financial pressure as a result of the economic impact of the global COVID-19 pandemic.
Performance increases generated by the Samsung Exynos 2100 processor, updated from the S21’s Exynos 990, and the Qualcomm (QCOM) Snapdragon 888, updated from the previous Snapdragon 865, particularly the integrates 5G modem are a substantial cost savings (we note that Samsung uses Qualcomm as the key chipset for the US and China, while it uses its own Exynos chipset for its international versions). While we are not focusing on features in this note, we do note that both the Exynos and Qualcomm processors in the Galaxy S21 Ultra 5G have also been updated, with both having moved from 7nm nodes to 5nm nodes and both produced using EUV. This has improves processor performance, so there is no question as to whether Samsung has made a performance sacrifice to gain a cost reduction (see table below for performance comparisons).
The Galaxy S21 Ultra 5G was designed specifically to reduce costs with the single chip orientation leading the way, while reducing the number of 5G antennae and eliminating the charger and wired earphones from the smartphone package, offset against increases coming from the inclusion of UWB (ultra-wide band) and the S-Pen. That said, the international edition, which incorporates the in-house Samsung Exynos chipset, puts the percentage of cost borne by the Samsung ecosystem at 63%, giving the company even more ability to keep costs low.
With a BOM of ~$533 compared to last year’s $572, Samsung has reduced the BOM by ~7% and the selling price by ~14%, which has driven early sales of the Galaxy S21 line up by 22% in the line’s first month of sales on a y/y basis. All in, it seems that Samsung has taken the right direction in terms of maintaining its flagship Galaxy S line, and with the inclusion of the S-Pen in the S line, obviates the need for the Note series. While we expect the Samsung foldables will not replace the Note on a unit volume basis, we expect there is a good chance that by 2022 the foldable line will produce similar revenue, however with the S-pen now included in the top of the Galaxy S line a direct comparison to the Note becomes a bit more difficult.
Performance increases generated by the Samsung Exynos 2100 processor, updated from the S21’s Exynos 990, and the Qualcomm (QCOM) Snapdragon 888, updated from the previous Snapdragon 865, particularly the integrates 5G modem are a substantial cost savings (we note that Samsung uses Qualcomm as the key chipset for the US and China, while it uses its own Exynos chipset for its international versions). While we are not focusing on features in this note, we do note that both the Exynos and Qualcomm processors in the Galaxy S21 Ultra 5G have also been updated, with both having moved from 7nm nodes to 5nm nodes and both produced using EUV. This has improves processor performance, so there is no question as to whether Samsung has made a performance sacrifice to gain a cost reduction (see table below for performance comparisons).
The Galaxy S21 Ultra 5G was designed specifically to reduce costs with the single chip orientation leading the way, while reducing the number of 5G antennae and eliminating the charger and wired earphones from the smartphone package, offset against increases coming from the inclusion of UWB (ultra-wide band) and the S-Pen. That said, the international edition, which incorporates the in-house Samsung Exynos chipset, puts the percentage of cost borne by the Samsung ecosystem at 63%, giving the company even more ability to keep costs low.
With a BOM of ~$533 compared to last year’s $572, Samsung has reduced the BOM by ~7% and the selling price by ~14%, which has driven early sales of the Galaxy S21 line up by 22% in the line’s first month of sales on a y/y basis. All in, it seems that Samsung has taken the right direction in terms of maintaining its flagship Galaxy S line, and with the inclusion of the S-Pen in the S line, obviates the need for the Note series. While we expect the Samsung foldables will not replace the Note on a unit volume basis, we expect there is a good chance that by 2022 the foldable line will produce similar revenue, however with the S-pen now included in the top of the Galaxy S line a direct comparison to the Note becomes a bit more difficult.
Samsung Galaxy S21 BOM vs. Galaxy S20 - Source: Counterpoint
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