Samsung’s plans to catch TSMC in semiconductor manufacturing

Samsung’s Brands are everywhere.from Galaxy phone From smart TVs to washing machines and refrigerators, the company says its products are in nearly three-quarters of U.S. households.

But there’s more to Samsung than just gadgets and appliances, and there’s another reason why it’s one of the most valuable companies in the world. It is the second-largest maker of chips that power many popular devices.

For more than three decades, Samsung has been a leader in memory chips for digital data storage. But it’s a volatile market.The price of memory chips fell sharply last year and is expected to fall further Up to 23% increase this quarter. In April, Samsung reported dismal first-quarter results, with profit falling to its lowest level since 2009.

Samsung responded by cutting production of memory chips. Elsewhere in the industry, smaller rival Micron recently said it expected to cut 15% of its workforce.

Amidst the ruins, the giant found growth in another corner of the semiconductor market, doubling down on its foundry business, producing custom chips for a slew of customers, such as Qualcomm, tesla, Intel and sonyand thousands of smaller players.

Samsung is building a $17 billion chip manufacturing plant in Tyler, Texas, and has promised to start producing its first advanced chips in the United States next year. In February, companies such as Samsung began applying for a cut of the $52.7 billion CHIPS and Science Act passed by lawmakers last year to bring chipmaking to the U.S. after 30 years of losing market share in Asia.

Samsung is also adding capacity in its home country of South Korea, spending $228 billion to build a mega-cluster of five new fabs scheduled to start production in 2042.

“They’ve been spending, spending, spending,” said Dylan Patel of research and advisory firm SemiAnalysis. “Why? So they can catch up with technology so they can continue to stay ahead.” “

Samsung is one of only 3 companies in the world that make the most advanced chips, second only to Samsung TSMC and leading Intel.

To survive both world wars, the company diversified into industries such as textiles and retailing.Samsung Electronics Founded in 1969, first samsung tv Launched in 1972, two years later, Samsung boldly acquired Hankook Semiconductor, creating the vertically integrated consumer electronics giant it is today.

Samsung opened its first US office in New Jersey in 1978. By 1983, the company was producing the 64KB dynamic random access memory (DRAM) chips commonly used in computers, and the company opened a new US office in Silicon Valley.

Lee Kun-hee took over after his father died in 1987, and Samsung’s first mobile phone came out a year later.And now Samsung is The world’s largest smartphone supplierand apple.

Just a decade after making its first memory chip, Samsung is bringing to market a version with 1,000 times the capacity. In 1992, it won international acclaim with the world’s first 64MB DRAM chip, securing the company’s No. 1 position in memory to this day.

“It’s so ubiquitous in South Korea that they call their country the Republic of Samsung,” said Jeffrey Kane, author of the 2020 book “Samsung Rising.”

Samsung began producing chips in the United States, breaking ground in 1996 on its factory in Austin, Texas. In 2007, it opened a second facility in the Texas state capital. Today, Samsung’s Austin operations are entirely dedicated to foundry.

Samsung’s expansion has brought with it some legal conflicts.

In 2018, the company finally ended seven year lawsuit Discussion with Apple about whether Samsung copied the iPhone. Terms were not disclosed.

“Apple got a payment from Samsung, so Apple technically won,” Kane said. “But when you add up all the legal bills, all the fighting, all these years, it’s zero to zero for both parties.”

The challenges are not limited to the courts.

In South Korea, protests have erupted over Lee Jae-yong, who helms the third generation of Samsung’s founding family. He was jailed for bribery before being pardoned in August and becoming executive chairman in October.

Samsung has been hurt by a global chip shortage during the pandemic as demand peaked and supply chains were disrupted.

“It was really painful,” Han said. “It’s just so painful when you see your clients ask for more chips and you can’t provide them.”

This dynamic is changing. Demand for memory chips has weakened sharply as consumers rein in spending amid rising inflation. Han said Samsung’s internal data analysis showed that “the market may rebound towards the end of the year.”

Investors have returned. The stock has fallen nearly 30% in the last year, amid broader declines in the global technology sector. The stock has risen 28 percent this year and hit a new 52-week high on the Korea Stock Exchange on June 5.morgan stanley recently Name it Preferred.

May, China Prohibited Products from U.S. memory maker Micron, which sent Samsung’s stock higher.The United States also awarded Samsung one year exemption The company still operates two of its chip factories in China, despite new rules in October that prevent many chip companies from exporting their most advanced technology to the world’s second-largest economy.

Samsung said it was adding capacity in Tyler, Texas, northeast of Austin, due to U.S. demand. More than 90% of advanced chips are currently manufactured in Taiwan.

“Having Taylor on board just increases their ability to source chips domestically without having to go to parts of the world where they might not feel comfortable,” said Samsung’s Jon Taylor.

U.S. share of global chip production over the past three decades Plummeted from 37% to 12%. This is mainly because estimates show that it costs at least 20% more It is cheaper to build and operate a new fab in the U.S. than in Asia, where labor is cheaper, supply chains are more accessible and Government incentives are much bigger.

Environmental concerns are growing for Samsung’s expansion in Texas.

The most expensive equipment Samsung will bring to Taylor may be a $200 million EUV lithography machine ASML. They are the only devices in the world capable of etching the most advanced chips with sufficient precision.

Each EUV machine is rated to consume About 1 megawatt of electricity10% higher than the previous generation. a study It was found that Samsung used more than 20% of South Korea’s entire solar and wind capacity in 2020.

“In a sense, electricity is the lifeblood of a semiconductor factory,” said SemiAnalysis’ Patel. “There have been multiple power outages where companies have had to cancel production for months.”

Texas’ energy grid is largely insulated from its neighbors, limiting its ability to borrow across state lines. In 2021, the grid failed during an extreme winter storm, leaving Millions of Texans without power, at least 57 dead.

“I’ve signed 12 laws to make the grid more reliable, more resilient and more secure,” Texas Republican Gov. Greg Abbott told CNBC in April. “So we can absolutely assure any business that moves here that they will be able to get the power they need and it will be cheap.”

Water is another major need in chip factories. 2021, Samsung Uses about 38 billion gallons of water to make its chips. About 80% of Texas remains suffering from drought.

“We have the Texas Water Department that’s handling that, and we’re working on legislation this session to make sure that as the Texas population grows, we’re going to be able to meet our water needs, not just businesses, And for our growing population,” Abbott said.

Samsung told CNBC its goal in Austin is to reuse more than 1 billion gallons of water by 2023. At the new Taylor facility, it aims to recycle more than 75 percent of the water used.

Lately, all the tech hype has been around AI models powering services like OpenAI’s ChatGPT.These applications require more powerful processors and are currently dominated by Nvidia.

“There are more and more people in the world who can make memory chips,” Kane said. “To stay ahead, you have to embrace newer logic technologies.”

Kane said he thinks Samsung “will go deeper into logic chips. So (that’s) artificial intelligence chips, future applications of semiconductor technology.”

Asked about next steps, Samsung’s Taylor said the company eventually plans to add more chipmaking capacity to its 1,200-acre plant in Texas.

“We’ve only announced one fab there so far,” he said. “But there’s plenty of room for more.”

Watch the video for a behind-the-scenes look at Samsung’s chip factory in Austin and construction projects in Tyler, Texas.