“We’ll retake the world’s No.1 spot within the subsequent two to a few years,” mentioned Kyung Kye-hyun, the CEO and head of Samsung’s System Answer (DS) Division, the tech big’s semiconductor division, in his speech through the firm’s annual shareholder’s assembly this month.
Within the Q&A session that adopted, Kyung was compelled to fend off barbed questions from shareholders, the vast majority of them aimed on the chip division, with responses, in so many phrases, that boiled right down to “we’re going to do higher, we are going to do higher.” The time allotted to such a session was the longest in latest reminiscence, exhibiting Samsung’s dedication and anxiousness over the way forward for its chip division. Executives of Samsung’s different half, the System Expertise (DX) Division, its shopper electronics division accountable for smartphones and TVs, barely acquired any questions by comparability.
For the previous decade, it has been uncommon for any Samsung enterprise unit to state in any other case than to reaffirm their already prime place, as a frontrunner in smartphones, shopper electronics, and reminiscence chips. When it did occur, as with Intel and Apple, the place Samsung would concede the highest spot and grow to be ‘No.2’ primarily based on income from market figures, it could keep reticent.
So what’s occurring? And why two to a few years as an alternative of placing a pin on it?
It was solely in 2017 when Samsung took excessive spot for the primary time, buoyed by unprecedented demand for reminiscence chips, from Intel, and there was a back-and-forth between them since then. Whereas Intel wasn’t thought of a direct competitor at these instances and going through its struggles within the cell house, it has lengthy been thought of the premier semiconductor firm for many years, some would argue it nonetheless is. So, it was extra of a symbolic win for Samsung, a fruits of its decades-long wrestle to grow to be a semiconductor big. An extended street from the 80s when it was certainly one of many reminiscence suppliers that have been dwarfed by giant Japanese conglomerates.
Sadly, this is not the case anymore.
‘No. 3′
In accordance with analyst agency Omdia, Samsung was ranked third when it comes to income within the international semiconductor market in 2023, ceding its prime spot of the prior 12 months. Intel took the highest spot with $51 billion, having been second in 2022. Samsung recorded $44 billion. Trailblazing Nvidia took second place to surpass Samsung with $49 billion with a year-on-year progress of 133%, having been eighth place in 2022.
As famous by Omdia, the semiconductor business noticed income down 9% from $597 billion to $544 billion, “highlighting the cyclical nature” of the market, the downturn notably affecting the foremost reminiscence makers.
The semiconductor market encompasses a various array of chips, which will be roughly categorized between reminiscence and logic (which takes a significantly bigger portion of the market), digital and analog. Corporations are additionally divided into fabless and people with fabs, the previous being corporations that do not have manufacturing amenities that solely design chips and the latter that may manufacture them. Samsung and Intel are what the business calls built-in system producers, or IDM, which do each. Corporations that solely manufacture like TSMC (which was absent in Omdia’s report but when included would have pushed Samsung’s rating additional down) are known as pure-play foundries, often known as contract chip producers.
Due to this, in contrast to finish merchandise comparable to smartphones, these corporations should not essentially simply rivals however are clients and companions with one another. Nonetheless, there’s intensifying competitors in segments of the market which is affecting Samsung, as an IDM, in all instructions.
Accordingly, the Samsung DS Division is split into three enterprise items: Reminiscence Enterprise, the division’s crown jewel and arguably your entire conglomerate’s, Samsung Foundry, which manufactures chips, and Samsung System LSI, which handles logic design. How these three enterprise items carry out of their respective segments in addition to collaborate will decide whether or not Samsung can put the ignominious “No. 3” behind it.
Reminiscence upcycle beginning
Reminiscence, comprised of the merchandise DRAM and NAND, is crucial for Samsung, the world’s largest reminiscence maker since 1993. Whereas the corporate at all times solely proclaims the earnings of the DS Division, the Reminiscence Enterprise is its most necessary unit accounting for the lion’s share of income and the overwhelming share in revenue for the division. The semiconductor market is cyclical, however this has been very true for reminiscence chips as they’re extra of a commodity than their logic counterparts.
Therefore Samsung CEO Kyung’s “two to a few years” because the reminiscence upcycle that began late final 12 months is but to go full swing and would be the key figuring out issue on whether or not Samsung will meet its acknowledged objective. The CEO mentioned that the income of the DS Division this 12 months will return to 2022 ranges. He additionally mentioned the semiconductor business as an entire was projected to earn a income of $630 billion, even bigger than in 2022.
Whereas the reminiscence market has at all times been cyclical, from 2017 to 2022, it appeared to have a dose of chaos concept from Covid, which prolonged the upcycle longer than normal with some analysts calling it a “bubble”, fueled by excessive demand from information facilities, shopper electronics, and stay-at-home developments on the time.
If it was a bubble, it burst in 2023, inflicting reminiscence makers to decrease manufacturing output for the primary time in 20 years (at the very least relating to after they have been confirmed to take action), a drastic measure for fabs that run 24/7 which have eye-watering high-fixed prices. For over a decade, the worldwide reminiscence market has been an efficient triopoly of Samsung, SK Hynix, and Micron (in NAND alone there’s extra competitors, nevertheless). Due to this, all three corporations have been cautious in readjusting their manufacturing output, little doubt within the hope of steadily returning the reminiscence costs to pre-2023 ranges.
As a result of the stakes are excessive, whereas Samsung, SK Hynix, and Micron not often straight talked about one another prior to now, there have been delicate jabs amongst one another through the downturn.
Final 12 months in March, SK Hynix boss on the time Park Jung-ho mentioned through the firm’s annual shareholder’s assembly that the reminiscence chip sector was caught in a “prisoner’s dilemma”. On the time, Samsung had but to scale back its manufacturing output, in contrast to the others. Park’s remark meant that the rational factor to do was for all three corporations to decrease the provision of DRAM to the market collectively in order that the downcycle might begin and finish sooner however one firm __ Samsung __ was appearing otherwise.
Earlier than this, when the reminiscence downcycle started in late 2022, Samsung additionally broke away with custom in December of that 12 months by straight referring to its newest DDR5 DRAM as 12-nanometer (nm). Corporations have grouped their DRAMs as 10nm class earlier than this, so Samsung’s transfer was designed to focus on that its DRAM was higher than its rivals extra so than earlier than.
Samsung would argue that it did not begin this battle of phrases and numbers. Earlier than the downturn, SK Hynix and Micron began advertising and marketing the variety of layers of their NAND. What number of cells are stacked in NAND chips is necessary, just like the nm in DRAM that displays the gate width, nevertheless it would not inform the total story and is generally a advertising and marketing time period in the present day. However its rivals’ advertising and marketing compelled Samsung to reiterate throughout a number of convention calls in 2022 that “layers aren’t necessary” and finally announce the layers of its personal newest NAND. Sources inside Samsung informed ZDNet that the corporate discovered your entire scenario “irksome and annoying”.
Nvidia and HBM
For these outdoors of South Korea, Samsung’s rivalry with SK Hynix could also be unfamiliar in comparison with its well-known one with LG. However the long-held notion of SK Hynix in South Korea has been much like LG, a perennial No.2 to Samsung in reminiscence chips.
Enter HBM, or excessive bandwidth reminiscence, which in accordance with analysis agency TrendForce, SK Hynix is at the moment the unique provider of HBM3E to Nvidia for his or her GPUs geared toward AI functions, with over 80% market share. Samsung is now going by way of qualifying checks for its HBM3E with Nvidia whereas Micron appears to have gotten the OK from the GPU maker for theirs.
HBM is a chip comprised of a number of DRAM dies stacked vertically related by way of microscopic wires known as through-silicon-vias (TSV). The excessive bandwidth offered by its namesake precipitated a surge in demand for them in 2023 regardless of the downturn from the AI storm.
Stacking as a know-how as an alternative of scaling to push the performances of varied chips over their limits began earnest within the 2010s because of the elevated issue of simply scaling chips. What’s unlucky for Samsung is that earlier than the 2020s, it was the chief in stacking and TSV. It led the best way in 3D NAND in opposition to its rivals. The South Korean tech big was the primary to introduce HBM2 to the market in 2015, although the demand for them wasn’t there on the time.
The reminiscence market is extremely conservative and the mass dissipation of recent kind elements is often a generational affair. The market efficiency of Intel’s Optane reminiscence is an effective instance. Most of this comes right down to financial feasibility for the reminiscence makers in addition to their clients and fewer with technological breakthroughs. New fabs or strains should not made except there are certain clients. That’s the reason the efficiency of SK Hynix’s HBM3 which launched in mid-2022 and was particularly designed for Nvidia’s H100 has been a shock of types. This proved that HBM is economically viable, therefore Samsung and Micron’s sudden readiness to spend billions in increasing their manufacturing capability for the chips. Final month, Samsung launched its 12-stack HBM3E, clearly aiming to tell apart it from SK Hynix and Micron’s 8-stack counterparts, considerably sarcastically.
SK Hynix appears to be having fun with its victory lap. Throughout its annual shareholder’s assembly this month, the South Korean reminiscence maker mentioned it anticipated HBM to take up double-digit parts of its general DRAM income. The corporate additionally burdened that HBM have to be “custom-made and specialised” for purchasers, which is true, nevertheless it was basically highlighting its relationship with Nvidia.
However Samsung has additionally introduced bullish plans for its HBM manufacturing output with one govt saying it plans to close triple its manufacturing output of the chips this 12 months. Nvidia CEO Jensen Huang confirmed through the unveiling of Blackwell this month that it was qualifying Samsung’s HBM, inflicting share costs of the South Korean tech big to leap 5% the subsequent day on the Korean bourse.
Whereas Samsung will closely depend on the general upcycle of the reminiscence market, gaining a degree taking part in discipline or surpassing SK Hynix relating to HBM within the coming years will little doubt decide whether or not it may well grow to be the highest vendor in semiconductors inside three years.
Apart from, SK Hynix additionally has an enormous drawback in NAND. Curiously absent throughout its annual shareholders’ assembly additionally held this month have been discussions over its acquisition of Intel’s NAND and SSD enterprise items for $9 billion, the primary section of two having been accomplished in 2021. A 12 months later, NAND costs started plummeting and they’re at the moment at lower than half the value of their peak. In different phrases, in hindsight, it was the worst potential timing. Sources acquainted with the matter mentioned these newly acquired enterprise items have been in a state of capital erosion and should find yourself costing SK Hynix extra to save lots of them than what it paid for.
“We’ll develop 1c DRAM, ninth-generation V-NAND, HBM4, and different superior chips with the utmost competence to steer the business once more,” Samsung CEO Kyung declared.
Foundry: TSMC dominates, Intel joins fray once more
Samsung Foundry is going through a extra uphill battle. Final 12 months, the foundry business usually was arduous hit by the financial slowdown as demand for smartphones, shopper electronics, and automobiles dropped. This meant orders for processors, microcontroller items, picture sensors, and different chips, principally made with legacy nodes, utilized in them additionally dropped. Returning its fab operation charges to 2 years prior might be Samsung Foundry’s precedence this 12 months.
When it comes to superior nodes, whereas Samsung Foundry was the primary to introduce a 3nm course of node to the market in 2022, South Korean analysts consider that the enterprise unit has been within the purple for consecutive quarters, being unable to achieve giant clients for the node on account of alleged low yield charge.
However to clarify away the foundry, or contract chip manufacturing, market when it comes to simply course of nodes __ that are necessary __ is a gross oversimplification.
TSMC, or Taiwan Semiconductor Manufacturing Firm, the world’s largest foundry, appears indomitable on the present time. In accordance with TrendForce, as of the fourth quarter of final 12 months, the corporate held a 61.2% market share in foundry, with Samsung trailing behind with 11.3%. GlobalFoundries and UMC every took third and fourth locations with shares of 5.8% and 5.4%. SMIC was fifth with 5.2%.
The success of TSMC, based in 1987 which counts Apple, Nvidia, and Qualcomm as its clients, has many layers however the major cause might be the fostering of its ecosystem. Contract chip manufacturing has over time developed into a complete worth chain of its personal. Main clients’ chip design grew to become extra difficult whereas the variety of chip startups that lacked experience additionally elevated, which elevated the necessity for effectivity and nearer collaboration with the purchasers on TSMC’s half.
The chip big was the primary to ally with design home companions, often called chipless corporations which act as matchmakers between TSMC and its fabless clients that supply design work for the client. These alliances are divided into tiers, with Worth Chain Aggregators (VCA) TSMC’s being the closest companions that not solely design chips however conduct gross sales exercise on its behalf, offering incentives for these subcontractors. TSMC additionally gives the rights over its IPs to VCA and lower-tier companions as clients need to use present and confirmed chip IPs to extend manufacturing effectivity.
International Unichip Company (GUC) is its most well-known VCA, based in 1998 and purchased by TSMC in 2003. Identified for its superior SoC design, GUC can deal with preliminary engineering for purchasers or your entire design-production course of in turn-key for purchasers.
Samsung launched its related alliance known as Samsung Superior Foundry Ecosystem (SAFE) in 2018 and has begun extensively sharing its IPs with its design home companions. Nonetheless, this ecosystem continues to be in its infancy in comparison with TSMC’s and when it comes to the variety of IPs is drastically behind.
One other a part of the worth chain that the Taiwanese big is arguably forward of is packaging __ the place the chip die is encased in a container that enables it to attach with the motherboards of gadgets. Packaging, together with assembling and testing, is what is named a back-end course of in chip manufacturing. The front-end is the place a silicon wafer goes by way of varied steps from lithography to chemical processes to grow to be chip dies on the wafer.
When chip scaling was the first objective prior to now, the frond-end of chip manufacturing was thought of the extra necessary half. Nonetheless, as a result of the semiconductor business is reaching the boundaries of scaling, superior packaging has risen in significance as an inexpensive technique to enhance the efficiency of chips. Foundries earlier than TSMC additionally principally outsourced their packaging work, however the Taiwanese chip big was the primary to supply it to clients to extend their comfort.
The logic, reminiscence, and different components are packaged in “2.5D” __ in impact, bundling extra chips carefully collectively on an interposer to extend information switch pace between one another to forestall bottlenecks. As a pure-play foundry that persistently offers with main clients comparable to Apple and Nvidia, TSMC is a frontrunner in these 2.5D packages and 3D bundle applied sciences which can be being developed. Samsung has begun taking part in catch up by forming its superior packaging staff, which CEO Kyung mentioned is anticipated to contribute $100 million in income this 12 months. This section is just anticipated to develop as AI inference requires increasingly more bandwidth, so packaging chips carefully is a should.
A decade in the past, Samsung had an opportunity to slender its hole with TSMC extra aggressively. Within the 2010s, Apple gave the vast majority of the manufacturing work for its A sequence of processors to Samsung, which was already a provider of different parts comparable to shows and reminiscence to the iPhone maker. The South Korean tech big’s foundry enterprise had two main clients at this level that would journey excessive on the fast-expanding smartphone market: Apple and its personal logic enterprise. This modified when the well-known Apple and Samsung patent lawsuits started in 2011.
Steadily, the South Korean tech big misplaced orders from Apple to TSMC, nevertheless it was in a position to surpass then-second-place GlobalFoundries due to the manufacture of its personal Exynos processors utilized in Galaxy smartphones. Samsung claimed that there was a “nice wall” between its chip and smartphone enterprise items to assuage Apple however to no avail.
In response to buyer considerations, Samsung Foundry cut up off from Samsung System LSI in 2017. However Samsung Foundry’s fortunes did not enhance a lot since then, as Samsung System LSI’s Exynos processors, that are manufactured by Samsung Foundry, didn’t grow to be a constant rival to Qualcomm’s Snapdragon processors, which Samsung Foundry and TSMC manufacture. “We do not compete with our clients,” is an usually repeated chorus from TSMC, one thing Samsung cannot say in its present construction.
Final month, Intel introduced that it had $15 billion price of foundry orders and Microsoft as its newest buyer. That is an unimaginable improvement in its personal proper, because the US chip big solely reentered the foundry market in 2021 after Covid, safety, and the next provide chain points precipitated governments internationally to undertake insurance policies to extend home chip manufacturing. The corporate additionally confirmed that it could be a beneficiary of the US CHIPS Act. Intel intends to grow to be the world’s second-largest foundry by 2030. Discover the way it did not say the biggest foundry.
Realistically, Samsung Foundry’s objective might be to stave off competitors from Intel whereas sustaining its runner-up place. CEO Kyung appeared keenly conscious of this as he mentioned narrowing its hole with the market chief __ TSMC __ was one of many challenges it needed to resolve whereas making the enterprise “sustainable”, or in different phrases, fostering its personal ecosystem. It’s also increasing comfort for purchasers by way of partnerships with Arm in Cortex-X.
The excellent news is that the worldwide foundry market is projected to double in dimension within the subsequent decade. In accordance with Allied Market Analysis, it was valued at $106.9 billion in 2022 and is anticipated to succeed in $231.5 billion by 2032. There simply is perhaps sufficient for everyone. Samsung Foundry and Intel’s competitors can be excellent news for purchasers. Extra distributors imply extra aggressive costs and choices. So long as the provision is secure, the first concern of consumers.
On Intel’s point out of a 1.4nm course of node in improvement, Siyoung Choi, the president and common supervisor of Samsung Foundry, additionally on the assembly, mentioned the node was additionally deliberate by TSMC and Samsung, underplaying its significance. Choi additionally added that in comparison with Intel, the South Korean tech big had a foundry discipline report of creating and supplying a extra various vary of merchandise comparable to CPUs, cell utility processors, SoCs, and GPUs. Samsung Foundry, like TSMC, additionally affords extra manufacturing capability in legacy nodes for much less refined chips.
“The operation charge [of our fabs] is bettering in comparison with final 12 months and we count on a significant restoration within the second half of the 12 months,” the overall supervisor mentioned. “We’re getting ready to mass produce 2nm course of nodes subsequent 12 months and are conducting particular discussions centered round US clients.”
Logic: Past smartphones
Logic chip is a time period that encompasses all kinds of chips from essentially the most superior CPU to the only controller unit. Likewise, Samsung System LSI additionally affords many chips for various functions.
Key amongst them are the picture sensor, which powers the digital camera, and the show driver IC, or DDI, which is utilized in show panels. Samsung CEO Kyung made a degree through the assembly to say it earns 1.5 trillion received in income yearly from DDI, as it’s the market chief, as Samsung Show makes use of them for OLED panels. Samsung can be the second-largest picture sensor maker on the earth after Sony, which gives them for iPhones. Samsung additionally has its well-known SoC model, Exynos.
All three merchandise, in essence, grew on the again of the smartphone market. Extra particularly, Samsung’s personal Galaxy model. For Samsung System LSI, then, the objective is to take care of its competence within the smartphone market, which has slowed down in progress however isn’t going wherever, whereas discovering a brand new growth-generating product class.
AI, comparable to synthetic generative intelligence (AGI), might be certainly one of them. Samsung introduced its personal AI accelerator known as Mach 1 through the assembly. The corporate claimed that the chip can be utilized with present reminiscence whereas lowering the bottleneck with the GPU by one-eighth of the present degree. Programs that use the chip will launch subsequent 12 months. Nonetheless, you will need to observe that different main tech corporations are additionally engaged on or have their very own AI chips: AMD, Intel, Amazon, IBM, and Google amongst them.
Kyung additionally mentioned one thing attention-grabbing through the assembly. “In SoC, we are going to make it a significant enterprise in 5 to 10 years.” The date vary is huge, so his assertion interprets to: “We positively need to do one thing with SoCs, now we have a common thought, however we aren’t certain but.”
That is doubtless as a result of the potential for SoC to evolve is big. However the applied sciences aren’t there but.
The event of SoCs in smartphones within the 2010s is an effective instance. SoC, or system on a chip, is a single die (the half that’s diced out of the wafer) that accommodates quite a lot of features together with digital, analog, mixed-signal, RF modem, and others. It really works finest when the corporate has competence in all these. Qualcomm’s Snapdragon dominated smartphones as a result of it built-in the modem, which it had its proprietary know-how for.
Chipmakers proceed to attempt to pack extra features on a SoC. This has been extremely troublesome, therefore most {hardware} accelerators comparable to AI, neural processing, and graphic processing are interconnected with the SoC die on the packaging degree as an alternative. As a result of packaging know-how has advanced a lot, corporations like TSMC have been in a position to drastically enhance the bandwidth.
Intel and AMD’s resolution to this has been the chiplet, a comprise of types however nonetheless modern. In a chiplet, the SoC die is separated into a number of dies in accordance with totally different features. So the overall efficiency of the system continues to be upgraded in an economically possible matter. Analysis now could be targeted on bonding these dies extra carefully collectively earlier than packaging, or hybrid bonding, an space Samsung just like the others is engaged on. Regardless of these developments, the trouble to pack extra features on a single SoC die will proceed as this form of integration, if it may be completed cost-effectively, continues to be essentially the most advantageous.
New system options for a brand new period
The half that reminiscence performs in these chip packages has solely grown, as proven within the instance of HBM. Samsung can be engaged on what it calls processor in reminiscence, or PIM, the place some features of the processor are embedded within the reminiscence unit itself, once more for bandwidth. Compute Specific Hyperlink can be one other with related goals for information facilities.
These sorts of tasks imply the reminiscence, logic, and foundry components must work carefully collectively. That is why Samsung’s chip division being an IDM might work in its favor.
Samsung Foundry reportedly received the order from Tesla to fabricate their self-driving chip. Whereas it’s true that Samsung is a competitor to lots of its clients, there are additionally giant corporations that aren’t. Some opponents are arguably much less involved with defending their proprietary applied sciences relating to chips than others (Google, for instance).
Apart from Tesla, the automotive business can be presenting new alternatives. In accordance with Omdia, the automotive sector of the semiconductor market grew 15% in 2023 from a 12 months earlier to $75 million. The rise in electrical autos and integration of intelligence into cars are driving up the demand for semiconductors, the analysis agency famous. Samsung additionally occurs to make the show panels and batteries utilized in these autos.
Like AI, the thought of related automobiles has been floating round for years. However the success of ChatGPT, versus AlphaGo, reveals that market situations are quickly altering and any of those ideas can rapidly grow to be a actuality in the present day. Nvidia’s success can be an amazing instance. Earlier than its surge from 2022 to 2023, the GPU maker additionally noticed a growth in demand from cryptocurrency.
The semiconductor business ran on product cycles through the PC period and in smartphones. This meant that “first to market” was a precedence for chip suppliers like Samsung. And most chips, even logic, have been general-purpose chips, reasonably than being custom-made. Why the semiconductor market will proceed to run on cycles, in the present day it seems to be extra unstable than ever earlier than.
“Accelerated computing has reached the tipping level, common objective computing has run out of steam,” Nvidia CEO Jensen Huang mentioned through the unveiling of Blackwell. “We’d like one other manner of doing computing, in order that we are able to proceed to scale in order that we are able to proceed to drive down the price of computing, in order that we are able to proceed to eat increasingly more computing whereas being sustainable. Accelerated computing is a dramatic speedup over general-purpose computing, in each single business.”
Reminiscence alone is perhaps sufficient for Samsung to retake the No.1 place within the brief time period. “We can’t keep the No.1 place with exiting companies alone,” Samsung CEO Kyung admitted.
The system in System Options refers to semiconductor gadgets comparable to transistors. It additionally refers to gadgets comparable to smartphones that use them, which Samsung’s chip division, by its title, is propositioning that it’s going to present the options for. Whereas being the primary to market is necessary, this has principally been the mindset of the Reminiscence Enterprise. Arising with chip options that leverage its mixed power could also be wanted if it needs to not solely take the highest spot however maintain it.