Samsung: The Titan of Memory and Advanced Chips
From Android phones to TVs, refrigerators, microwaves and unconventional displays, Samsung is a household name. But there’s a lesser known side of Samsung that has made it one of the world’s most important and valuable companies: its chipmaking business.
The Leader in Memory Chips
Samsung has been leading the memory chip market for three decades and currently has nearly 50% share in both DRAM and NAND. It is also the world’s second biggest maker of the most advanced logic chips, which are used in Teslas, supercomputers, AI smartphones and more.
Inside Samsung’s Austin Chipmaking Factory
Recently, a U.S. journalist was given an in-depth tour of Samsung’s Austin chipmaking factory. Samsung is aiming to overtake the massive advanced chip leader, Taiwan Semiconductor Manufacturing Company. Samsung’s CEO, Dong-jin Ko, has stated that they “do not settle to be number two”.
End of 2022 Financial Results
At the end of 2022, Samsung reported 245 billion in annual revenue, which was 47 billion more than Microsoft. However, prices for memory chips have taken a dive and are expected to fall up to 23% more in Q2 2023.
Q1 2023 Financial Results
In April, Samsung reported dismal earnings for the first quarter of 2023, with profit plunging 95% to its lowest level since 2009. In response, the company cut production of memory chips, but doubled down on its Foundry business.
Samsung’s Rise to Chip Manufacturing Dominance
Building a 228 Billion Mega Cluster
Samsung is making a huge investment in chip manufacturing. The company is building a 228 billion mega cluster of five new fabs in its home country of South Korea, scheduled to come online in 2042. In the U.S., the Chips Act aims to reshore chip manufacturing, and Samsung is responding with a 17 billion fab in Taylor, Texas, promising to make its first advanced chips in the U.S. next year.
An 85 Year History
Samsung dates back 85 years to 1938, when founder Lee, Byung Chul started it as a trading company for exporting fruit, vegetables and fish in Korea. His vision for the company was to be “eternal, strong and powerful”, and so he chose the name Samsung, which literally means three stars. Samsung has survived two major wars and has diversified into sugar, refining, construction, textiles, insurance, retail, and other businesses.
CNBC Interview with the Head of Samsung’s U.S. Chip Business
CNBC got a rare interview with the head of Samsung’s U.S. chip business Jinman Han and brings you inside its Texas sites to find out how the Korean powerhouse plans to dominate not only devices but U.S. chip making.
Samsung Rising Author Jeffrey Kane
Samsung Rising author, Jeffrey Kane has been covering the company from Korea and the U.S. for over a decade. He says that if you had transported yourself back into time, 60, 70 or 80 years ago and asked the average person about Samsung they’d just shrug their shoulders and say “I guess it’s a little grocery store in Korea that no one’s really ever heard of.”
Today, Samsung is a major player in chip manufacturing, with ambitious plans to dominate the U.S. market.
Introduction
Samsung Electronics is a division of the Samsung Group, established in 1969. It is one of the most powerful families in tech, and is known for its vertically integrated consumer electronics. Samsung’s first U.S. offices opened in New Jersey in 1978, and since then, the company has grown to become the world’s biggest smartphone provider.
The Lee Family
The Lee family is one of the most powerful families in South Korea, and is often referred to as the “most powerful family in tech”. The family’s patriarch, Lee Byung-Chull, bought Hankook Semiconductor in 1974, and his son, Lee Kun-hee, took over after his father’s death in 1987.
Samsung’s First Mobile Phone
In 1988, Samsung released its first mobile phone. The company quickly gained international notoriety with the world’s first 64 megabit DRAM chip in 1992, and it has since become the world’s leading provider of memory chips.
The Republic of Samsung
Samsung’s presence in South Korea is so ubiquitous that the country is often referred to as the “Republic of Samsung”. In 1996, the company broke ground on its big fab in Austin, and opened another one there in 2007. In 2015, Samsung opened a new U.S. headquarters building in Silicon Valley, designed to look like a three layer stack of flash memory chips based on three nanometer technology.
Thats why Samsungs foundry business is so important.
Samsung’s Foundry Business
Han has been with Samsung for more than three decades, and its primary chip manufacturing still happens in South Korea. It also makes them in Texas and China. Besides devices, the biggest part of its revenue comes from memory chips, making up 57% of its total income.
The Impact of the Pandemic
The pandemic has caused a sharp decline in demand, especially for memory chips. This was due to peaking demand and supply chain disruptions, eventually culminating in a global chip shortage. It was difficult for Samsung to meet customer demands, as there was no way to provide the necessary chips.
The Slump in Demand
Smaller memory chipmakers like SK Hynix and Micron cut production in late 2022, while Samsung waited until April 2023 to do the same. This has resulted in the worst slump in terms of semiconductor demand, and it is believed that the market will rebound possibly by the end of this year. Micron and SK Hynix have started laying off staff and cutting their spending on new fabs.
Samsung’s Different Approach
Samsung is taking a different approach, pushing forward and not cutting back on spending despite it being unprofitable today. Instead, Samsung is shifting focus to foundry making computing chips designed by fabless chip companies. A big difference between Samsung and top foundry player TSMC is that Samsung makes its own chip designs for its own products as well as for thousands of others. This is why Samsung’s foundry business is so important.
Samsung Stock Trending Down Despite Chip War
Samsung’s stock has been trending down since the peak of the chip shortage in 2021, despite hitting a 52-week high in Q1 profits. This may be a reaction to the latest move in the geopolitical chip war between China and the U.S. In May, China banned products from U.S. memory chipmaker Micron, which in turn could boost demand for Samsung.
U.S. Restrictions on Chip Companies Exporting Advanced Tech to China
In October, the U.S. placed big restrictions on chip companies exporting their most advanced tech to China. The Department of Commerce crafted these rules to make sure that existing fabs are not impacted, but Samsung and SK Hynix do not build new fabs.
Samsung Among Three Companies Capable of Manufacturing Most Advanced Chips
When it comes to foundry, Samsung is one of only three companies in the world capable of manufacturing the world’s most advanced chips, ranking second between TSMC and Intel. With mounting U.S.-China-Taiwan tensions, the U.S. is eager to entice all three to make more chips on American soil.
President Biden Visits Samsung in South Korea
This motivation was evident in President Biden’s visit to Samsung in South Korea on his first presidential trip to Asia last year. He spoke of uniting skills and technological know-how to produce chips that are critical to both countries and their essential sectors of the global economy.
Samsung Customers
Tesla, Sony, NXP, STMicroelectronics, Intel, Soon, AMD, and IBM are all customers of Samsung. Qualcomm is, of course, their biggest customer, but they are moving significantly towards TSMC. Morgan Stanley recently named Samsung a top pick.
Samsung’s Expansion to Taylor, Texas
Jon Taylor has been part of the Samsung team since 1996, when the Austin Fab was first established. Now, he heads up the entire Austin site. Samsung has been investing in the United States for 45 years, and has invested 47 billion dollars and employed 20,000 people. In order to meet customer demand, Samsung is expanding to Taylor, Texas, a city about 30 miles north of Austin.
Taylor, Texas
Construction began on the Taylor, Texas site less than a year ago, and Samsung is on track to have it operational by the end of 2024. The site will span 1200 acres and cost 17 billion dollars, making it bigger than the Austin fab. It will be producing the most advanced chips that Samsung makes in the U.S.
Customer Demand
The expansion is largely due to customer demand, as more than 90% of advanced chips are currently made in Taiwan. Chips such as the current self driving chip in Tesla cars are made in the Austin campus, but the foundry there is for 14 nanometer and older technologies. Bringing Taylor on board will increase Samsung’s ability to source their chips domestically and not have to go into areas of the world where they may have some discomfort.
S., and the Chips Act is helping to bring more of that supply chain to the U.S.
The Chips Act: Bringing Chip Manufacturing Back to the U.S.
For the last 30 years, the U.S. has seen a drastic reduction in its share of global chip production, dropping from 37% to 12%. This is due to the fact that it costs at least 20% more to build and operate a new chip fab in the U.S. than it does in Asia. Labor is cheaper, the supply chain is more accessible, and government incentives are far greater.
The Chips Act
In order to combat this, the Chips Act has been set in place, allocating $52 billion for companies like Samsung to manufacture in the U.S. This is helping to bridge the gap between the construction costs in Asia and the U.S. and is Samsung’s goal to bring more of the supply chain to the U.S.
Samsung’s Taylor, Texas Fab
Samsung’s Taylor, Texas fab is estimated to cost $17 billion, with $11 billion of that going towards machinery and equipment. This includes the 200 million EUV lithography machines made by ASML, which are the only devices in the world that can etch with enough precision for the most advanced chips. It also includes the massive machines made by Applied Materials, the world’s next biggest microchip equipment company. Every chip in the world made goes through Applied Materials’ machines a few times at least.
Bringing the Supply Chain to the U.S.
The Chips Act is helping to bring more of the supply chain to the U.S., with Applied Materials already being a key Samsung supplier based in the U.S. This is allowing for the building of billions and billions of transistors in a small chip under 100km of wiring.
And we have to make sure that we have the power to keep our operations running.
Samsung’s Growing U.S. Operations
Samsung has been growing its U.S. operations, with the biggest semiconductor project Silicon Valley has seen in 30 plus years. This growth has been centered in Santa Clara, California, where the collaboration between customers, leading universities, and partners has been key.
Concerns About Water and Power
However, this growth has not come without concerns. About 80% of Texas remains in drought, and in 2021, Samsung used about 38 billion gallons of water to make its chips. This raises the question of where the water will come from in periods of drought. The Texas Water Board is working on this, as well as legislation in the current session to make sure that the growing population in Texas will have its water needs met.
In addition, Texas has a unique independent grid, largely cut off from borrowing power across state lines. In 2021, this grid failed during an extreme winter storm, leaving millions of Texans without power and causing at least 57 deaths. This highlights the importance of having enough electricity to keep semiconductor fabs running.
Sustainability Goals
Samsung has set aggressive sustainability goals for 2021. At its Austin campus, the goal is to reuse over 1 billion gallons of water this year. The Taylor project has a goal of reclaiming over 75% of its water. These goals demonstrate Samsung’s commitment to sustainability.
Samsung’s Expansion and Controversy
Samsung has recently announced its expansion into the US, with its Taylor fab marking its first use of advanced chip, etching EUV machines. Each machine is rated to consume about one megawatt of electricity, which is 10 times more than the previous generation. According to a study, Samsung used more than 20 of South Korea’s entire solar and wind power capacity in 2020.
In order to make the power grid more reliable, more resilient and more secure, the US has already signed 12 laws. This will ensure that any business moving there will have access to the power they need, but also at a low cost.
The Lee Family Scandals
Despite its expansion, Samsung has faced major scandals at home in South Korea. Corruption charges have kept Samsung’s founding Lee family in the headlines for decades. The most recent member of Samsung’s founding family to lead, Jay Y. Lee, served over a year in prison for bribery and was officially pardoned in August. He took the helm as executive chairman in October.
Samsung’s Influence
Every major company out there, including Apple, has to bend the knee to Samsung. They have to get their chips and displays from them, as they are so influential and are run by a convicted criminal. This is a company that everybody has to go through at some point to get what they need.
The Samsung and Apple Legal Battle
The legal battle between Samsung and Apple has been a long and drawn out one. It all started when Samsung argued that its phones were simply using a generic form factor in their design a rectangle with rounded circles. Apple, however, said that they had copied them and the two sides eventually settled. Apple received a payment from Samsung, but when you add up all the legal costs, it was a neutral zero for both sides.
The Ongoing Relationship
The relationship between Samsung and Apple remains a tricky one. On one hand, Samsung supplies components to Apple, but on the other, they are also competing with them. Apple, meanwhile, buys their chips but also competes with their smartphones. This creates a unique situation.
Samsung’s Ambitious Goals
Despite the controversies, Samsung’s forward momentum has not been impeded. In 2022, it announced an ambitious new roadmap that would, in theory, put it ahead of the far bigger market leader. Samsung’s goal is to triple its capacity of leading edge manufacturing and to make industry leading two nanometer chips by 2025 and 1.4 nanometer by 2027. If Samsung hits their targets, they will leapfrog ahead of TSMC, but this is a big if. TSMC is the only one that the industry trusts to hit their roadmap.
Geopolitical Tensions Mount Around China and Taiwan
As geopolitical tensions mount around China and Taiwan, customers are eager for a second source for advanced chips beyond TSMC. Intel, the next biggest advanced chip maker, is also adding manufacturing outside Asia, building big new fabs in Ohio and Europe.
The United States Needs to Make Sure We Are Manufacturing Everything We Need
We can’t be relied upon hostile countries for our everyday needs. And so the United States of America needs to make sure that we are manufacturing everything that we need. We learned that during the time of Covid – and we shall not make that mistake again.
Will Samsung Lose Focus on Legacy Chips?
But as Samsung races into leading edge chips, will it lose focus on legacy chips, the kind that saw the biggest shortages during the pandemic, slowing down production of everything from cars to game consoles? This factory that we’re in right now is a mature node factory, where some people would call that legacy. But there’s no pulling back here. It’s really full steam ahead.
The AI Boom Means Entirely Different Chips
But now the AI boom means entirely different chips, namely GPUs from Nvidia have taken center stage. Nvidia relies primarily on TSMC to make its chips, giving shares of the Taiwanese giant a boost.
Samsung Pulls Back on Memory and Focuses on Foundry
There are more and more people around the world who can make memory chips and to stay ahead of the game. You’ve got to get into the newer some of the newer logic technologies. Samsung’s decision to pull back on memory and focus more on foundry, which is all it makes in Austin, now means more custom chips for customers, including perhaps those driving the large language model craze.
Samsung Chips and the Future of Semiconductor Technology
The logic chip segment is an area of increasing interest for semiconductor technology. Artificial intelligence (AI) chips are the focus of much research and development, and the future applications of these chips are exciting. Samsung chips are now being placed in the same segment as Nvidia, but the question remains: is this the future for Samsung chips and can it be achieved in Texas?
Taylor has stated that making three nanometer chips in 2024 is only the start. Currently, there is only one fab announced in Texas, but there is plenty of room for more.
The Benefits of Samsung Chips
Samsung chips offer a number of advantages over other chips. They are more efficient, faster, and more reliable than other chips. Additionally, Samsung chips are more cost-effective than other chips, making them an attractive option for businesses.
The Challenges of Producing Samsung Chips in Texas
Producing Samsung chips in Texas presents a number of challenges. The state is not known for its semiconductor technology, and the infrastructure needed to produce these chips is not yet in place. Additionally, the cost of production in Texas is higher than in other states, making it difficult to compete with other chip manufacturers.
The Future of Samsung Chips
Despite the challenges, Samsung chips have a promising future. With the right infrastructure and investment, Texas could become a major hub for semiconductor technology. Additionally, the cost of production could be reduced, making Samsung chips more competitive. With the right investment and support, Samsung chips could become a major player in the semiconductor technology industry.
