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Samsung cuts patent royalty costs with in-house Galaxy S6 processor

The cost to build the Galaxy S6 has gone up 12 per cent to £188, even with Samsung dropping the price of the smartphone by £50, compared to last year’s Galaxy S5.

Samsung are, however, saving money in other ways. One of the most potent appears to be the removal of several patent agreements with Qualcomm, the primary processor supplier for the Galaxy S5.

The Galaxy S6 runs on the Exynos 7420 octa-core processor, an in-house designed and manufactured unit. Original reports said it was due to thermal issues, although patent prices might be a smarter reason to focus on in-house components.

That might not be all Samsung is planning. In order to cut patent licensing down to 10 per cent of the total cost to manufacture and distribute the next Galaxy S, the electronics giant is working on CPU cores and GPUs, to pay even less for royalties.

This is not good news for Qualcomm, who until this year relied heavily on Samsung. The processor giant is planning to remove patent licensing altogether, alongside making it cheaper and easier to supply smartphone providers with chipsets.

If nothing else, it is a good example of why competition in the market is so fierce. Qualcomm has, for years, pushed its prices up to make smartphone and tablet manufacturers pay even more for Snapdragon, now it is trimming back its prices in order to keep loyalty.

Samsung has also made a few bucks selling its preloaded package. Facebook, Microsoft, Uber and other companies have made sure their apps or services are available on the Galaxy S6 and S6 Edge, which may be used by 70 million customers by the end of 2015.

Part of the reason Apple has such high profit margins is the deals it is able to cut with manufacturers. The iPhone components are built to precise measurements by Samsung, TSMC and other manufacturers, then shipped to Foxconn. It reduces the amount of overheads drastically, meaning Apple gains a good £300 - £450 on each sale.