Samsung Electronics' Galaxy S24 smartphones are displayed during a media preview event in Seoul earlier this year. (Bloomberg)

A seasonal dilemma looms over Samsung Electronics’ flagship Galaxy S phones: using more its own Exynos processors or sticking to rival Qualcomm’s Snapdragon chips.

Samsung has poured considerable resources for years into equipping its most important smartphone lineup with its own chipset so that it could expand its presence not just in chip production but also in chip design, while reducing production costs.

But industry sources say that the upcoming Galaxy S phones, tentatively called S25, are highly likely to come with Snapdragon chips only, as Samsung is still struggling to upgrade its next-generation Exynos chips to be good enough to power the high-end features of the new phones.

For this year’s S24, Samsung’s Exynos 2400 is believed to have made up almost 60 percent of the chip supply.

A Samsung official said nothing has been decided on its chip plans for the S25, while denying speculations about the performance of Exynos chips.

“The differences between Exynos and Qualcomm chips are not about performance but about strategy,” he said on condition of anonymity. “The chip buyers will choose (based) on their own needs.”

If Samsung decides to use pricier Qualcomm chips only, the production costs are estimated to soar up to 30 percent compared to predecessors, sources say.

Heated chip race

Samsung’s dilemma comes as chipmakers are competing to adopt advanced manufacturing technology to produce high-performance chips.

For the upcoming Exynos 2500 processor, Samsung is leveraging its cutting-edge second-generation 3-nanometer process node for the first time for smartphones. But sources say the yield rate remains at less than 20 percent, far below the 60 percent required for mass production.

"Qualcomm will likely be the sole SoC supplier for the Samsung Galaxy S25 (vs. 40 percent for the S24), as the Exynos 2500 may not ship due to Samsung's lower-than-expected 3-nm yield," Ming-Chi Kuo, a supply chain analyst at TF International Securities said in a post on social media platform X in June.

The lower-than-expected yield rate is putting a dent in Samsung's ambition to carve out a share of TSMC, the Taiwanese rival dominating the global foundry market.

Samsung was the world's first chipmaker to begin chip production using the 3-nm node with the Gate-All-Around transistor architecture in June 2022. But TSMC gained an upper hand by securing Apple and Qualcomm as the key clients – the two tech firms that are competing head-on with Samsung in their respective markets.

Apple is incorporating its latest A18 chipsets into its new iPhone 16 lineup. The A18 chipset, manufactured on TSMC's 3-nm process node, is deemed a critical component to power the brand-new Apple Intelligence system.

Once Samsung improves the yield rate, the company may consider using Exynos 2500 in the Galaxy Z Fold 7 and Galaxy Z Flip 7 set to be launched next summer, sources say. Samsung has not yet used Exynos chips for its foldable models.

Cost pressure

Since Qualcomm's Snapdragon chipsets are usually more expensive than Samsung's Exynos, the decision to rely solely on Qualcomm's product is expected to drive up production costs and device prices.

TSMC is reportedly planning to raise the foundry price of the 3-nm and 5-nm process products by 8 percent, while Qualcomm has also raised the prices by 10 to 30 percent on every new generation launch.

In the first half of this year, Samsung spent 6.02 trillion won ($4.47 billion) in purchasing mobile application processors, which is up 4.9 percent on-year, according to the company's half-year report. The increase reflects an 8 percent increase in mobile AP prices.

Samsung used Exynos 2022 for the Galaxy S22 in 2022 but the phone suffered from performance degradation and overheating issues. In the following year, the company had to ditch the Exynos chip for the Galaxy S23 and opted to use Qualcomm chips only.

Samsung made progress for the Exynos 2400 by incorporating the processor for some 60 percent of Galaxy S24 phones sold in Korea and selected countries.