Sat, Apr 19, 2014 - Page 15 News List

Samsung deal targets dominant TSMC

LICENSED TO BUILD:A new alliance with GlobalFoundries brings advanced chip technology and massive scale to bear against the world’s largest contract chipmaker

Bloomberg

Samsung Electronics Co and GlobalFoundries Inc are teaming up in the made-to-order chip business, an alliance aimed at stealing orders from Taiwan Semiconductor Manufacturing Co (TSMC, 台積電).

GlobalFoundries will license Samsung’s most advanced new chipmaking technology, called 14-nanometer FinFET, giving customers access to production at plants in Texas, New York and South Korea. Terms of the accord were not disclosed.

The companies are seeking to pose a bigger challenge to TSMC, which last year controlled about half of the US$38.9 billion chip-foundry business. Samsung and GlobalFoundries are betting the advanced technology and scale they can offer together will help ensure they remain central to the market for building smartphone and tablet parts.

“This offers a huge competitive threat to TSMC and provides an alternative to those companies who are looking to use leading-edge production,” Tirias Research analyst Jim McGregor said. “It’s a huge deal.”

Samsung will reach full production on the new manufacturing technology by year’s end, Samsung foundry business executive vice president Jeong Seh Woong said.

The South Korean company is the world’s second-largest chipmaker and has the lead in the new production technology, while GlobalFoundries has a broader customer list, and unlike Samsung — which is also the biggest maker of mobile phones and televisions — it does not compete directly with potential customers. The alliance may also make it tougher for Intel Corp to build a position in the foundry business, McGregor said.

GlobalFoundries ranked second in the made-to-order chip market last year, and Samsung was fourth, together generating about US$8.2 billion of foundry revenue, according to market researcher IC Insights Inc.

If Samsung and GlobalFoundries bring the technology to the market in the time frame they are promising, it could put them at least six months ahead of the competition and tempt multiple chipmakers to give them orders, IHS Inc market research analyst Len Jelinek said.

The partnership would also reduce the cost for chipmakers of alternating between the two suppliers, because products would not need to be redesigned, as they do now when companies switch, he said.

“Now you have two well-respected organizations combining forces,” Jelinek said. “For a customer, if you can truly have multiple sources, it changes everything.”

The foundry business is gaining importance as more semiconductor companies decide not to produce their own designs, instead outsourcing the manufacturing to the few chipmakers that can afford to keep developing advanced production techniques. Most chips at the heart of smartphones and tablets are manufactured by foundries such as TSMC.

“Our customers are very excited about having access to world-class technology from multiple sources,” GlobalFoundries chief executive officer Sanjay Jha said. “We bring an entirely different customer base and Samsung has its own.”

The choice of which of the two companies gets the orders will be left to the customer. Samsung and GlobalFoundries will operate their foundry businesses independently and cooperate only on technology.

“You design once and then you can go to either GlobalFoundries or Samsung or both,” Jeong said.

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