[Kim Pyeonghwa's Peace and Chips] Samsung Chasing TSMC... Ultimately, the Stepping Stone Is the 'Super-gap' DNA

Global Semiconductor Market 3Q No.1 TSMC Outlook
Foundry Industry Less Affected by Market and Economic Conditions
Samsung's Weapon to Reclaim Lost Crown Is 'Super Gap'

Editor's NoteSemiconductors. We hear about them every day, but when it comes to explaining the concept, it's hard to find the words. Called the rice of modern industry, it's something you shouldn't be ignorant of, yet articles and books about semiconductors are so difficult that people tend to avoid them. But did you know that semiconductors are actually quite fascinating? Even a single semiconductor component hides the mechanisms of the entire industry and the interests of nations. Peace and Chips will spoon-feed you the hidden contexts and meanings of the somewhat uncomfortable semiconductor field. Just place your spoon and enjoy.

[Asia Economy Reporter Kim Pyeonghwa] Taiwan's TSMC released its Q3 earnings last week. TSMC's Q3 revenue increased by 48% year-on-year to 613.1 billion Taiwan dollars (approximately 27 trillion KRW). On the other hand, Samsung Electronics' estimated Q3 semiconductor revenue is expected to be in the 24 to 25 trillion KRW range, down from 26 trillion KRW in the same period last year. Samsung Electronics, which had maintained the number one position in the global semiconductor market by revenue, is now passing the crown to TSMC.

The fortunes of the two companies diverged in the 'foundry' sector. A foundry manufactures semiconductors based on orders. Companies that design semiconductors (fabless companies) provide their designs to foundry companies, which then manufacture the semiconductors accordingly. Since production is based on long-term contracts, foundries are less affected by market conditions or economic cycles. This is why TSMC, the world's number one foundry, posted record earnings despite the semiconductor market experiencing a harsh downturn. The increasing demand for high value-added advanced system (non-memory) semiconductor production is also a boon for the foundry industry.

Conversely, memory semiconductors, Samsung Electronics' main business, are sensitive to economic conditions. Major players, including Samsung, reduce costs by mass-producing standardized small varieties of memory semiconductors. Since they supply already manufactured products to the market, if demand does not materialize as expected, inventory accumulates and product prices fall, causing business difficulties. One might wonder why production isn't simply reduced in such cases, but due to the nature of semiconductor factories operating 24/7, artificially halting production can actually increase losses, making it a difficult option to take.

The market expects difficulties in the semiconductor industry centered on memory to continue into next year. Inflation, demand slowdown, and the Russia-Ukraine war are among several adverse factors converging, leading to the memory market effectively halting growth next year. This is why there are talks that Samsung Electronics may continue to experience poor performance until next year, allowing TSMC's lead to persist. Consequently, there are increasing calls for Samsung Electronics to also expand its foundry business.

Samsung Electronics, the world's second-largest foundry operator (17%) after TSMC (53%), plans to increase its revenue by leveraging its semiconductor DNA of 'super-gap.' It has announced plans to introduce 1.4-nanometer (nm, one billionth of a meter) process technology to its foundry by 2027 and increase production capacity of advanced processes by more than 30%. The 1.4 nm process is a dream technology that even TSMC has not announced mass production plans for. However, Samsung faces more challenges than TSMC in terms of manpower, design assets (IP), and packaging, and yield (good product ratio) improvement is also a task. For Samsung Electronics, the foundry business is difficult but a path that must be taken.