That makes chips for other companies.
Samsung: The Titan of Memory Chips
Samsung is known for its innovative devices like Android phones, 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: the production of memory chips. For the past three decades, Samsung has been 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, used in Teslas, supercomputers, AI smartphones and more.
Inside Samsung’s Chipmaking Factory
Recently, a U.S. journalist was given an in-depth tour of Samsung’s Austin chipmaking factory. The company is aiming to overtake the massive advanced chip leader, Taiwan Semiconductor Manufacturing Company. Samsung ended 2022 with 245 billion in annual revenue, 47 billion more than Microsoft.
Memory Chip Prices Take a Dive
Unfortunately, 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 doubled down on Foundry, the side of its business that makes chips for other companies.
Samsung: A Global Powerhouse
Samsung is a global powerhouse, with a long and storied history. Founded in 1938 by Lee Byung Chul, it started as a trading company for exporting fruit, vegetables and fish in Korea. The company has since diversified into sugar refining, construction, textiles, insurance, retail and more. It has also survived two major wars, and today is a multifaceted business.
Samsung’s Expansion
Samsung is continuing to expand, with plans to build 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., Samsung is building a huge 17 billion fab in Taylor, Texas, promising to make its first advanced chips in the U.S. next year.
Interview with Samsung’s U.S. Chip Business Head
CNBC recently got a rare interview with the head of Samsung’s U.S. chip business, Jinman Han. Han spoke about the company’s plans to dominate not only devices but U.S. chip-making. He said that the company’s vision is “to be eternal, strong and powerful,” and that Samsung wants to be “a bedrock for U.S. industry.”
Samsung’s Rise to Prominence
Author Jeffrey Kane, who has been covering Samsung from Korea and the U.S. for over a decade, said that if you had gone back in time 60, 70 or 80 years ago and asked the average person about Samsung, they would have shrugged their shoulders and said “I guess it’s a little grocery store in Korea that no one’s really ever heard of.” Today, however, Samsung is a global powerhouse, and its plans for expansion and dominance in the chip-making industry are remarkable.
Introduction
Samsung Electronics is a division of the South Korean conglomerate Samsung Group, and is one of the most powerful families in tech. Established in 1969, Samsung has grown to become the world’s biggest smartphone provider, often neck and neck with Apple. The Lee family, one of the most powerful families in South Korea, has been at the helm of Samsung since its inception.
Early Years
The first Samsung TV came out in 1972 and just two years later, Lee bought Hankook Semiconductor in a bold move toward making it the vertically integrated consumer electronics giant it is today. Samsung’s first U.S. offices opened in New Jersey in 1978 and by 1980 Samsung Semiconductor was born with a fab in Korea. By the early 80s, it was making 64 kilobyte DRAM memory and had a new U.S. office in Silicon Valley.
Growth and Expansion
Lee’s son took over after his father’s death in 1987 and its first mobile phone came a year later. In 1992, Samsung gained international notoriety with the world’s first 64 megabit DRAM chip, placing it squarely at first place in memory where it remains today. In 1996, Samsung broke ground on its big fab in Austin and it opened another one there. In 2007, it got a new U.S. headquarters building in Silicon Valley in 2015, designed to look like a three layer stack of flash memory chips, based on three nanometer, which is the most advanced technology we have.
Samsung’s presence is so ubiquitous in South Korea that they call their country the Republic of Samsung. With its innovative products and aggressive expansion, Samsung has become one of the most powerful families in tech and the world’s biggest smartphone provider.
Samsung’s Semiconductor 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, as well as China. Samsung’s semiconductor business is the biggest part of its revenue, with 57% coming from memory.
The Impact of the Pandemic
The pandemic has had a huge impact on the semiconductor industry, with peaking demand and supply chain disruptions leading to a global chip shortage. This has been particularly painful for Samsung, as customers have been asking for more chips but there has been no way to provide them.
Cutting Production
Smaller memory chipmakers like SK Hynix and Micron have already cut production in late 2022, while Samsung waited until April 2023 to do the same. This has led to 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 folks and have cut their spending on new fabs.
Shifting Focus to Foundry
Despite the current unprofitability of the semiconductor industry, Samsung is not cutting back on spending. Instead, they are shifting focus to foundry making computing chips designed by fabless chip companies. This is a big difference between Samsung and top foundry player TSMC, as Samsung makes its own chip designs for its own products as well as for thousands of others.
Samsung: A Leader in the Global Chip War
The chip war between China and the U.S. has been escalating for some time, and Samsung is at the center of it. 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. They have customers such as Tesla, Sony, NXP, STMicroelectronics, Intel, Soon, AMD, and IBM. Qualcomm is their biggest customer, but they are moving significantly towards TSMC.
Samsung’s Stock Performance
Samsung stock has been trending down since the peak of the chip shortage in 2021, although it just hit a 52 week high despite dismal 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. And Morgan Stanley recently named Samsung a top pick.
U.S. Restrictions on Exporting Chips to China
In October, the U.S. did place 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.
President Biden’s Visit to Samsung
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 that allows the production of chips that are critical to both countries and their essential sectors of the global economy.
Samsung’s Expansion in the US
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. Now its expanding to a 17000 person, Texas city about 30 miles north of Austin.
Taylor, Texas
Construction began 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. Its also going to be producing the most advanced chips that Samsung makes in the U.S.
Customer Demand
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.
The Austin Fab
The first factory that Taylor started working in did four inch wafer fabrication. He then moved on to five and then six. The Austin Fab currently is for 14 nanometer and older technologies. 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.
S., and the Chips Act is helping them to expand their operations.
The Chips Act: A Step Towards US Chip Production
The U.S. share of global chip production has dropped from 37 to 12 over the last 30 years, due to the higher costs of building and operating a new fab in the U.S. compared to Asia. To address this issue, the Chips Act has been set up, allocating $52 billion for companies like Samsung to manufacture in the U.S.
Samsung’s Taylor, Texas Fab
Samsung’s Taylor, Texas fab has a total price tag of $17 billion, $11 billion of which is going to machinery and equipment. This includes the 200 million EUV lithography machines made by ASML, the only devices in the world that can etch with enough precision for the most advanced chips, and the massive machines made by Applied Materials, the world’s next biggest microchip equipment company.
Applied Materials: A Key Samsung Supplier
Applied Materials is a key Samsung supplier already based in the U.S., and the Chips Act is helping them to expand their operations. Inside the machines, billions and billions of transistors are built in a small chip under 100km of wiring. Every chip in the world made goes through these machines at least a few times.
The Chips Act is helping to bridge the gap between the U.S. and Asia in terms of chip production costs, and Samsung is taking advantage of this to bring more of the supply chain to the U.S. This will help to ensure that the U.S. remains competitive in the global chip production market.
And so we have to make sure that we have a reliable source of power.
Samsung’s Growing U.S. Operations
Samsung is growing its U.S. operations, with the biggest semiconductor project Silicon Valley has seen in 30 plus years. The collaboration between customers, leading universities, and partners is taking place in Santa Clara.
Concerns Over 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. The Texas Water Board is working on legislation to make sure that the growing population in Texas is able to provide for the water needs of businesses and citizens.
In addition, Texas has an 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. As electricity is the lifeblood of a semiconductor fab, Samsung must make sure that it has a reliable source of power.
Sustainability Goals
Samsung has set aggressive sustainability goals for its Austin campus this year, aiming to reuse over 1 billion gallons of water. On its Taylor project, the goal is to reclaim over 75% of the water.
Introduction
Samsung has been making headlines for decades, due to the corruption charges that have kept its founding Lee family in the spotlight. Despite this, the company has continued to expand, most recently in the US, and has become a major player in the tech industry. Its Taylor fab will mark its first use of advanced chip, etching EUV machines in the US, and the company has already signed 12 laws to make the power grid more reliable, more resilient and more secure.
Power Consumption
Each of the EUV machines is rated to consume 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. Despite this, the company can assure any business moving to the US that they will have access to the power they need, but also at a low cost.
Corruption Charges
Samsung has faced major scandals at home in South Korea, with corruption charges keeping the 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.
Influence
Every major company out there, including Apple, has to bend the knee to Samsung in order to get the chips and displays they need. This is because the company is so influential and is run by a convicted criminal. This is real life succession and is what Samsung is all about – the shareholder battles, the generational intrigue, the spying.
The Seven Year Legal Battle Between Samsung and Apple
The seven year legal battle between Samsung and Apple was a long and complicated one. Samsung was arguing that its phones were simply using a form factor in a design that would be generic – a rectangle with rounded circles. Apple, however, said that they had been copied and so they settled, with Apple receiving a payment from Samsung. In the end, the legal costs and the fighting meant that it was a neutral zero on zero for both sides.
The Relationship Today
To this day, the relationship between the two companies remains a tricky one. Samsung is supplying components to Apple, while also competing with them in the smartphone market. Apple is buying chips from Samsung, while also competing with them. This creates a very strange situation.
Samsung’s Forward Momentum
Despite the controversies, Samsung’s forward momentum has not been impeded. In 2022, the company 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 and the Global Chip Industry
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 Need for Domestic Manufacturing
We can’t be relied upon hostile countries for our everyday needs. 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’s New Focus
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
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.
Staying Ahead of the Game
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: The Future of Semiconductor Technology?
The semiconductor industry is rapidly evolving, and Samsung is at the forefront of this evolution. The company is diving deeper into the logic chip segment, with AI chips and other applications for semiconductor technology. This places them in a segment with Nvidia, but the question remains: is this truly the future for Samsung chips and can it be achieved in Texas?
Samsung’s Texas Fab
Samsung has recently announced a new fab in Texas, and Taylor believes that making three nanometer chips in 2024 is only the start. This is a significant step forward for the company, and it shows that they are committed to pushing the boundaries of semiconductor technology. However, there is still plenty of room for more fabs in Texas, and Samsung may be looking to expand their presence in the state.
The Future of Samsung Chips
It is clear that Samsung is committed to pushing the boundaries of semiconductor technology, and their recent investments in Texas are a testament to this. However, it remains to be seen if they can truly achieve their goals and become a major player in the semiconductor industry. Only time will tell if Samsung chips will be the future of semiconductor technology.
