Technology giants are increasingly designing their own semiconductors to optimize everything from artificial intelligence tasks to server performance and mobile battery life.
Google has the Tensor Processing Unit, Apple Inc has the A13 Bionic and Amazon.com Inc has the Graviton2.
However, what the titans all lack is a factory to build the new chips they are dreaming up. Enter Samsung Electronics Co, which is planning a decade-long, US$116 billion push for their business.
The South Korean company is investing heavily in the next step in miniaturizing semiconductors, a process called extreme ultraviolet lithography (EUV).
It is by far the priciest manufacturing upgrade Samsung has ever attempted, a risky bid to move beyond its established business of cranking out commoditized silicon and to leapfrog the incumbent leaders in the US$250 billion foundry and logic-chip industry.
“A new market is opening up,” Samsung foundry business executive vice president Yoon Jong-shik said at a forum in Seoul. “Companies like Amazon, Google and Alibaba [Group Holding Ltd (阿里巴巴)], which lack experience in silicon design, are seeking to make chips with their own concept ideas in order to boost their services. I think this would bring a significant breakthrough for our non-memory chip business.”
Samsung is a relative underdog in the growing field. The foundry business — as the manufacturing of chips for companies such as Google and Qualcomm Inc is known — is dominated by Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), with more than half the market, according to TrendForce Corp (集邦科技) data that put Samsung at 18 percent.
TSMC also took over Apple’s A-series processor manufacturing from Samsung, which was the original production partner.
Samsung plans to spend about US$10 billion per year on equipment, research and development over the next decade, but TSMC is even more ambitious with capital expenditure of about US$14 billion earmarked for last year and this year.
“It is not just a matter of willingness,” Nomura Financial Investment Co head of pan-Asia technology C.W. Chung (鍾國雄) said in assessing Samsung’s chances of success. “Chipmaking is like a composite art. Unless there are enough supports for all-round social infrastructures, it’d be a scarcely achievable goal.”
To win over clients, top Samsung executives are touring major cities, hosting foundry forums and negotiating deals. Samsung foundry business president and general manager E.S. Jung is the frontman for the company’s “can-do” promotion at every gathering.
“The complexity of the lines drawn by the EUV equipment is similar to building a spaceship,” Jung said when unveiling a new EUV plant in Hwaseong, South Korea, last year.
The fab plans to start mass production next month.
TSMC and Samsung are both expected to reach 5-nanometer production processes with EUV this year, which means they would have only each other to compete with in a market set to expand.
Once they ramp up and achieve economies of scale, the overall process cycle time is likely to decrease by 20 percent and foundry capacity output to increase by 25 percent, a Citigroup Inc research report says.
Samsung is collaborating with major clients on designing and manufacturing custom chips, and that work is already starting to add to its revenue, said one Samsung executive, who has direct knowledge of the matter.
Samsung believes its other trump card is an ability to package memory and logic chips into a single module, improving power and space efficiency.
However, analysts warn that some companies are wary about outsourcing production to a direct competitor in the consumer electronics market — lest Samsung learns and copies their chip designs in its own products.
“Ultimately, the success of Samsung’s logic-chip business depends on its market positioning,” TrendForce analyst Chris Hsu (徐韶甫) said. “On the foundry side, Samsung needs to eliminate its clients’ suspicions of Samsung LSI being a potential competitor.”
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