[Chip Talk] Samsung Starts US 4nm Foundry... Catching Both Customers and Yield, Chasing TSMC

Samsung, TSMC, and Intel in Fierce Three-Way Battle
Aligning Technology, Yield, and Customers in Harmony

As Samsung Electronics secures its first customer for the Texas Taylor plant in the United States, analysts predict that the company's foundry (semiconductor contract manufacturing) business growth momentum will significantly strengthen. The customer is the AI semiconductor fabless (design) company 'Groq'. Samsung manufactures semiconductors using the 4-nanometer (nm; 1 nm = one billionth of a meter) process (SF4X) and supplies them to Groq. It is evaluated that Samsung has begun to show remarkable results in improving yield (the ratio of good products), which is essential for increasing market share in the foundry market, as well as securing customers.

On the 15th (local time), Groq announced that it will produce next-generation semiconductors using the SF4X process at Samsung's Taylor plant. Groq is the first fabless company to officially announce semiconductor mass production at the Samsung Taylor plant. Given that the contract is with a U.S. fabless company and an AI semiconductor firm, Samsung's achievement is considered significant. The industry interprets Groq's order announcement as evidence that Samsung Electronics has laid the groundwork to catch up with the leading company TSMC by advancing and stabilizing semiconductor fine processes below 5 nanometers. Marco Chisari, Vice President and Head of Samsung Electronics Semiconductor Innovation Center, said, "Samsung Foundry will advance semiconductor technology and launch groundbreaking AI, HPC (high-performance computing), and data center solutions to the market," adding, "Collaboration with Groq will be proof that Samsung Foundry contributes to new AI innovations."

Samsung Electronics Chairman Lee Jae-yong visited the Samsung Electronics Cheonan Campus on February 17 to tour the package line and review business strategies. [Photo by Samsung Electronics]

In the industry, when evaluating foundry companies' performance, great importance is placed on announcements of fine process (technology), yield estimates, and customer order news. Yield estimates alone are insufficient; news related to customers must be conveyed. Since yield is company confidential information, it is generally estimated indirectly through securities analysts' estimates. Until the first half of last year, there were unconfirmed rumors that Samsung Electronics' 4-nanometer yield was in the 20% range, but recent securities analysis reports indicate it has increased to 75%.

Orders from customers for semiconductors below 5 nanometers are also increasing. In automotive semiconductors, Samsung secured orders for Mobileye (an Intel autonomous driving technology subsidiary) and Ambarella chips. In AI semiconductors, Samsung secured Groq. Groq is a startup. Samsung Electronics initially pursued a strategy of securing orders from large fabless companies such as Nvidia, Qualcomm, Siemens, and Tesla but has revised its strategy to increase startup customers as well. The strategy is to collaborate with excellent fabless customers regardless of company size.

It is no exaggeration to say that Samsung Group's fate is tied to the foundry business. After Chairman Lee Jae-yong announced a 133 trillion won investment in system semiconductors (non-memory semiconductors) in 2019, Samsung Electronics has been breaking records for the largest annual research and development (R&D) investment every year. Although the DS (semiconductor) division posted a loss of 8.94 trillion won in the first half of this year, it spent 23.2 trillion won on R&D. Samsung Electronics poured 92% of its total R&D investment of 25.3 trillion won into semiconductors. To secure additional investment funds, it recently sold shares of the Dutch semiconductor equipment company ASML, converting about 3 trillion won into cash. This indicates the urgency of the situation. According to market research firm Omdia, the foundry market is expected to grow from $120.2 billion (approximately 161 trillion won) this year to $187.9 billion (approximately 252 trillion won) by 2026.

The semiconductor sector has emerged as a core area of 'economic security' following U.S. regulations on China's Huawei, evolving into a national rivalry. Foundry is no exception. Samsung Electronics has been operating its foundry division since 2017. Although it rose to second place in less than a decade, it has not been able to narrow the gap with the top company TSMC. As of the first quarter, Samsung Electronics' market share is 12.4%, trailing 47.7 percentage points behind TSMC's 60.1%. The gap widened by more than 10 percentage points compared to 37.3 percentage points in the first quarter of last year. Not only is TSMC a tough competitor, but Samsung also has to contend with Intel, the world's largest CPU (central processing unit) company. Intel announced at the end of June that it is operating a foundry division (IFS).

The competition in fine process technology among the 'Big 3' companies?Samsung Electronics, TSMC, and Intel?is fierce. According to the Big 3's plans, all three companies will have mass production systems for 2-nanometer semiconductors by 2025. Samsung's proprietary GAA (Gate-All-Around) process will also be in TSMC's hands by 2025. Although Samsung Electronics announced 3-nanometer mass production about half a year earlier than TSMC, it has not been able to narrow the market share gap. This means that technological superiority is useless unless it leads to improved yield, increased orders, and the establishment of fabless cooperation systems. Samsung Electronics wrote in its semiannual report, "The second-generation 4-nanometer products are in mass production based on stable yield, and it is expected to achieve the goal of mass production for the third-generation products in the fourth quarter."