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Behind Samsung’s US$116bil bid for chip supremacy

Expertise giants are more and more designing their very own semiconductors to optimise every little thing from synthetic intelligence duties to server efficiency and cellular battery life. Google has the Tensor Processing Unit, Apple Inc has the A13 Bionic and Inc has the Graviton2. What the titans all lack, nevertheless, is a manufacturing unit to construct the brand new chips they’re dreaming up.

Enter Samsung Electronics Co, which is planning a decade-long, US$116bil (RM480bil) push for his or her enterprise. The South Korean firm is investing closely within the subsequent step in miniaturising semiconductors, a course of referred to as excessive ultraviolet lithography (EUV). It’s by far the priciest manufacturing improve Samsung has ever tried, a dangerous bid to maneuver past its established enterprise of cranking out commoditised silicon and to leapfrog the incumbent leaders within the US$250bil (RM1bil) foundry and logic-chip trade.

“A brand new market is opening up,” Yoon Jong Shik, govt vp of Samsung’s foundry enterprise, mentioned at a discussion board not too long ago held in Seoul. “Firms like Amazon, Google and Alibaba, which lack expertise in silicon design, are searching for to make chips with their very own idea concepts as a way to increase their companies. I feel this could deliver a major breakthrough for our non-memory chip enterprise.”

Samsung is a relative underdog on this rising subject. The foundry enterprise – because the manufacturing of chips for corporations like Google and Qualcomm Inc is understood – is dominated by Taiwan Semiconductor Manufacturing Co with greater than half the market, in accordance with TrendForce Corp information that places Samsung at 18%.

TSMC additionally took over Apple’s A-series processor manufacturing from Samsung, which was the unique manufacturing accomplice. Samsung plans to spend about US$10bil (RM41bil) per yr on gear, analysis and growth over the following decade, however TSMC is much more bold with capital expenditure of round US$14bil (RM58bil) for this yr and subsequent.

“It isn’t only a matter of willingness,” mentioned CW Chung, head of pan-Asia expertise at Nomura Monetary Funding Co, in assessing Samsung’s possibilities of success. “Chip-making is sort of a composite artwork. Except there are sufficient helps for all-round social infrastructures, it’d be a scarcely achievable purpose.”

To win over shoppers, prime Samsung executives are touring main cities from San Jose to Munich to Shanghai, internet hosting foundry boards and negotiating offers. ES Jung, president and common supervisor for the foundry enterprise, is the frontman delivering Samsung’s “can-do” spiel at each gathering, the place his practiced joke is to counsel that his initials stand for “engineering pattern.”

“The complexity of the traces drawn by the EUV gear is just like constructing a spaceship,” mentioned Jung whereas unveiling a US$17bil EUV plant in Hwaseong earlier this yr, flanked by Samsung inheritor and de-facto boss Jay Y. Lee and South Korean President Moon Jae-in. The fab is deliberate to start out mass manufacturing in February 2020.

A single EUV machine from ASML Holding NV prices US$172mil (RM712mil) and Samsung is organising dozens of them in Hwaseong in an effort to be first with the expertise. TSMC and Samsung are each anticipated to succeed in five-nanometer manufacturing processes with EUV within the new yr, which suggests they’ll have solely one another to compete with in a market that’s solely set to increase. And as soon as they ramp up and obtain economies of scale, the general course of cycle time is more likely to lower by 20% and the foundry capability output will improve by 25%, in accordance with a Citigroup Inc analysis report.

“TSMC is simply too busy with orders pouring in for brand spanking new merchandise as we enter into the 5G period,” mentioned Greg Roh, senior vp at Hyundai Motor Securities. “For Samsung, that’s bringing an excellent probability to increase their market share by providing decrease costs and supply schedules to fulfill shoppers’ wants.”

Samsung is collaborating with main shoppers on designing and manufacturing customized chips and that work is already beginning to add to its income, in accordance with one Samsung govt who has direct data of the matter. The push towards bespoke processors in Silicon Valley and China is opening up recent alternatives and Samsung already has established relationships, as demonstrated by its latest announcement that it’ll produce an AI chip for Baidu Inc early subsequent yr.

Officers at Samsung imagine the corporate has a aggressive edge from its expertise constructing each the chips and the gadgets that they go into. It’s thus in a position to foresee and tackle the engineering necessities of its shoppers. Samsung believes its different trump card is a capability to bundle reminiscence and logic chips right into a single module, bettering energy and area effectivity. Analysts do warn, nevertheless, that some corporations are cautious about outsourcing manufacturing to a direct competitor within the client electronics market – lest Samsung learns and copies their chip designs in its personal merchandise.

“In the end, the success of Samsung’s logic chip enterprise depends upon its market positioning,” Hsu mentioned. “On the foundry aspect, Samsung must remove its shoppers’ suspicions of Samsung LSI being a possible competitor.”

Samsung is reaching out to smartphone-making rivals and has already agreed to promote 5G Exynos chips to Vivo. On the similar time, it’s going to be manufacturing Qualcomm’s 5G cellular chipset utilizing the identical EUV course of. On yet one more entrance, the corporate is competing with foundry buyer Sony Corp within the rising marketplace for picture sensors, having this yr unveiled an unprecedented 108-megapixel digicam for smartphones. “I feel Samsung’s CMOS picture sensor enterprise will proceed to do properly, using on the trade increase,” mentioned Bloomberg Intelligence analyst Anthea Lai.

If Samsung can transfer forward technologically, it ought to discover no scarcity of shoppers for its assorted semiconductor choices. Although China is more and more turning to home suppliers for all issues tech, the larger effectivity of EUV chips could also be key in serving to Samsung solicit enterprise from the world’s second-biggest economic system.

“The elevated demand for in-house chips spells excellent news for the expansion of the foundry trade, ” TrendForce analyst Chris Hsu mentioned. – Bloomberg

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