Samsung Foundry is just one of the many arms of the sprawling Samsung Group chaebol.
But it has pushed itself into the top echelon of the standalone foundry industry.
In recent months they have been aggressively taking
on client business from the market leader TSMC.
In the last 3 months Samsung has won business from the following fabless semiconductor companies:
* Qualcomm (middle class mobile chip 750 with their 8nm process
and the higher-end 875 with their 5nm process)
* NVIDIA (the highly desired RTX 3080/3090 graphics card with 8nm)
* IBM (Power 10 with 7nm)
* Google and Cisco (products unreported)
All of these companies have worked with TSMC before. Some were even core TSMC customers.
Market analysts estimated that in the second quarter of 2020,
Samsung Foundry has leapfrogged competitors like UMC and GlobalFoundries into second
place behind TSMC. Its market share was just 3.7% in 2016. Now it is at 19.1%.
The next quarter though in 3Q 2020, TSMC beat back its competition. It took share from Samsung
and the whole industry to settle at a 54% share of the industry (according to industry research firm
Trend Force). This movement is likely due to big purchases in the market by Huawei and Apple.
The race between the semiconductor foundry industry leaders is heating up.
And in this video, I want to compare the two guys at the front.
In 2005, Samsung Electronics announced that they would enter
the standalone foundry industry. Their first major customer was Qualcomm.
They had already achieved a strong position in the memory chip industry (DRAM). However, the DRAM
world is a highly cyclical one. Revenues can go up or down by something like 35% from year to year.
At that time, Samsung had already built the foundry capacity to make the chips for its
growing smartphone and devices business. To create a brand new business line servicing
other companies using what had once been just an internal division made good business sense.
Samsung Electronics, its parent company, does not break out the foundry’s revenues
and earnings individually. It is rolled in with the memory chips business.
This means that the foundry is somewhat shielded from the pressures of making money.
TSMC on the other hand is publicly traded and its stock scrutinized by shareholders.
This allows Samsung Foundry to undercut TSMC on pricing per wafer. For
a lot of fabless companies, that matters. Every dollar saved is a dollar’s profit earned. ￼
Samsung Foundry pushes hard on adopting the latest and greatest technologies.
It is part of their sales pitch as one of the last leading-edge foundries in the market.
As executive Vice President and head E.S. Jung said in 2017:
``` You need a technology that
can wow your clients. Without such advanced technology, it’ll be difficult to win back
customers from your rivals. ```
And they've really backed their words. They are one of the few foundries in the
world to have a good number of EUV machines built by ASML. Second probably only to TSMC.
Samsung supports those foundry ambitions with mountains of cash. The total group spent $18
billion in 2019 in total capital expenditures for semiconductors and is estimated to spend another
$23 billion in 2020. Note though that most of this spend is going towards the memory business.
Finally, Samsung Foundry's position as the last leading-edge foundry
is more critical than people might think. If a fabless semiconductor maker wants to make
chips with a leading edge process, they either go to TSMC or Samsung. That's it.
GlobalFoundries stopped all 7nm development in 2018.
UMC focuses on specialty processes.
SMIC has their own issues to deal with.
Not being TSMC gives Samsung a place in the foundry market. It keeps the Taiwanese giant
from having a complete stranglehold and prevents them from getting complacent.
TSMC is a dedicated foundry. They invented the industry. That they do
not compete with their customers is a core marketing tactic of theirs.
Being the first mover in the industry has allowed them the chance to grab a majority of market
share. They have consistently had about 50% market share for the entire dedicated foundry industry.
Their ecosystem is a core strength of theirs. They manufacture over 10,000 different products
using 260 distinct technologies for nearly 500 customers. The feedback loops from those
close customer relationships help increase their technical and business competitive advantages.
They also spend a megaton of money on their capital expenditure. Samsung Foundry’s capital
expenditures are quite large, but TSMC’s are bigger. The company regularly spends $15-16
billion a year on its foundries. TSMC alone makes up over 50% of Taiwan’s entire R&D spend.
TSMC’s sales per wafer is higher than that of Samsung’s.
Market research firm The Information Network quotes that TSMC’s total sales per wafer is
about $3,338. Samsung’s is $2,490. That is an average total across all technologies.
This higher number is due to the product mix. Wafers made with cutting edge tech cost
a lot more. Market estimates of TSMC’s wafer prices for 5nm nodes peg it at something like
$17,000 per 300mm wafer. Some 36% of TSMC’s revenues come from nodes 7nm or smaller.
Samsung by contrast makes around 20% of their sales from such nodes - per market estimates.
We don’t know what the gross margins are for those most advanced wafers,
but they are presumably more profitable than wafers made with less advanced processes
due to the fact that there’s more foundry alternatives available. Basically, what I am
saying is that TSMC is more profitable because they are selling a lot more high-end wafers.
Lastly, TSMC’s style is much more conservative than Samsung’s. TSMC takes things step by step.
This is partly because they need to be able to deliver for their customers without fail -
especially Apple. For more information, you can check out my video about how Apple changed TSMC.
As a result of their conservatism, they fall behind in adopting cutting edge technologies. For
example, in their 7nm process generation, Samsung was first to adopt the new EUV lithography.
Meanwhile, TSMC's first generation 7nm process stuck with an older process called DUV.
EUV only came out later in that process node.
But because they are more conservative, the quality of their products tend to be better and
more apt to scaling. One way this is illustrated is to look at transistors per square millimeter.
Such a metric is not the end-all-be-all in comparing performances between competing nodes.
There are other factors for example like yield. But it is a good start.
With those caveats in mind, Samsung’s 5nm generation
EUV-based process has about 126 million transistors per square millimeter.
TSMC’s comparable N5 EUV-based process - the one making the Apple A14 chip right now - has
around 173 million. Like I said, not the end-all-be-all, but a good rule of thumb.
Asking me? I feel like Samsung is going to capture a lot more of the market.
If only because they can keep taking share from the rest of the competition.
The Samsung Group has a good market track record (I can only really recall them
failing in automobiles). They got money from their memory chips business. They got a captive
customer in their handsets business. And they are determined to make an impact on the market.
But there are forces keeping TSMC in first place for the foreseeable future.
Nodes on the leading edge are only going to get more expensive.
Not only for the foundries, but also for the fabless semiconductor companies themselves.
It is said that the costs of developing a single 3nm node chip would cost something like
$1.5 billion all in. And these technologies are not exactly one-to-one interchangeable.
These costs increasingly shrinks the market of customers who can possibly afford this stuff.
It also raises the switching costs for those companies who might want to switch foundries.
So you end up with a solidified circle of luxury customers
and luxury providers jockeying with each other from year to year.
The big wild card that can flip the table is Apple.
Nvidia and Qualcomm are important customers, but Apple is probably the biggest and single
most important foundry customer in the world. Probably even more so after Huawei got booted.
Their checks fund a wave of R&D development that other companies can ride.
TSMC allowed its entire 5nm output to go to a single client - that's how big of a deal Apple is
to them. As long as Apple stays with TSMC, I think TSMC stays number one and keeps 50% market share.
So no, I don't think that TSMC is going to fail. Yes I think that they are in a tough,
competitive market - but that pushes them like nothing else can. And I think that's a good thing.