[Insight & Opinion] Will Samsung's Stock Soar with 3nm Mass Production?

The stock market slump continues. The weakness of Samsung Electronics, a representative investment stock of Donghak Ants, also plays a part.

Thinking about the future: autonomous driving, metaverse, robotics, supercomputers, and more. Semiconductors are essential in all these technological fields. The Philadelphia Semiconductor Index, which indexes the stock prices of semiconductor-related companies, has declined throughout this year. The Philadelphia Semiconductor Index dropped from its peak of 4068.15 in January 2022 to 2458.46 as of the 1st of this month (local time). The decline rate is higher than that of the U.S. stock indices, raising concerns that this might be a precursor to an economic recession.

On the 30th of last month, Samsung Electronics announced that it had started mass production of semiconductors using the 3-nanometer (nm, one billionth of a meter) process, surpassing Taiwan's TSMC. Samsung's world-first mass production of 3nm semiconductors applying GAA (Gate-All-Around) technology is historically significant. It is the first in the world to start mass production faster than its semiconductor foundry competitor, Taiwan's TSMC. TSMC is expected to begin mass production of its 3nm process in the second half of this year. This is why Samsung's foundry competitiveness is considered to have advanced to the next level, and Samsung's pride has certainly increased.

With the application of finer processes, the thickness of the light source becomes thinner, allowing the width between transistors to be reduced. As a result, the performance and power efficiency of semiconductors improve. Currently, Samsung Electronics and TSMC are the only companies capable of mass-producing semiconductors below 10nm. Both companies have been primarily mass-producing 5nm process semiconductors. According to the announcement, Samsung's introduction of the 3nm process improves power efficiency by 45% and performance by 23% compared to the existing 5nm process. The surface area is 16% smaller. In the future, with the second-generation 3nm process, power consumption and size are expected to be reduced by 50% and 35%, respectively, while performance could increase by 30%.

Nevertheless, the stock market's reaction was lukewarm, and Samsung Electronics' stock price actually fell on the day of the announcement. Why did the market fail to cheer despite Samsung's mass production announcement?

First, it seems the market hopes Samsung will demonstrate that its 3nm process is more cost-efficient than TSMC's new 3nm process. The market wants clear proof that Samsung can compete with the market leader, TSMC. If Samsung's mass production cannot counter TSMC's market share, it might be considered meaningless.

The market appears to applaud Samsung only if its 3nm process clearly holds a comparative advantage over TSMC's process. From Samsung Electronics' perspective, securing customers is crucial. In the market, customer acceptance is as important as mass production. Apple and Intel are strengthening cooperation with TSMC, so Samsung must actively partner with competitors Qualcomm and AMD.

So far, Qualcomm has thought that Samsung Electronics' 4nm yield (the ratio of defect-free qualified products) did not meet expectations. To ensure sufficient semiconductor supply, a supply chain diversification strategy purchasing semiconductors from multiple foundry partners remains valid. Personal Consumption Expenditure (PCE) in the U.S. is decreasing.

Given the increasing inventory ratio of products relative to total sales, it might be difficult to say that the day Samsung Electronics' stock will soar is imminent. Still, what must go, will go.

Jo Won-kyung, Special Industry-Academic Cooperation Professor, UNIST