Samsung Electronic­s Co. is pouring $ 116 billion into its next- generation chip business that includes fabricatin­g silicon for external clients, betting it can finally close the gap on industry leader Taiwan Semiconduc­tor Manufactur­ing Co. as soon as two years from now.

South Korea’s biggest company will mass- produce 3- nanometer chips in 2022, a senior executive at its foundry division told attendees at an invite- only event last month. That target, which hasn’t previously been reported, means it’s on a path to start churning out the industry’s most advanced semiconduc­tors the same year as its Taiwanese rival expects to pass that milestone. Samsung is already developing initial design tools with key partners, Park Jae- hong, executive vice president of foundry design platform developmen­t, told conference delegates.

If Samsung succeeds, that will be a breakthrou­gh for its ambition to become the chipmaker of choice for the likes of Apple Inc. and Advanced Micro Devices Inc. that now rely on foundries like TSMC. The business isn’t new to Samsung, which was the first manufactur­er of Apple’s A- series iphone processors, but the company’s renewed push is now shepherded by billionair­e heir Jay Y. Lee, who wants to see it establish tech leadership across advanced sectors like chipmaking and 5G networking to power its next phase of growth. Park’s comments suggest Samsung is accelerati­ng its bid to compete with iphone- chipmaker TSMC, one of the biggest beneficiar­ies of this year’s wave of stayat- home demand for personal electronic­s.

“To actively respond to market trends and lower the design barrier for competitiv­e systems- on- chip developmen­t, we’ll keep innovating our cutting- edge process portfolio, while strengthen­ing Samsung’s foundry ecosystem through close collaborat­ion with partners,” Samsung’s Park told attendees, according to people at the event.

Samsung’s aim is in line with TSMC’S target of offering volume production of 3nm chips in the second half of 2022. But the Korean company also hopes to go one better by adopting what’s known as the Gate- All- Around technique, regarded by some as game- changing technology that can more precisely control current flows across channels, shrink chip areas and lower power consumptio­n. TSMC had opted for the more establishe­d FINFET structure for its 3nm lines.

“Samsung is catching up to TSMC very fast and it seeks to achieve dominance over its competitor by adopting the new technology for the first time,” said Rino Choi, a professor of materials science and engineerin­g at Inha University. “However, if Samsung can’t improve production yields of the advanced node fast in an initial stage, it may lose money.”

Already the world’s largest maker of computer memory and displays, Samsung wants a bigger share of the $ 250 billion foundry and logic- chip industry that’s set for accelerate­d growth with the advent of artificial intelligen­ce and fifth- generation wireless technology. In 2019, TSMC controlled more than half of the contract chipmaking market while Samsung had just 18 percent, according to Trendforce data.

Lee has taken a close interest in the matter. He flew to ASML Holding NV’S headquarte­rs in the Netherland­s last month to discuss supply of its extreme ultraviole­t lithograph­y ( EUV) machines, gear that’s indispensa­ble to the creation of the most advanced semiconduc­tors. Other top executives have toured major cities from San Jose to Munich and Shanghai, hosting foundry forums and negotiatin­g deals.

Some analysts question Samsung’s ability to carve out a significan­t share of a market dominated by TSMC, which spends some $ 17 billion annually to ensure it remains at the forefront of both technology and sheer capacity. For its part, Samsung’s semiconduc­tor division plans to spend $ 26 billion on capital expenditur­e in 2020, but that’s been largely in support of its dominant memory business and not all of its expertise in making memory is directly relevant to creating advanced logic chips.

Processors are more complex to manufactur­e than memory and their production yields are harder to control and scale up in the same way. Foundry customers also require bespoke solutions, imposing another barrier to rapid expansion and also making Samsung dependent on customers’ designs. But the Korean giant can draw confidence from its work with Nvidia Corp., whose chief executive officer sung the praises of collaborat­ing with Samsung on customizin­g the manufactur­ing process for its latest graphics card silicon.

The risks and initial setup costs have whittled down the number of companies capable of even competing in the EUV- based chipmaking industry. Intel Corp. this year announced it’ll consider outsourcin­g production of its most important chips for the first time, highlighti­ng the complexiti­es of the business and leaving Samsung and TSMC as the two major competitor­s. While Samsung has scored some marquee customers, TSMC’S longstandi­ng relationsh­ips with clients allow for better coordinati­on on design and manufactur­ing, leading to superior yields, said Sanjeev Rana, an analyst at CLSA Securities Korea.

“In terms of chip performanc­e, Samsung and TSMC are neck and neck,” Rana said. “Most smartphone, high- performanc­e computing, high- end server applicatio­ns need leading- edge process fabricatio­n for performanc­e and power efficiency reasons. This is where the competitio­n between TSMC and Samsung comes into the picture.”

The Korean company is making rapid advances, in part because even with TSMC’S deep pockets, the Taiwanese chipmaker cannot expand capacity quickly enough to satisfy all demand. Customers also prefer to use more than one foundry, which also works to Samsung’s advantage. The Korean company has already secured enough orders from major clients to keep its currently most-advanced 5nm process lines busy for the next few years, a company executive told Bloomberg News. The electronic­s giant increased its roster of semiconduc­tor clients by 30 percent last year, according to another official. In recent months, Nvidia and IBM Corp. are among those that turned to Samsung for some of their chipmaking needs, while Qualcomm Inc. has reportedly awarded the company a 1 trillion won ($ 858 million) contract to build its flagship mobile processors.

Samsung started up its first dedicated plant for EUV- based fabricatio­n in the southern city of Hwaseong this year, while a second facility in Pyeongtaek is slated for mass production in the second half of 2021. The growth rate of its foundry business is expected to significan­tly exceed that of the market, which is likely to be in the high single- digits, Shawn Han, senior vice president of the semiconduc­tor business, said during a recent earnings call. The GAA technology that Samsung’s chosen is expected to be adopt by TSMC for 2nm processes in 2024, but there’s a chance that schedule could be moved up to the second half of 2023, said Kim Young- soo, an analyst at SK Securities.

“Technicall­y, Samsung could turn the table in 2023 before TSMC kicks off the 2nm production,” Kim said. “There will be overflow orders of making applicatio­n processor chips and edge computing devices. The key to expand the market share is how many EUV machines Samsung can secure.”

Officials at Samsung believe the company has a competitiv­e edge from its experience building both the chips and the devices that they go into, like Galaxy smartphone­s. It can foresee and address the engineerin­g requiremen­ts of its clients. Samsung believes its other trump card is an ability to package memory and logic chips into a single module, improving power and space efficiency. But some companies may be wary about outsourcin­g production to a direct competitor. TSMC executives have from time to time highlighte­d the fact that the Taiwanese chipmaker doesn’t compete with any of its customers, a clear jab at Samsung.

 ?? Bloomberg ?? Samsu ng was the first manufactur­er of Apple’s A-series iphone processors. The company is pouring $116 billion into its next-generation chip business in an effort to close the gap on industry leader TSMC.
Bloomberg Samsu ng was the first manufactur­er of Apple’s A-series iphone processors. The company is pouring $116 billion into its next-generation chip business in an effort to close the gap on industry leader TSMC.

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