Samsung’s plans to catch TSMC in semiconductor manufacturing

Samsung The brand is everywhere. from Galaxy phones and smart TVs to washing machines and refrigerators, the company says its products can be found in nearly three-quarters of American homes.

But Samsung is much more than gadgets and hardware, another reason why it is one of the most valuable companies in the world. It is the second largest maker of chips that power many popular devices.

For more than three decades, Samsung has been a leader in the field of memory chips, which are used to store digital data. But this was a market in turmoil. Over the past year, memory chip prices have been declining, and are expected to go down up to 23% more in the current quarter. In April, Samsung reported dismal earnings for the first quarter, with profits falling to their lowest level since 2009.

Samsung responded by cutting back on memory chip production. Elsewhere in the industry, smaller rival Micron recently said it expects to cut 15% of its workforce.

Amid the wreckage, the giant has found growth in another corner of the semiconductor market, doubling down on its foundry business, the side that makes custom chips for massive customers like QualcommAnd TeslaAnd Intel And Sonyas well as thousands of young players.

Samsung is building a $17 billion chip manufacturing plant, or fab, in Taylor, Texas, where it has promised to start the first US production of high-end chips next year. In February, applications opened to companies like Samsung for their share of the $52.7 billion CHIPS & Science Act, which lawmakers passed last year aimed at bringing chip manufacturing to the United States after 30 years of market share losses in Asia.

Samsung is also adding capacity in its native South Korea, spending $228 billion on a massive batch of five new FAB units that are set to come online by 2042.

They spend, and spend, and spend,” said Dylan Patel of Semi-Analysis, a research and advisory firm. “Why? So that they can catch up with technology, so that they can continue to maintain their leadership position.”

Samsung is one of only three companies that make the most advanced chips in the world, second only to Samsung Taiwanese semiconductor manufacturing company and before Intel.

Surviving two major wars, the company diversified into industries such as textiles and retail. Samsung Electronics Founded in 1969, and The first Samsung TV In 1972, and two years later, Samsung purchased Hankook Semiconductor in a bold attempt to establish the vertically integrated consumer electronics giant that the company operates today.

Samsung opened its first US offices in New Jersey in 1978. By 1983 it was making 64K DRAM chips, which were commonly used in computers, and the company had a new US office in Silicon Valley.

Lee Kun-hee took over after his father’s death in 1987, and Samsung’s first mobile phone came a year later. And now Samsung is The world’s largest smartphone providerface to face with apple.

Just a decade after making the first memory stick, Samsung was hitting the market with a version with 1,000 times the capacity. It gained international recognition in 1992 with the world’s first 64MB DRAM chip, putting the company in the top spot in memory, where it remains today.

“It’s so ubiquitous in South Korea that they call their country the Republic of Samsung,” said Jeffrey Cain, author of “Samsung Rising,” published in 2020.

Samsung got its start in making chips in the US with its stellar manufacturing in Austin, Texas, which began operating in 1996. It opened a secondary factory in the Texas capital in 2007. Today, Samsung’s entire Austin operation is dedicated to foundry.

Samsung’s expansion has brought with it some legal conflicts.

In 2018, the company finally finished its Seven years of legal battle with Apple about whether Samsung copied the iPhone. Terms were not disclosed.

“Apple got a push from Samsung, so technically Apple won,” Kane said. “But when you add up all the legal costs, all the fighting, all those years, it was just zero over zero for both sides.”

The challenges are not limited to the courtroom.

In South Korea, protests have broken out over Jay Y. Lee, the third generation of Samsung’s founding family to take the helm. He served time in prison for bribery before being pardoned in August and becoming CEO in October.

And during the pandemic, Samsung has been hit by global chip shortages as demand peaks and supply chains are disrupted.

“It was really painful,” Hahn said. “When you look at your customers asking for more chips, but there’s no way to offer that, it was very painful.”

This dynamic is changing. With consumers curbing their spending in the face of soaring inflation, demand for memory chips has weakened sharply. Han said that Samsung’s internal data analysis shows that “the market will likely rebound by the end of this year.”

Investors have already returned. The stock is down nearly 30% in the past year, along with a broader downturn in the global tech industry. Shares are up 28% this year and hit a 52-week high on June 5 on the Korea Stock Exchange. Morgan Stanley recently Call it the top pick.

In May, China Prohibited products from US memory maker Micron, which spawned shares in Samsung. The United States also awarded Samsung a One-year waiver For Fabrin’s operation of chips in China, despite new rules in October that prevent many chip companies from exporting their most advanced technology to the world’s second-largest economy.

Samsung says it’s adding capacity in Taylor, Texas, northeast of Austin, due to US demand. More than 90% of the advanced chips are currently made in Taiwan.

“Bringing Taylor on board will increase their ability to get their chips locally and they won’t have to go to areas of the world where they might feel some discomfort,” Samsung’s John Taylor said.

Over the past three decades, the US share of global chip production It fell from 37% to just 12%. This is largely because estimates show that it costs the least 20% more To build and operate a new fab in the US than in Asia, where labor is cheaper, and the supply chain more accessible Government incentives are much greater.

For Samsung’s expansion into Texas, environmental concerns are significant and growing.

Probably the best piece of equipment Samsung will bring to Taylor are its $200 million EUV lithography machines. ASML. They are the only devices in the world that can etch precisely enough for the latest chips.

Every EUV machine is rated to consume About 1 megawatt of electricityWhich is 10% more than the previous generation. one study It found that Samsung used more than 20% of all solar and wind energy in South Korea in 2020.

“Electricity is, in a sense, the lifeblood of the semiconductor sector,” said Patel of Semi Analysis. “There have been many instances where the electricity has gone out and companies have had to cancel months of production.”

Texas’ power grid is largely cut off from its neighbors, which limits its ability to borrow across state lines. In 2021, that network fails during a severe winter storm, and you leave Millions of Texans are without power and it has killed at least 57 people.

“I’ve already signed 12 bills to make the power grid more reliable, resilient, and safer,” Texas Republican Gov. Greg Abbott told CNBC in April. “And so we can certainly guarantee any company that moves here that they will get the strength they need, but also at a low cost.”

Water is another major need for the potato chip industry. In 2021, Samsung It uses about 38 billion gallons of water to make chips. Almost 80% of Texas remains You are dehydrated.

“We have the Texas Water Board working on that and the legislation that we’re working on in this session to make sure that as the population grows in Texas, we’ll be able to provide for the water needs of not only businesses, but also our growing population.”

Samsung told CNBC that its goal in Austin is to reuse more than 1 billion gallons of water in 2023. At the new Taylor plant, it aims to recover more than 75% of the water used.

Lately, all the hype in technology has been about AI models to power services like OpenAI’s ChatGPT. These applications require more powerful processors, mainly manufactured so far nvidia.

“There are more and more people around the world who can make memory sticks,” Kane said. “To stay ahead of the game, you need to get into the latest logical technology.”

Ken said he sees Samsung “diving deeper into the logical chip segment. So, (these are) AI chips, future applications of semiconductor technology.”

When asked what’s next, Samsung’s Taylor said the company eventually plans to add more chip manufacturing capacity at its 1,200-acre site in Texas.

“We currently only have one lot announced there,” he said. “But there is plenty of room for more.”

Watch the video to go behind the scenes at Samsung’s Austin chip plant and construction project in Taylor, Texas.