Samsung’s $116 billion quest for chip hegemony behind: The most expensive manufacturing upgrade

Beijing time on the morning of December 26, according tomedia reports, the tech giants are constantly designing their own semiconductors to optimize everything from artificial intelligence tasks to server performance to mobile life. Google has a Tensor processor, Apple has an A13 bionic chip and Amazon has a Graviton 2. But none of these big companies is missing one thing : the factory where the chips are made.

Stepping into Samsung Electronics, the company is planning a 10-year, $116 billion plan to boost its business. The South Korean company is investing heavily in the next step in miniaturized semiconductors, a process called Ultra Violet Lithography (EUV). It is also the most expensive manufacturing upgrade Samsung has ever tried, fraught with risks, but ultimately will help the company move beyond its existing finished silicon production business and beyond the established leaders in the wafer foundry and logic chip industry.

Samsung's $116 billion quest for chip hegemony behind: The most expensive manufacturing upgrade

Figure 1: Samsung Electronics Huacheng Semiconductor Complex

“A new market is emerging,” Yoon Jong Shik, Samsung’s executive vice president of foundry business, said at a recent forum in Seoul. I believe this trend will lead to a major breakthrough in our non-memory chip business. “

In the growing area of chips, Samsung lags behind. According to TrendForce, half of the foundry business that makes chips for companies such as Google and Qualcomm is in TSMC’s hands, with Samsung accounting for only about 18%. TSMC also stole production of Apple’s A-Series chips from Samsung. Samsung plans to invest $10 billion a year in equipment and research and development over the next decade, but TSMC is bolder, with annual capital spending of about $14 billion this year and next.

“It’s not just a matter of will,” said CW Chung, head of trans-Asian technology at Nomura Financial Investments, as he assessed Samsung’s chances of success. Chip manufacturing is like a comprehensive art. Unless a comprehensive social infrastructure provides adequate support, the probability of success is virtually zero. “

To win customers, Samsung executives actively visit major cities, from San Jose to Munich to Shanghai, hosting contract workshops and negotiating deals. ES Jung, president and general manager of the contract business, is the head of Samsung’s campaign, and he often refers to a joke that says his initials also represent “engineering samples.”

“EUV equipment is no less complex than building a spaceship,” Jung said when he announced a $17 billion investment in the EUV plant in China’s city earlier this year. The plant is expected to begin mass production in February 2020.

Samsung's $116 billion quest for chip hegemony behind: The most expensive manufacturing upgrade

Figure 2: Samsung Electronics Huacheng Semiconductor Factory

An EUV machine from ASML Holding NV costs $172 million, and Samsung has acquired more than a dozen EUV machines in Huacheng in a bid to master the technology first. Both TSMC and Samsung are expected to use EUV technology to achieve a 5nm production process in the new year, meaning TSMC and Samsung will be the only two competitors in this promising market. Citigroup’s research says that once they gradually expand and achieve economies of scale, the overall process cycle may be reduced by 25 per cent.

A Samsung executive with direct knowledge of the matter said the company was working with key customers to design and produce custom chips, and that the work had already generated revenue for the company. Silicon Valley and China’s demand for custom chips is creating new opportunities, and Samsung has built partnerships without slack. For example, the company recently announced that it will produce AI chips for Baidu early next year.

Samsung executives believe the company has a competitive edge in developing chips and devices. As a result, Samsung can anticipate and meet the engineering needs of its customers. Samsung believes the company’s other trump card is its ability to encapsulate memory and logic chips into a single module that provides energy and space efficiency. But analysts also caution that many companies remain skeptical about outsourcing chip production to competitors in the consumer electronics market, fearing that Samsung might look into copying their chip designs to Samsung’s own products.

Samsung is already in touch with other rival smartphone makers and has struck a deal with Vivo to sell 5G Exynos chips to the latter. At the same time, the company will use the same EUV process to produce Qualcomm’s 5G mobile chipset. On the other hand, the company faces competition from contract customer Sony in the image sensor market. But Anthea Lai, an analyst at Bloomberg, said: “Samsung’s CMOS image sensor business will continue to perform well as the industry continues to boom.” “

If Samsung is a technological leader, the company’s diverse semiconductor products should be short of customers. While China’s technology needs are shifting to domestic suppliers, the efficiency of EUV chips will be key to helping Samsung secure chinese orders.

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