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Foundry competition

Intel’s jump into foundry sets off alarm bells for Samsung, TSMC

By Mar 24, 2021 (Gmt+09:00)

Intel’s jump into foundry sets off alarm bells for Samsung, TSMC

Intel Corp.’s announcement on Tuesday that it will significantly expand its advanced chip manufacturing capacity and jump into the foundry business by opening its plants to outside clients is setting off alarm bells for foundry players.

The decision by the largest US chipmaker is a direct challenge to Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung Electronics Co. that have dominated the foundry sector for years, effectively shifting the business hub from the US to Asia.

Analysts say the two foundry leaders will face an uphill battle in an increasingly competitive industry where government support, as well as technological prowess, is crucial to maintaining market leadership.

“What’s important here is not just Intel’s entry into the foundry business. Rather, you have to pay more attention to the US government’s initiative to enhance the competitiveness of its chip industry through Intel,” said Hwang Cheol-seong, a materials science and engineering professor at Seoul National University.

A market analyst said Samsung will come under “growing pressure to build its next chip plants in the US and Europe.”

Intel said on Tuesday that it will spend $20 billion to build two new chip factories, called fabs, in Chandler, Arizona.

EFFORTS TO TILT TECH POWER BALANCE BACK TO THE US

During an online media briefing, Intel Chief Executive Pat Gelsinger said it will use those factories, set to start operations in 2024, to make its own chips but also open them to outside customers in its foundry business model.

By embracing the foundry business, the CEO said Intel aims to tilt the technological balance of power back to the US from Asia.

Intel’s jump into foundry sets off alarm bells for Samsung, TSMC

Intel’s strategy comes as government leaders both in the US and Europe have raised concerns over the risk of a concentration of chipmaking in Asian nations such as Taiwan and South Korea.

Those worries intensified in recent months amid a global component shortage. Automakers, in particular, have felt the impact of the semiconductor shortage, causing them to idle some of their production capacity.

US President Joe Biden last month pledged to address the chip shortages and ordered a review to identify ways to strengthen supply chains in critical fields such as semiconductors.

STRATEGIC ASSETS

While unveiling its ambitious business plans, the Intel CEO forecast that the global foundry market will grow to $100 billion by 2025 as tech companies such as Google, Amazon and Facebook are joining the race for in-house chip design, which will boost demand for foundry chipmaking.

Analysts said the global competition for semiconductors is closely linked to security matters as chips are an integral part of advanced weapons.

“Semiconductors are widely used in military equipment, including autonomous armored vehicles and drones. Chips are strategic assets,” said Yang Ji-won, a senior researcher at the Korea Institute for Defense Analyses (KIDA).

Song Jae-yong, a business administration professor at Seoul National University, said: “Europe will increase the proportion of regional chip production to 30% from the current 10%. Foundry investments and attraction of foreign chipmakers into the region will be pursued at a government level.”

SAMSUNG FIGHTS BACK

Samsung, the world’s second-largest foundry player with its market share of 18%, following TSMC’s 56%, is spending aggressively to buy advanced chipmaking equipment and build more plants in the US.

A researcher at Samsung Electronics' chip cleaning room
A researcher at Samsung Electronics' chip cleaning room


Under its Vision 2030, Samsung plans to invest a total of 133 trillion won ($117 billion) to become the world’s top foundry player by then. The company is known to be spending 10 trillion won a year to develop chip foundry technology and purchase the necessary equipment to close in on bigger rival TSMC.

Samsung is considering investing $17 billion to build a new chipmaking plant in Austin, Texas, using the ultra-micro lithography technology of the 3-nanometer process. In return for the plant, the Korean chipmaker is seeking tax breaks of $805.5 million from the state government of Texas.

Earlier this year, the US Congress passed the CHIPS for America Act, aimed at providing billions of dollars in incentives for semiconductor R&D and production in the US, as Washington takes other key steps to bolster its chip manufacturing and supply chains.

Write to Jeong-Soo Hwang and Su-Bin Lee at hjs@hankyung.com

In-Soo Nam edited this article.

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