Samsung’s mid-range and entry-level phones are not immune to the company’s cost-cutting efforts. The company has taken significant steps to reduce costs and improve margins under the leadership of TM Roh. Those efforts have so far yielded the Galaxy S series, but that could change next year.
The latest report says that TM Roh will arrive in China later this month where he will meet with BOE, one of the leading manufacturers in the country. The agenda? A deal is likely to be finalized that will see BOE OLED panels used for the base of the Galaxy S27.
There have been a few rumors already suggesting that Samsung might switch the base of the Galaxy S27 from Samsung Display’s OLED panels to those supplied by BOE. The reason is simple enough, they will cost less and won’t cause enough of a backlash from consumers because Samsung will stick to their Galaxy S27+ and Galaxy S27 Ultra panels.
Flags remain untouched in this kind of cost-cutting up front, the kind of floor that is not mentioned below where the Galaxy S series did not go. That floor is being tested.
There is a straightforward logic that doesn’t make sense on the face of it. Component costs are rising across the board, and Samsung needs to protect margins without triggering another round of price hikes on top of the ones it’s already passed this year.
It’s not that the BOE panels are physically bad. Honestly, most people probably won’t be able to tell the difference between a Samsung Display OLED and a BOE OLED. The Chinese display maker has also made major improvements in its display quality. What this move represents is a choice Samsung is apparently willing to make even though it would rather not.
Samsung’s semiconductor division may be taking a beating right now because of the big AI cycle but it went back a few years to 2022-2023 and has been in shaky territory. The memory glut has caused prices to drop leading to a sharp decline in Samsung’s profits. Its founder was finding it difficult to deliver orders and was burning billions of dollars in the process.
On the other hand, those were the best years for the company’s mobile division. It has been posting record revenues and profits, helping to lift a heavy load on Samsung Electronics’ balance sheet. Not that the performance of the mobile division has declined since then. AI chip demand has just rocketed Samsung’s earnings from semiconductors and shot them into space.
The same demand for memory that is doing wonders for Samsung’s semiconductor sector proves to be a nightmare for its mobile division. It has to pay through the nose for memory and other components with little room to increase prices further. Analysts are already predicting that the mobile division may end up posting an annual loss this year.
The dynamic has actually changed. It can be said that the divergence that needed MX’s support during the down cycle is now the one that is producing the profit and market conditions that MX finds itself a victim of. The price of the semiconductor sector of Samsung’s stock is trading at record margins which is pressuring MX margins from the other side.
Samsung’s divisions are driven by real accountability for their numbers, and there are good governance reasons for not treating one business unit’s windfall as a fund for another’s cost suppression. TM Roh’s mandate is to make MX’s economy work, not to lobby the sister sector for subsidies. Grasping the differences in their performance is part of how Samsung has stayed the course through the cycles that others have stumbled through.
But discipline and strategy are not the same thing, and this decision is ultimately strategic. Boasting Samsung Display OLED panels that have served exclusively as a reliable marker in the Galaxy S series. To break it down for the first time, in a basic model, during a year when Samsung Electronics as a corporation has more profit to work with than it has had in previous years, is a choice about what the company really values.
The outcome of TM Roh’s trip to China will reveal whether he values border security in the face of a brand promise that took years to build but is now about to erode. What’s so red on the balance sheet that the conglomerate’s record profits can’t fix it?