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Samsung further cornered by Intel's foundry ambitions

Samsung may grapple with Intel's quick foray into foundry field and ultra-micro chip technology

By Jul 28, 2021 (Gmt+09:00)

Intel CEO Pat Gelsinger
Intel CEO Pat Gelsinger

Intel Corp.'s announcement on Monday of securing Qualcomm Inc. as its first fabless client caught Samsung Electronics Co. off guard, as the South Korean chipmaker has earmarked $17 billion to build a new foundry plant in the US to expand its contract chipmaking business.

Dealing a heavier blow to Samsung, Intel Chief Executive Pat Gelsinger said that the chips to be produced for Qualcomm in 2024 would use Intel’s 20A process, or chips using circuitry measured at 2 nanometers (nm), the smallest in the industry. 

The announcement comes just four months after the US largest manufacturer of microprocessors in March unveiled its $20 billion spending plan to build two new chip factories in Arizona to jump into the foundry field.

Intel's quick foray into the foundry market with the state-of-the-art technology will further corner Samsung, which is putting efforts to narrow the gap with Taiwan's TSMC Co. Samsung is a distant runner-up with a share of 18% in the global foundry market where TSMC commands 56%. 

The fact that the newcomer's first customer is Qualcomm, a big user of chips fabricated by TSMC and Samsung, signals a tough road ahead for Samsung. The US mobile phone chip company is one of the world's top fabless chipmakers, along with Apple Inc., Advanced Micro Devices Inc. and Nvidia Corp. 

Intel designs and sells mobile application processors (AP), the brain of smartphones and tablets. It has outsourced the production of some graphics processing units (GPUs) and other chips to TSMC, which are estimated at $5 billion annually.

Earlier this year, Samsung had clinched its first order from Intel to manufacture Intel-designed chips, while losing to TSMC in competition to win a GPU order from the US company. TSMC was said to manufacture Intel GPUs using the 4 nm process.

SMALLEST CHIPS

Intel's 20A process is a further advancement from the ultra-micro lithography technology of the 3 nm process which Samsung is considering adopting for its new chipmaking plant in the US. Two-nanometer chips are roughly the size of a fingernail.

Currently, Samsung's main products are produced on the 5 nm process node, while TSMC is seeking to grab the lead in the 3 nm process technology. Chipmakers are competing to produce smaller chips because the smaller the chip is, the more space it creates for electronic goods, alongside improved power efficiency.

Under its Vision 2030, Samsung plans to invest a total of 133 trillion won 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.

Intel's inroads into the foundry business are reminiscent of Samsung's painful experience a decade ago. Soon after Samsung in December 2012 announced a $3.9 billion investment to expand capacity at its Austin plant, Apple, one of its key customers, had shifted to TSMC for chip fabrication. 

The US government's efforts to boost its domestic chip production to counter China’s rising influence are adding another pressure to Samsung.

Samsung's DDR5 DRAM
Samsung's DDR5 DRAM

TSMC is understood to have begun producing test products of 3 nm chips for Apple and other customers. It is also setting up an R&D facility in Japan to cooperate with Japanese companies strong in packaging technology.

"Samsung is now left isolated when global competition in the chip industry is evolving into confrontations and cooperation between countries," said a semiconductor industry source.

EUV SCANNERS

Starting as early as 2025, Intel will use the extreme ultraviolet (EUV) scanners from the Netherlands' ASML Holding N.V., according to a Reuters report. That implies intensifying competition for the EUV machines, seen as essential to produce microchips, or below the 10 nm process node.

The Dutch company is the world’s only maker of EUV machines that use lithography technology to draw elaborate and detailed patterns on semiconductor wafers. It can produce only about 40 units a year which cost around $150 million apiece.

ASML's orders yet to be delivered for the scanners stand at €17.5 billion, its largest-ever amount. That means an order to be placed this year will be delivered in 2026 at its earliest, said a semiconductor equipment company source.

According to ASML's first-half results, the proportion of the US doubled to 6% of its second-quarter sales at €174 million, compared with 3% at €93 million three months before. By contrast, both South Korea and Taiwan lost their shares to 39% and 36% respectively, versus 44% and 43% in the first quarter of this year.

Meanwhile, South Korea's presidential Blue House and the ruling party are considering a pardon for Samsung Electronics Vice Chairman and de-facto leader Jay Y. Lee on the occasion of the Aug. 15 Liberation Day. Lee has been in prison on charges of bribery and embezzlement and is scheduled to be released in July of next year.

Write to Jeong-soo Hwang and Shin-young Park at hjs@hankyung.com

Yeonhee Kim edited this article.

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