Samsung: The Titan of Memory Chips
Samsung is well known for its range of consumer electronics, from Android phones to TVs, refrigerators, microwaves and unconventional displays. But what many people don’t know is that Samsung is also one of the world’s most important and valuable companies, thanks to its leadership in memory chips.
Leading Memory for Three Decades
For the past three decades, Samsung has been the leader in memory chips. It has nearly 50% share in both DRAM and NAND, and is 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. The company is gunning to overtake the massive advanced chip leader, Taiwan Semiconductor Manufacturing Company. As Samsung’s executive vice president, Cheol Choi, said, “We do not settle to be number two.”
End of 2022 Results
At the end of 2022, Samsung had an annual revenue of 245 billion, which was 47 billion more than Microsoft. However, since then prices for memory chips have taken a dive and are expected to fall up to 23% more in Q2 2023.
April 2023 Results
In April 2023, Samsung reported dismal earnings for the first quarter of the year, 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 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 our company to be eternal, strong and powerful.. So he chose the name Samsung, which literally means three stars. To survive: two major wars. It diversified into sugar, refining, construction, textiles, insurance, retail., And it remains a multifaceted business to this day. Samsung Rising author, Jeffrey Kane has been covering the company from Korea and the U.S. For over a decade., If you had transported yourself back into time, 60, 70 or 80 years ago and asked the average person about Samsung theyd just shrug their shoulders and say I guess its a little grocery store in Korea that no ones really ever heard.
Samsung’s Expansion into Chip Manufacturing
That makes custom logic chips for outside customers., Its building, a 228 Billion mega cluster of five new fabs in its home country of South Korea, scheduled to come online in 2042. And in the U.S. where the 52 billion Chips Act aims to reshore chip, manufacturing. Samsungs, building A huge 17 billion fab in Taylor, Texas, promising to make its first advanced chips in the U.S. next year. Whats going on, is just remarkable.. Its enormous. Really want to be a bedrock for U.S.. Industry. CNBC got a rare interview with the head of Samsungs 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.
The Rise of Samsung Electronics
Samsung Electronics, the division it is known for most, was established in 1969. The first Samsung TV came out in 1972, and two years later, Lee Kun-Hee, the founder of Samsung, bought Hankook Semiconductor in a bold move towards making it the vertically integrated consumer electronics giant it is today.
The Lee family is one of the most powerful families in tech, and you could call them the most powerful family in South Korea. 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 1980s, it was making 64 kilobyte DRAM memory and had a new U.S. office in Silicon Valley.
Lee Kun-Hee’s son, Lee Jae-yong, took over after his father’s death in 1987 and the company’s first mobile phone came a year later. Now Samsung is the world’s biggest smartphone provider, often neck and neck with Apple.
Samsung’s Notoriety
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. Its 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, it got a new U.S. headquarters building in Silicon Valley, designed to look like a three layer stack of flash memory chips. This is based on three nanometer, which is the most advanced technology we have.
It also makes its own chips for its own products.
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 of course makes them in Texas, as well as China. Besides devices, the biggest part of its revenue comes from memory, with some 57% coming from memory.
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.
The Painful Reality
It was really painful when you look at your customers asking for “more chips,” but there’s no way you can provide that. It was so painful. But the new reality is far less demand. Smaller memory chipmakers like SK Hynix and Micron cut production in late 2022, while Samsung waited until April 2023 to do the same.
The Slump
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 started laying off folks and have cut their spending on new fabs.
Samsung’s Different Approach
Samsung is pushing forward, though, and they’re 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. It also makes its own chips for its own products.
Samsung: A Global Leader in Chip Manufacturing
Samsung has long been a leader in the chip manufacturing industry, with customers ranging from Tesla to Sony, NXP, STMicroelectronics, Intel, AMD, and IBM. Qualcomm is, of course, their biggest customer, but Samsung has been making significant moves towards partnering with TSMC.
Chip Shortage and the Geopolitical Chip War
Since the peak of the chip shortage in 2021, Samsung’s stock has been trending down, 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. Morgan Stanley recently named Samsung a top pick. In October, the U.S. placed big 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.
Samsung’s Foundry Capabilities
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, which was likely a motivating factor for President Biden’s visit to Samsung in South Korea on his first presidential trip to Asia last year. During the visit, Biden said, “By uniting our skills and our technological know-how, that allows the production of chips that are critical to both our countries and our essential, essential sectors of our global economy.”
Samsung Expands to Taylor, Texas
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.
A Bigger and Better Expansion
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 in the U.S.
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.
S. and they are helping to make the Taylor fab a reality.
The Chips Act: Bringing Chip Production Back to the US
The US has seen its share of global chip production plummet from 37 to just 12 over the last 30 years. This is due to the higher costs associated with building and operating a new fabrication plant in the US compared to Asia, where labor is cheaper and government incentives are greater. To help reverse this trend, the Chips Act has been introduced, setting aside $52 billion for companies like Samsung to manufacture in the US.
Samsung’s Taylor, Texas, Fab
Samsung is taking advantage of the Chips Act to build a new fabrication plant in Taylor, Texas. The total price tag for this plant is $17 billion, with $11 billion of that going to machinery and equipment like the EUV lithography machines made by ASML. These machines are the only devices in the world that can etch with enough precision for the most advanced chips. Samsung is also working with Applied Materials, the world’s largest microchip equipment company, to make the Taylor fab a reality. Applied Materials is already based in the US and is a key Samsung supplier.
Building Billions of Transistors
The machines made by Applied Materials are used to build billions and billions of transistors in a small chip under 100km of wiring. Every chip in the world made goes through these machines at least a few times. Samsung is committed to bringing more of the supply chain to the US, in order to overcome the differences in construction costs that they get out of Asia versus the US.
And Samsungs Texas fabs are no exception.
Samsung’s Growing U.S. Operations
Samsung is making a big splash in the U.S. with its biggest semiconductor project Silicon Valley has seen in 30 plus years. Located in Santa Clara, this project is a collaboration between customers, leading universities, and partners.
Concerns Over Water and Power
However, Samsung’s growth in the U.S. has not come without concerns. In 2021, Samsung used about 38 billion gallons of water to make its chips. With Texas in a drought, this has raised questions about where the water will come from. The Texas Water Board is working on this issue, and legislation is being considered to ensure that businesses and the growing population in Texas have enough water.
Samsung is also taking sustainability goals seriously. In Austin, Samsung has a goal to reuse over 1 billion gallons of water this year. The Taylor project also has a goal to reclaim over 75% of its water.
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’s Texas fabs are no exception.
Samsung’s Expansion and Scandals
Samsung has recently announced its Taylor fab will mark its first use of advanced chip, etching EUV machines in the U.S. Each of these machines is rated to consume about one megawatt of electricity, which is 10 times more than the previous generation. One study showed Samsung used more than 20 of South Korea’s entire solar and wind power capacity in 2020.
The U.S. has already signed 12 laws to make the power grid more reliable, more resilient and more secure. This is to assure any business moving here that they will have access to the power they need, but also at a low cost.
The Lee Family
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 their displays from Samsung because they are so influential and they are run by a convicted criminal. This is real life succession and this is what Samsung is: the whole shebang, 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 arduous 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, on the other hand, argued that they had been copied. In the end, Apple received a payment from Samsung, so technically they won. However, when you add up all the legal costs, all the fighting, it was a neutral zero on zero for both sides.
The Tricky Relationship Between Samsung and Apple
To this day, the relationship between Samsung and Apple remains a tricky one. Samsung is supplying 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 very strange 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 this is a big if. TSMC is the only one that the industry trusts to hit their roadmap.
Geopolitical Tensions and the Need for Advanced Chips
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. We can’t be reliant 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 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.
AI Boom and Nvidia
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’s Decision to Focus 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 Chips and the Future of Semiconductor Technology
The semiconductor industry is set to take a deep dive into the logic chip segment, with AI chips leading the way. Companies like Nvidia are already making their mark in this area, but the question remains: can Samsung chips achieve the same success?
Samsung’s Texas Venture
Samsung has announced their plans to build a fab in Texas, where Taylor says they will be making three nanometer chips by 2024. This is just the start of Samsung’s venture into the semiconductor industry, and there is plenty of room for more.
The Challenges Ahead
The semiconductor industry is a highly competitive field, and Samsung will need to be prepared to face the challenges that come with it. They will need to invest in the right technology and personnel to ensure that their chips are able to compete with the likes of Nvidia.
It remains to be seen if Samsung can make a successful foray into the semiconductor industry. With the right investments and strategies, they may be able to make a mark in the logic chip segment, and become a major player in the AI chip market.
