Samsung’s Mega Investment Plan to Compete with TSMC

Samsung Electronics employees show the industry’s first mass-produced 3-nm wafers.
Samsung Electronics employees show the industry’s first mass-produced 3-nm wafers.

Samsung Electronics has shown its will to invest 300 trillion won (US$231 billion) to become a semiconductor powerhouse in the fabless and foundry sectors, not only in the memory sector.

On March 16, Samsung Electronics announced that it will invest 300 trillion won over the next 20 years to build a semiconductor cluster in Yongin, Korea, according to industry sources. The company said that it will employ a strategy to widen its gap with others in the memory sector by building the Yongin cluster as the next one after its other Korea-based plants in Giheung, Hwaseong, and Pyeongtaek and to lay the foundation for growing into the number one company in the foundry sector.

Samsung Electronics believes that the construction of a foundry plant in the Yongin cluster will enable the Korean chipmaker to significantly narrow its gap with TSMC in the foundry industry. In June last year, Samsung Electronics became the first company in the world to begin mass-producing 3-nm transistors with a gate all around (GAA) structure.

Despite having such technological superiority, Samsung Electronics has had a hard time catching up with TSMC due to physical limitations caused by a lack of production capacities. Experts say that if the Korean semiconductor giant secures additional production capacity, it will be able to secure strong capabilities in terms of both the quality and quantity of semiconductors, stepping up its pursuit of TSMC.

Many Korean analysts have a lot of anticipation for Samsung Electronics’ big investment in terms of solidifying the status of the Korean manufacturing industry with a super-wide gap technology amidst a US-China race for hegemony. They say that it will be possible to establish a world-class semiconductor supply chain in Korea through investments by global materials, parts, and equipment makers as well as Samsung Electronics.

However, in order to make this future strategy pay off big time, Samsung Electronics not only has to make an improvement to yields considered a major chronic problem but also secure big corporate customers such as Apple, which has been generating the driving force behind the growth of its rival TSMC, some analysts say.

Last year, Samsung Electronics succeeded in introducing GAA technology, which is a next-generation process technology for 3-nm processes. GAA is a technology that can result in higher power efficiency by more finely controlling the flow of current. In order to get ahead in technology, the Korean tech giant also unveiled a roadmap to introduce a 2-nm process in 2025 and a 1.4-nm process in 2027.

Although Samsung Electronics reached the 3-nm finish line first, it still has a long way to go to secure more customers than TSMC. This is because 3-nm processes are still in their beginning stage so there are not many customers for 3-nm chips yet, and corporate customers still strongly prefer TSMC to Samsung Electronics in 4- and 5-nm chips, which occupy the mainstream in the semiconductor market now.

In particular, big tech companies have preferred TSMC for a long time because of the corporate tendency to continue a long-term contract with a company that has been technically verified in the past. Established in 1987, TSMC has more than 30 years of history in the foundry business.

Improving yields is also considered as a task that Samsung Electronics should finish. TSMC announced at a global semiconductor industry event in in August 2022 that it reached a yield of 80 percent in 3-nm processes. Samsung Electronics has not yet reached that point.

Experts say that the Korean semiconductor industry ought to speed up the advancement of design houses’ technologies and packaging technology. If a fables company designs the core functions of a new chip, a design house receives it and supports it with technology so that a foundry company will be able to produce products efficiently.

Unlike the memory semiconductor industry’s mass production system for a small number of products so that the system can be applied throughout the memory industry, the foundry industry aims to realize small-scale production of a variety of products tailored to the characteristics of customers. The bigger the foundry market grows, the more important design houses’ ability to satisfy the delicate demands of buyers becomes. Unlike TSMC, which has about 200 design houses to improve product quality, Samsung Electronics has a long way to go as it only works with nine companies as design solution partners (DSPs).

Making an improvement to packaging technology to protect semiconductors is another challenge facing Samsung Electronics. As semiconductor efficiency increases as packaging technology is advanced, not only Samsung Electronics but TSMC and Intel are expanding package facilities by spending trillions of won on them. Among them, TSMC’s technology is highly evaluated for its thinner packages and lower power loss compared to those of its competitors.

“There is no difference between Samsung Electronics and TSMC in foundry technology, or Samsung Electronics is said to be a little ahead,” said Jang Sang-shik, head of the Trend Analysis Office at the Korea International Trade Association in Seoul. “But Samsung Electronics is lagging behind in yields, manufacturers’ trust and foundry front and back-end process services. I expect the creation of the Yongin semiconductor cluster to take Korea’s semiconductor competitiveness to the next level.”

TSMC established itself as a company with a global market share of 58.5 percent in the fourth quarter of 2022 based on its preemptive technology investment and long history. In details, during its 30-year-long history, TSMC has been enjoying its explosive growth since Apple’s launch of the first iPhone model in 2007. This means that next-generation smartphones have driven TSMC’s growth a great deal.

In fact, by number of customers, TSMC recorded 41.5 percent of its total sales in the mobile communication sector in 2008. The percentage rose to 60.3 percent in 2017 thanks to receiving foundry orders for Apple’s iPhone. In line with the latest specifications of the iPhone, TSMC has developed advanced technology, which has held the key to maintaining a strong partnership with Apple.

Just as TSMC achieved explosive growth thanks to its foundry technology and demand for its foundry services for the iPhone, experts say that Samsung Electronics and SK need to strategically target the next-generation market and discover customized technologies.

Major markets that are expected to grow enormously, like the foundry service market for the iPhone, are artificial intelligence (AI), server semiconductors, and automotive application processors (APs). Demand for generative AI is already being confirmed through ChatGPT. AP, graphics processing unit (GPU) and infotainment technologies are attracting much attention in connection with future vehicle technologies such as self-driving cars. Next-generation semiconductors can create an opportunity in the memory and system semiconductor sectors.

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