Samsung at a Disadvantage in Competing with TSMC
On Dec. 13, 2022, Apple CEO Tim Cook posted on Twitter a photo showing him at an elementary school in Kumamoto, Japan, along with the message, “Sony is Apple’s partner and has made the world’s best camera sensors.”
Kumamoto is the region where Taiwan’s TSMC and Japan’s Sony will build a joint venture foundry plant. TSMC is expected to produce Sony products at the plant. , Sony is the No. 1 player in the world image sensor market. Tim Cook's Twitter posting suggests that Apple, Sony and TSMC will cooperate to keep in check Samsung Electronics, the main rival of Apple, Sony and TSMC in the global smartphone, image sensor and foundry markets, respectively.
On Jan. 6, the equipment bring-in ceremony at TSMC’s Arizona plant in the United States also symbolized a technological alliance between Taiwan and the United States. It was held with the attendance of major U.S. big tech CEOs, including Apple’s Tim Cook, Nvidia’s Jensen Huang, and AMD’s Lisa Su, as well as key U.S. politicians and government officials including U.S. President Joe Biden.
As a semiconductor alliance among the United States, Taiwan and Japan is getting stronger, Korea is losing its ground in the global semiconductor market, analysts say. Taiwan declared in 2021 that it would cooperate with the United States and Japan in the semiconductor sector. The United States and Japan also forged a semiconductor technology alliance last year. Although the United States proposed the “Chip 4” alliance that will include Korea, Taiwan, and Japan, Korea has not been showing active moves toward the proposal.
Experts say that Korea’s role is not clear in the semiconductor value chain formed by the United States, Taiwan and Japan. The United States has a strength in semiconductor design, Japan in equipment, and Taiwan in high-tech foundry services.
TSMC and Sony invested US$7 billion and US$500 million, respectively, to jointly establish JASM, which will operate the Kumamoto semiconductor plant. Sony holds a 20 percent stake in the joint venture. Here, semiconductor products are produced through 12 to 28 nanometer processes, which are legacy processes. The flagship products of this plant are expected to be Sony’s image sensors for cameras and automotive microcontroller units (MCUs).
Taiwan’s TSMC is doing everything it can do to strengthen an alliance with the United States and Japan. It aims to scale up its global share and expand its influence through the establishment of a triangular system with the United States and Japan. The foundry giant plans to further widen its gap with Korean chipmakers by utilizing the competitiveness of American big tech companies such as Apple, Google and Nvidia and Japanese materials, parts, and equipment producers.
Samsung Electronics and SK Hynix have their main memory semiconductor production bases in China and enjoy strong sales in China. This makes it difficult for the two Korean chipmakers to join the anti-China alliance. Samsung produces 30-40 percent of its NAND flash semiconductor output in Xian, China, while SK Hynix about half of all DRAMs in Wuxi, China.
TSMC’s construction of a plant in Japan is aimed at dominating Japan's automotive semiconductor market. TSMC has no big competitors other than Renesas in the automotive semiconductor sector in Japan. Denso, a world-renowned Japanese auto parts maker, also invested in the Kumamoto plant. Denso invested 40 billion yen to acquire a stake of more than 10 percent in the plant. TSMC is expected to strengthen its ties with Japan's world-class material and equipment companies.
In the 2000s, Japanese companies lost competition with Samsung in key IT industries such as semiconductors and smartphones. But now they are dreaming of their revival through cooperation with TSMC. In 2022, Koichi Hagiuda, Japanese minister of economy, trade and industry, visited the United States and agreed with U.S. Commerce Secretary Gina Raimondo to promote cooperation in the semiconductor field. IBM and Japanese semiconductor company Rapidus joined hands in December 2022 to develop 2-nm chips by 2027. The Japanese government also played a significant role in attracting the TSMC plant to Japan. It will cover half of the total project cost of 37 billion yen to help TSMC create a semiconductor research and development base in Ibaraki Prefecture of Japan. In addition, 400 billion yen or 40 percent of the construction cost of the TSMC-Sony joint semiconductor plant will be provided as a subsidy as well.
Samsung, which builds state-of-the-art semiconductor plants mainly in Korea, is at a great disadvantage in competition with chipmakers of other countries in getting licenses and subsidies.
TSMC announced in December 2022 that it would expand its U.S. semiconductor investment to US$40 billion. This amount is more than double Samsung's investment (US$17 billion) in a new semiconductor plant in Taylor of Texas. TSMC’s key customers, such as Apple, Nvidia, and AMD, are happy with TSMC’s production of semiconductors in the United States. As a result, some forecast that this investment will further widen the market share gap between TSMC and Samsung.
The United States has seven of the world’s top 10 fabless companies. The nation is building a solid semiconductor supply chain that will not be shaken by changes in international situations, attracting TSMC plants and stably securing semiconductor manufacturing equipment and core materials through cooperation with Japan.
Experts analyze that TSMC is taking advantage of a geopolitical crisis even it is sandwiched between the United States and China. By establishing plants in the United States and Japan, it secures more customers in the United States and Japan by easing and spreading its risk of receiving an attack from China and using a stable supply chain. As demand for semiconductors is on the uptick, production facilities and human resources in Taiwan alone will not be able to handle all of such demand in the future, so TSMC has to secure future plants and human resources in advance with the support of the U.S. and Japanese governments, experts say.