[Chip Talk] Samsung's Dilemma Seen Through Intel Foundry Spin-Off

A Bold Move Amid Massive Investment Costs and Technology Gaps
Likely to Choose IPO or Additional Fundraising

Samsung Electronics, the World's Only IDM
If Intel's Spin-off Succeeds, Samsung's Strategy May Change

Intel, facing its worst crisis in 56 years since its founding, has made a bold move by deciding to spin off its foundry (semiconductor contract manufacturing) business. Although the foundry was chosen as a core business to regain semiconductor dominance, the company has resorted to this strategy to overcome the crisis after being hampered by massive investment costs and technological gaps. There remain lingering doubts about whether Intel can regain competitiveness in the long term. However, the changes in Intel's foundry business are expected to cause significant ripples in the global semiconductor industry. Samsung Electronics, which has long been urged to spin off its foundry business to secure independence and strengthen competitiveness, is also likely to closely observe Intel's decision. As the only integrated device manufacturer (IDM), Samsung Electronics is now at a point where it must deeply consider whether it can respond agilely to the increasingly complex semiconductor industry.

According to industry sources on the 21st, Intel recently announced a restructuring plan to separate its foundry business into an independent subsidiary. While some speculated that Intel might sell off its foundry business, the company decided on a spin-off instead. Pat Gelsinger, Intel's CEO, explained, "Expanding the separation between the two divisions will allow the manufacturing sector to independently raise funds and alleviate customer concerns about independence."

[Image source=Reuters Yonhap News]

Since becoming CEO in 2021, Gelsinger declared a full-scale re-entry into the foundry business and invested $25 billion (approximately 33 trillion KRW) over two years. He expressed ambitions to reach the ultra-fine 1-2 nanometer (nm; 1 nm = one-billionth of a meter) process node faster than industry leader TSMC and second-ranked Samsung Electronics, pouring in substantial investment funds.

However, the technological gap was too large to catch up with the leading companies, and Intel faced difficulties securing key customers beyond its own volume, leading to a crisis. Intel's cumulative losses reached $5.3 billion (over 7 trillion KRW) by the first half of this year. Following an earnings shock, Intel reduced its workforce to downsize, partially sold its stake in programmable semiconductors (FPGA: field-programmable gate arrays), and announced this foundry spin-off as part of its restructuring plan to lay the groundwork for a new phase.

Within the industry, the possibility of Intel selling its foundry division continues to be raised when considering Intel's competitiveness in leading-edge process manufacturing. Intel's most advanced process is currently known to be at the 7-nanometer level. Intel's previous withdrawal from the foundry business two years after entering in 2016 was also due to difficulties improving 7-nanometer yield. At the time of declaring its foundry re-entry, Intel had already outsourced manufacturing of high-performance chips to Taiwan's TSMC.

Some have pointed out that Intel's spin-off resembles AMD's case. AMD also had a semiconductor manufacturing (fab) division but spun it off in 2009 due to severe losses. Subsequently, GF's (GlobalFoundries) stake held by AMD gradually decreased until the UAE sovereign wealth fund Mubadala Investment Company acquired 100% ownership of GF, completely severing ties.

[Image source=Reuters Yonhap News]

However, Intel has shown determination not to give up on its foundry business. In an August conference call, CEO Gelsinger said, "Many new factories and new process technologies will be operational in 2026, and 2027 could be a good year," adding, "We will continue operational improvements such as cost reductions next year to increase profitability."

Above all, the U.S. government's protective stance toward domestic companies with advanced chip manufacturing capabilities for national security reasons dispels the possibility of a sale. The U.S. government has agreed to provide a total of $20 billion (approximately 26.64 trillion KRW) in subsidies and loans as support for the Arizona plant. Additionally, the U.S. Department of Defense has entrusted Intel with military semiconductor development and production projects, promising up to $3 billion (approximately 3.9 trillion KRW) in additional support.

Therefore, Intel is expected to choose options such as an IPO (initial public offering) or additional investment attraction at some point. An industry insider analyzed, "Even if Intel had sold its foundry business under the current circumstances, there would have been no suitable buyers. Considering the massive investment costs, unless the business is refined and sold or new investors are brought in after listing, the chances of recovery are uncertain."

Concerns are also growing about Samsung Electronics, which will continue as the world's only IDM. IDM refers to companies capable of independently performing all semiconductor production processes, including design, testing, manufacturing, and post-processing. Samsung Electronics, which operates three separate divisions?memory, foundry, and system LSI?is considered a representative IDM. Samsung pursues a 'turnkey strategy' that performs all processes from memory and foundry to advanced packaging as a differentiation strategy from competitors.

However, Samsung currently invests 15 to 20 trillion KRW annually in foundry facilities using profits from its memory business. This is not sustainable and is said to negatively affect the competitiveness of its existing memory division. Samsung's foundry division continues to operate at a loss. It is estimated that Samsung's foundry division posted an operating loss of about 2 trillion KRW last year and incurred over 1 trillion KRW in operating losses in the first half of this year.

Another industry insider said, "Evaluations of Samsung's foundry will vary depending on Intel's spin-off results. Under current circumstances, Samsung is unlikely to spin off its foundry business because it would be difficult to survive independently. However, if Intel succeeds in resuscitation through large-scale investment, Samsung will need to reconsider its foundry strategy."

For the time being, Taiwan's TSMC is expected to continue its dominance in the global foundry market. According to the global market research firm TrendForce's recent report on the top 10 global foundry companies, TSMC's market share in the second quarter of this year was 62.3%, up 0.6 percentage points from 61.7% in the first quarter. Samsung Electronics' share also increased from 11.0% in the first quarter to 11.5% in the second quarter, but the gap with TSMC widened slightly from 50.7 percentage points to 50.8 percentage points.

Meanwhile, the annual growth rate of the foundry market is estimated to reach 20% next year. Market research firm TrendForce analyzed, "Due to weak demand for consumer products, component manufacturers are adopting conservative inventory strategies, and the average foundry utilization rate is expected to fall below 80% this year. Factors such as increased wafer consumption per unit driven by edge AI and the continuous expansion of cloud AI infrastructure will drive foundry market growth next year."