Samsung’s chip division desires the highest spot again: What’s occurring?

“We are going to retake the world’s No.1 spot within the subsequent two to a few years,” stated Kyung Kye-hyun, the CEO and head of Samsung’s System Answer (DS) Division, the tech big’s semiconductor division, in his speech in the course of 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 current reminiscence, displaying 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 liable 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 high place, as a pacesetter 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 turn out to be ‘No.2’ primarily based on income from market figures, it might keep reticent.

So what’s occurring? And why two to a few years as a substitute 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-about a direct competitor at these instances and going through its struggles within the cell area, it has lengthy been thought-about the premier semiconductor firm for many years, some would argue it nonetheless is. So, it was extra of a symbolic win for Samsung, a end result of its decades-long wrestle to turn out to be a semiconductor big. A protracted street from the 80s when it was one in all many reminiscence suppliers that had 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 high spot of the prior yr. 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 development of 133%, having been eighth place in 2022.

As famous by Omdia, the semiconductor trade 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 firms that do not have manufacturing amenities that solely design chips and the latter that may manufacture them. Samsung and Intel are what the trade calls built-in gadget 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, also referred to as contract chip producers.

Due to this, not like finish merchandise comparable to smartphones, these firms usually are not essentially simply rivals however are prospects and companions with one another. Nevertheless, 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 the complete 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 all the time solely proclaims the earnings of the DS Division, the Reminiscence Enterprise is its most essential 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 yr is but to go full swing and would be the key figuring out issue on whether or not Samsung will meet its said objective. The CEO stated that the income of the DS Division this yr will return to 2022 ranges. He additionally stated the semiconductor trade as an entire was projected to earn a income of $630 billion, even bigger than in 2022. 

Whereas the reminiscence market has all the time been cyclical, from 2017 to 2022, it appeared to have a dose of chaos principle from Covid, which prolonged the upcycle longer than common with some analysts calling it a “bubble”, fueled by excessive demand from knowledge 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 (not less than on the subject of after they had 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 firms have been cautious in readjusting their manufacturing output, little question 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 immediately talked about one another prior to now, there have been refined jabs amongst one another in the course of the downturn.

Final yr in March, SK Hynix boss on the time Park Jung-ho stated in the course of 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, not like the others. Park’s remark meant that the rational factor to do was for all three firms to decrease the availability of DRAM to the market collectively in order that the downcycle might begin and finish quicker however one firm __ Samsung __ was performing in another way.

Earlier than this, when the reminiscence downcycle started in late 2022, Samsung additionally broke away with custom in December of that yr by immediately 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 spotlight 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 the variety of layers of their NAND. What number of cells are stacked in NAND chips is essential, just like the nm in DRAM that displays the gate width, but it surely would not inform the complete story and is usually a advertising time period immediately. However its rivals’ advertising compelled Samsung to reiterate throughout a number of convention calls in 2022 that “layers aren’t essential” and ultimately announce the layers of its personal newest NAND. Sources inside Samsung advised ZDNet that the corporate discovered the complete 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 purposes, with over 80% market share. Samsung is now going via 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 via microscopic wires known as through-silicon-vias (TSV). The excessive bandwidth offered by its namesake brought about a surge in demand for them in 2023 regardless of the downturn from the AI storm.

Stacking as a expertise as a substitute of scaling to push the performances of assorted chips over their limits began earnest within the 2010s as a result of 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 towards 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 normally a generational affair. The market efficiency of Intel’s Optane reminiscence is an efficient instance. Most of this comes right down to financial feasibility for the reminiscence makers in addition to their prospects and fewer with technological breakthroughs. New fabs or traces usually are not made except there are positive prospects. 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 kinds. 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 differentiate 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 stated it anticipated HBM to take up double-digit parts of its general DRAM income. The corporate additionally careworn that HBM have to be “personalized and specialised” for purchasers, which is true, but it surely was primarily 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 yr. Nvidia CEO Jensen Huang confirmed in the course of 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 following day on the Korean bourse.

Whereas Samsung will closely depend on the general upcycle of the reminiscence market, gaining a stage enjoying subject or surpassing SK Hynix on the subject of HBM within the coming years will little question decide whether or not it could turn out to be the highest vendor in semiconductors inside three years.

Moreover, SK Hynix additionally has an enormous drawback in NAND. Curiously absent throughout its annual shareholders’ assembly additionally held this month had 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 yr later, NAND costs started plummeting and they’re at the moment at lower than half the worth of their peak. In different phrases, in hindsight, it was the worst attainable timing. Sources conversant in the matter stated these newly acquired enterprise items had been in a state of capital erosion and should find yourself costing SK Hynix extra to avoid wasting them than what it paid for.

“We are going to develop 1c DRAM, ninth-generation V-NAND, HBM4, and different superior chips with the utmost competence to steer the trade once more,” Samsung CEO Kyung declared.

Foundry: TSMC dominates, Intel joins fray once more

Samsung Foundry is going through a extra uphill battle. Final yr, the foundry trade normally was laborious hit by the financial slowdown as demand for smartphones, shopper electronics, and vehicles 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 will likely be Samsung Foundry’s precedence this yr.

By way of superior nodes, whereas Samsung Foundry was the primary to introduce a 3nm course of node to the market in 2022, South Korean analysts imagine that the enterprise unit has been within the purple for consecutive quarters, being unable to realize giant prospects for the node as a consequence of alleged low yield fee.

However to elucidate away the foundry, or contract chip manufacturing, market when it comes to simply course of nodes __ that are essential __ 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 yr, 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 prospects, 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 prospects’ chip design turned extra difficult whereas the variety of chip startups that lacked experience additionally elevated, which elevated the necessity for effectivity and nearer collaboration with the shoppers on TSMC’s half.

The chip big was the primary to ally with design home companions, often called chipless firms which act as matchmakers between TSMC and its fabless prospects that supply design work for the shopper. 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 offers the rights over its IPs to VCA and lower-tier companions as prospects need to use present and confirmed chip IPs to extend manufacturing effectivity.

World Unichip Company (GUC) is its most well-known VCA, based in 1998 and bought by TSMC in 2003. Identified for its superior SoC design, GUC can deal with preliminary engineering for purchasers or the complete 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. Nevertheless, 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 permits it to attach with the motherboards of gadgets. Packaging, together with assembling and testing, is what known as a back-end course of in chip manufacturing. The front-end is the place a silicon wafer goes via varied steps from lithography to chemical processes to turn out 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-about the extra essential half. Nevertheless, as a result of the semiconductor trade is reaching the boundaries of scaling, superior packaging has risen in significance as an inexpensive approach to increase 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 prospects to extend their comfort.

The logic, reminiscence, and different components are packaged in “2.5D” __ in impact, bundling extra chips intently collectively on an interposer to extend knowledge switch velocity between one another to stop bottlenecks. As a pure-play foundry that persistently offers with main prospects comparable to Apple and Nvidia, TSMC is a pacesetter in these 2.5D packages and 3D package deal applied sciences which are being developed. Samsung has begun enjoying catch up by forming its superior packaging workforce, which CEO Kyung stated is anticipated to contribute $100 million in income this yr. This section is simply anticipated to develop as AI inference requires increasingly bandwidth, so packaging chips intently is a should.

A decade in the past, Samsung had an opportunity to slim its hole with TSMC extra aggressively. Within the 2010s, Apple gave the vast majority of the manufacturing work for its A collection 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 prospects at this level that might experience 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.

Progressively, the South Korean tech big misplaced orders from Apple to TSMC, but it surely was capable of 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 issues, 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 turn out to be a constant rival to Qualcomm’s Snapdragon processors, which Samsung Foundry and TSMC manufacture. “We do not compete with our prospects,” is an typically 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 unbelievable growth in its personal proper, because the US chip big solely reentered the foundry market in 2021 after Covid, safety, and the following provide chain points brought about governments internationally to undertake insurance policies to extend home chip manufacturing. The corporate additionally confirmed that it might be a beneficiary of the US CHIPS Act. Intel intends to turn out 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 will likely be to stave off competitors from Intel whereas sustaining its runner-up place. CEO Kyung appeared keenly conscious of this as he stated narrowing its hole with the market chief __ TSMC __ was one of many challenges it needed to remedy whereas making the enterprise “sustainable”, or in different phrases, fostering its personal ecosystem. Additionally it is increasing comfort for purchasers via 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 achieve $231.5 billion by 2032. There simply could be 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 availability is steady, the first concern of consumers.

On Intel’s point out of a 1.4nm course of node in growth, Siyoung Choi, the president and normal supervisor of Samsung Foundry, additionally on the assembly, stated 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 subject file of creating and supplying a extra various vary of merchandise comparable to CPUs, cell software processors, SoCs, and GPUs. Samsung Foundry, like TSMC, additionally provides extra manufacturing capability in legacy nodes for much less subtle chips.

“The operation fee [of our fabs] is bettering in comparison with final yr and we anticipate a significant restoration within the second half of the yr,” the final supervisor stated. “We’re getting ready to mass produce 2nm course of nodes subsequent yr and are conducting particular discussions centered round US prospects.”

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 provides many chips for various purposes.

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 some extent in the course of 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 planet after Sony, which offers 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 keep up its competence within the smartphone market, which has slowed down in development however just isn’t going anyplace, whereas discovering a brand new growth-generating product class.

AI, comparable to synthetic generative intelligence (AGI), could possibly be one in all them. Samsung introduced its personal AI accelerator known as Mach 1 in the course of the assembly. The corporate claimed that the chip can be utilized with present reminiscence whereas decreasing the bottleneck with the GPU by one-eighth of the present stage. Programs that use the chip will launch subsequent yr. Nevertheless, you will need to be aware that different main tech firms are additionally engaged on or have their very own AI chips: AMD, Intel, Amazon, IBM, and Google amongst them.

Kyung additionally stated one thing attention-grabbing in the course of the assembly. “In SoC, we are going to make it a significant enterprise in 5 to 10 years.” The date vary is extensive, so his assertion interprets to: “We positively need to do one thing with SoCs, we now have a normal thought, however we aren’t positive but.”

That is seemingly as a result of the potential for SoC to evolve is large. However the applied sciences aren’t there but.

The event of SoCs in smartphones within the 2010s is an efficient instance. SoC, or system on a chip, is a single die (the half that’s diced out of the wafer) that incorporates a wide range of features together with digital, analog, mixed-signal, RF modem, and others. It really works greatest 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 expertise for.

Chipmakers proceed to attempt to pack extra features on a SoC. This has been extremely tough, therefore most {hardware} accelerators comparable to AI, neural processing, and graphic processing are interconnected with the SoC die on the packaging stage as a substitute. As a result of packaging expertise has developed a lot, firms like TSMC have been capable of drastically enhance the bandwidth.

Intel and AMD’s answer to this has been the chiplet, a comprise of kinds however nonetheless progressive. In a chiplet, the SoC die is separated into a number of dies in accordance with totally different features. So the final efficiency of the system continues to be upgraded in an economically possible matter. Analysis now’s targeted on bonding these dies extra intently collectively earlier than packaging, or hybrid bonding, an space Samsung just like the others is engaged on. Regardless of these developments, the hassle to pack extra features on a single SoC die will proceed as this form of integration, if it may be executed cost-effectively, continues to be essentially the most advantageous.

New gadget 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 knowledge facilities.

These sorts of initiatives imply the reminiscence, logic, and foundry components must work intently 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 prospects, there are additionally giant firms that aren’t. Some opponents are arguably much less involved with defending their proprietary applied sciences on the subject of chips than others (Google, for instance).

Moreover Tesla, the automotive trade can be presenting new alternatives. In accordance with Omdia, the automotive sector of the semiconductor market grew 15% in 2023 from a yr earlier to $75 million. The rise in electrical autos and integration of intelligence into vehicles 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 vehicles 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 turn out to be a actuality immediately. Nvidia’s success can be an amazing instance. Earlier than its surge from 2022 to 2023, the GPU maker additionally noticed a increase in demand from cryptocurrency.

The semiconductor trade ran on product cycles in the course of 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, had been general-purpose chips, relatively than being personalized. Why the semiconductor market will proceed to run on cycles, immediately it seems extra unstable than ever earlier than.

“Accelerated computing has reached the tipping level, normal function computing has run out of steam,” Nvidia CEO Jensen Huang stated in the course of the unveiling of Blackwell. “We want 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 computing whereas being sustainable. Accelerated computing is a dramatic speedup over general-purpose computing, in each single trade.” 

Reminiscence alone could be sufficient for Samsung to retake the No.1 place within the brief time period. “We can not preserve the No.1 place with exiting companies alone,” Samsung CEO Kyung admitted.

The gadget 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 identify, is propositioning that it’ll present the options for. Whereas being the primary to market is essential, 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 desires to not solely take the highest spot however preserve it.