Samsung: The Titan of Memory Chips
From Devices to Chips
Samsung is well-known for its consumer electronics, from Android phones to TVs, refrigerators, microwaves and unconventional displays. 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. Samsung is the leader in memory chips, with nearly 50% share in both DRAM and NAND. It is also the world’s second biggest maker of the most advanced logic chips, the kind found in Teslas, supercomputers, AI smartphones and more.
Inside the Factory
Recently, Samsung allowed a U.S. journalist inside its Austin chipmaking factory for an in-depth tour. The company pumps out a lot of chips every day, and it is gunning to overtake the massive advanced chip leader, Taiwan Semiconductor Manufacturing Company. Samsung does not settle to be number two.
Achieving Success
Samsung ended 2022 with 245 billion in annual revenue, 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. 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 it doubled down on its Foundry business.
Samsung’s Rise to Dominance
Samsung is a company that has come a long way since its humble beginnings in 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. The company has since diversified into sugar refining, construction, textiles, insurance, retail, and more, and has managed to survive two major wars.
Making Custom Logic Chips
Today, Samsung is making custom logic chips for outside customers. It 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 US, the 52 billion Chips Act aims to reshore chip manufacturing, and Samsung is responding by building a huge 17 billion fab in Taylor, Texas, promising to make its first advanced chips in the US next year.
An Interview with the Head of Samsung’s US Chip Business
CNBC recently got a rare interview with the head of Samsung’s US chip business, Jinman Han, to find out how the Korean powerhouse plans to dominate not only devices but US chip-making. Author Jeffrey Kane, who has been covering the company from Korea and the US for over a decade, said that if you had transported yourself back in time 60, 70 or 80 years ago and asked the average person about Samsung they would just shrug their shoulders and say I guess its a little grocery store in Korea that no ones really ever heard of.
Samsung’s Vision for the US
What’s going on is just remarkable. Samsung’s enormous investment in the US is really a testament to its vision for the country. It wants to be a bedrock for US industry.
The History of Samsung Electronics
Samsung Electronics was established in 1969 and released its first TV in 1972. In 1974, Lee Byung-Chull, the founder of Samsung, made a bold move and bought Hankook Semiconductor. This move was the beginning of the vertically integrated consumer electronics giant that Samsung is today. The Lee family is one of the most powerful families in tech, and is considered to be the most powerful family in South Korea.
Samsung’s Expansion
In 1978, Samsung opened its first U.S. offices in New Jersey and in 1980, Samsung Semiconductor was born with a fab in Korea. By the early 80s, Samsung was making 64 kilobyte DRAM memory and had a new U.S. office in Silicon Valley. After Lee Byung-Chull’s death in 1987, his son took over and Samsung released its first mobile phone a year later. Now, Samsung is the world’s biggest smartphone provider, often neck and neck with Apple.
Samsung’s Achievements
Just a decade after making its first memory chip, Samsung gained international notoriety with the world’s first 64 megabit DRAM chip in 1992, placing it squarely at first place in memory where it remains today. Samsung’s presence is so ubiquitous in South Korea that they call their country the “Republic of Samsung”. In 1996, Samsung broke ground on its big fab in Austin and it opened another one there in 2007. In 2015, Samsung got 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.
Samsung’s Longstanding Chip Manufacturing
Han has been with Samsung for more than three decades, and its primary chip manufacturing still happens in South Korea. It of course makes them in Texas, as well as China. Besides devices, the biggest part of its revenue comes from memory, with some 57% of its profits coming from memory chips.
The Impact of the Pandemic
As shoppers cut back amid rising inflation, demand has weakened sharply, especially for memory chips. This comes in the footsteps of a pandemic that involved peaking demand and supply chain disruptions, eventually culminating in a global chip shortage. It was really painful when customers asked for “more chips” but there was no way to provide them.
The New Reality
Smaller memory chipmakers like SK Hynix and Micron cut production in late 2022, while Samsung waited until April 2023 to do the same. We are now going through the very worst slump in terms of semiconductor demand, and we believe that the market will rebound possibly by the end of this year. Micron and SK Hynix have started laying off folks and have cut their spending on new fabs.
Samsung Pushing Forward
Despite it being unprofitable today, Samsung is not cutting back on spending. Instead, they are 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.
Samsung Stock on the Rise Despite Chip Shortage
The chip shortage of 2021 has been a difficult time for many companies, but Samsung’s stock has been trending up despite dismal Q1 profits. This may be a reaction to the latest move in the geopolitical chip war between China and the U.S., as well as Morgan Stanley’s recent naming of Samsung as a top pick.
Samsung and SK Hynix Given Waiver to Operate in China
In May, China banned products from U.S. memory chipmaker Micron, which could boost demand for Samsung. In October, the U.S. placed restrictions on chip companies exporting their most advanced tech to China, but Samsung and SK Hynix were given a one year waiver to operate their existing chip fabs in China. The Department of Commerce crafted these rules to make sure that those existing fabs are not impacted, but Samsung and SK Hynix cannot build new fabs.
Samsung Ranks Second in Advanced Chip Manufacturing
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. This includes Tesla, Sony, NXP, STMicroelectronics, Intel, and AMD, with Qualcomm being their biggest customer. IBM is also a customer.
President Biden Visits Samsung in South Korea
Good motivation for President Biden’s visit to Samsung in South Korea on his first presidential trip to Asia last year was to unite skills and technological know-how to produce chips that are critical to both countries and their essential sectors of the global economy.
Samsung’s Expansion in the U.S.
Jon Taylor joined Samsung 26 years ago as part of the team at the Austin Fab that broke ground in 1996. Now he heads up the whole Austin site. Since first coming to the U.S. 45 years ago, Samsung says its invested 47 billion here and has some 20000 U.S. employees.
Taylor, Texas
Now its expanding to a 17000 person, Texas city about 30 miles north of Austin. Bringing Taylor on board, is just going to increase their ability to source their chips domestically and not have to go into areas of the world where they may have some discomfort. Construction began. Here at Taylor, Texas, less than a year ago and Samsung, says its on track to be operational by the end of 2024. Its a 1200 acre 17 billion site and its going to be bigger than Samsungs Austin fab.
Advanced Chips
Its also going to be producing the most advanced chips that Samsung makes in the U.S. Samsung says this big new growth in the U.S. comes down to customer demand, largely due to the geopolitical risks swirling around Taiwan, where more than 90 of advanced chips are currently made. Chips such as the current self driving chip in the Tesla cars is made in their Austin campus. But that that foundry in Austin currently is for 14 nanometer and older technologies.
The first factory that I started working in we did four inch wafer fabrication. I moved on to five. Ive done six. Our factory here started at eight.
S. and the Chips Act is helping them to expand their operations.
The Chips Act: A New Hope for US Chip Production
The US share of global chip production has plummeted from 37 to just 12 in the last 30 years. This is due to the higher cost of building and operating a new fab in the US compared to Asia, where labor is cheaper and government incentives are far greater. The Chips Act, however, is aiming to change this.
The Chips Act: What is it?
The Chips Act is a US government initiative that sets aside $52 billion for companies like Samsung to manufacture in the US. This money is helping to overcome the differences in construction costs between the US and Asia.
Samsung’s Taylor, Texas Fab
Samsung’s Taylor, Texas fab is the first major investment in the US chip industry since the Chips Act was introduced. The total cost of the fab is $17 billion, with $11 billion going towards machinery and equipment like the 200 million EUV lithography machines made by ASML. These are the only devices in the world that can etch with enough precision for the most advanced chips.
Applied Materials: A Key Samsung Supplier
Applied Materials is the world’s biggest microchip equipment company and a key Samsung supplier already based in the US. The Chips Act is helping them to expand their operations, allowing them to build billions and billions of transistors in a small chip under 100km of wiring.
And we are working with the Texas grid to make sure that we have the power we need to keep our fabs running even during extreme weather events.
Samsung’s Growing U.S. Operations
Silicon Valley has seen a major semiconductor project in the past 30 years, and it’s all thanks to Samsung and its growing U.S. operations. Santa Clara is the perfect place for this collaboration to happen between Samsung’s customers, leading universities, and partners.
Concerns for Samsung’s Growth
Despite the success of Samsung’s U.S. operations, there are still some concerns. The biggest one is water. 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 during periods of drought. The Texas Water Board is working on this issue, as well as legislation this session to make sure that the growing population in Texas will have enough water.
Sustainability Goals
Samsung is taking its sustainability goals very seriously. At its Austin campus, the company has set an aggressive goal to reuse over 1 billion gallons of water this year. On its Taylor project, the goal is to reclaim over 75% of the water used.
Power Concerns
Texas has an independent grid, largely cut off from borrowing power across state lines. In 2021, the grid failed during an extreme winter storm, leaving millions of Texans without power and causing at least 57 deaths. Since electricity is the lifeblood of a semiconductor fab, Samsung is working with the Texas grid to make sure that it has the power it needs to keep its fabs running even during extreme weather events.
Samsung’s Expansion and Controversy
In a sense, Samsung has had multiple instances where electricity has gone out and companies have had to scrap months of production. To combat this, Samsung has told CNBC that its Taylor fab will mark its first use of advanced chip, etching EUV machines in the U.S., with each machine consuming about one megawatt of electricity, which is 10 times more than the previous generation. One study showed that 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 U.S. has already signed 12 laws. This means that any business moving to the U.S. can be assured that they will have access to the power they need, but also at a low cost.
Samsung’s Founding Family
Aside from its expansion, Samsung has also faced major scandals at home in South Korea. Corruption charges have kept Samsung’s founding Lee family in the headlines for decades. This has resulted in real life succession, with the most recent member of Samsung’s founding family to lead Jay Y. Lee, serving over a year in prison for bribery and being officially pardoned in August. He then 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 Samsung, as the company is so influential and is run by a convicted criminal.
The Big Seven Year Legal Battle Between Samsung and Apple
The seven year legal battle between Samsung and Apple was a contentious one. Samsung argued that its phones were simply using a form factor in a design that would be generic; a rectangle with rounded circles. Apple, on the other hand, said that Samsung had copied them. In the end, Apple got a payment from Samsung, so they technically won. However, when you add up all the legal costs, all the fighting all those years, it was just a neutral zero on zero for both sides.
The Ongoing Relationship Between Samsung and Apple
To this day, the relationship between Samsung and Apple remains a tricky one. Samsung supplies to Apple, but they are also competing with them. On the flip side, Apple is buying their chips, but also competing with their smartphones. This creates a really weird situation.
Samsung’s Forward Momentum
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 that 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.
U.S. Must Ensure Manufacturing of Everyday Needs
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.
Samsung Races Into Leading Edge 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 were 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.
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. 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 Pulls Back on Memory and Focuses on Foundry
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’s Future in the Logic Chip Segment
The future of semiconductor technology is being driven by AI chips, and Samsung is looking to be a major player in this space. But can they achieve their goals in Texas, where they have announced plans to make three nanometer chips by 2024?
Competition from Nvidia
Samsung is looking to dive deeper into the logic chip segment, but they will face stiff competition from Nvidia, who have already established a foothold in this space.
Texas as a Potential Hub for Samsung
Samsung has announced plans to build a fab in Texas, which could be the start of a major hub for their chip-making operations. However, there is still plenty of room for more fabs in the state, and it remains to be seen if Samsung can make their plans a reality.
