– Counterpoint: Samsung’s foundry challenge will succeed

Peter Clarke

(12/09/2009 7:35 $ EST)


Samsung Electronics Co. Ltd. wants to challenge $10 billion Taiwan Semiconductor Manufacturing Co. Ltd. at the foundry game. Is Samsung serious? Should others take the company seriously?

I say yes, and yes.

And the reason is: When Samsung puts its corporate will to something, it slowly and surely executes. It may take years, but Samsung gets it done. Its very existence is a testament to South Korea’s long-term strategic approach.

As a result Samsung is the world’s second largest semiconductor maker. With sales of $20 billion in 2008 it was roughly twice as large as its nearest competitors, who include TSMC among their ranks.

In its aspiration to rival TSMC in foundry, Samsung is keeping faith with manufacturing in exactly the way that the likes of Texas Instruments, STMicroelectronics, Freescale and the old crowd of IDMs are not. In terms of leading-edge logic the world is polarizing into the fabless and the foundries. Those western IDMs are choosing to outsource their leading-edge CMOS logic manufacturing requirements to foundries. Samsung has chosen to be one of the makers that will pick up that business, and the evidence shows they can deliver.

Consider how Japanese chipmakers led the DRAM market in the 1980s. In 1990 Japan was responsible for 70 percent of the world’s DRAM production but by 1995 the world’s largest DRAM maker was Samsung with $6.4 billion sales and 16 percent market share.

Having reached the number one spot in DRAM, Samsung made a drive into NAND flash memory. In 2008 Samsung was the world’s largest NAND flash maker with $4.6 billion in revenue and 40 percent market share.

In about 2006 Samsung decided it should offer foundry services. In terms of the tick-tock of process technology development and generations of customer products that is a very recent decision.

via – Counterpoint: Samsung’s foundry challenge will succeed.

  1. Good article – majors points are hit. I would simply add that a big challenge for anyone entering the foundry business – possibly less of an issue for Samsung – is the depreciation curve. TSMC is one of the leaders in process development; as such they have both the capacity and the pole position in capital equipment depreciation. The net effect of this in the past was to force TSMC’s competitors to compete using their largely undepreciated equipment vs. TSMC’s significantly or largely depreciated equipment. This gave TSMC a large profitability edge. Samsung as a huge IDM certainly has the volume to potentially undercut some of this, but it is not clear from historical examples (IBM’s off and on foundry strategy for example) if this will translate. If Samsung’s foundry business is truly independent, it will have many of the same structural pricing competitive issues. If it is instead a second sourcing strategy for excess capacity (as IBM effectively was doing), then extra capacity tends to pile up when the semi business is slow but be unavailable when volumes (and prices) are high. Time will tell.

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