Samsung Electronics’ semiconductor foundry business which the semiconductor giant regards as the next generation business after memory semiconductors is having trouble finding a breakthrough.
Samsung Electronics is employing a strategy that utilizes the micro-processing technology and mass-production capability which the company has accumulated in the memory semiconductor sector of the foundry market. Since last year, the company has been investing huge sums of money in the development of foundry technology and the expansion of factory production lines. However, the growth of Samsung’s foundry business is below the market average. According to Taiwan market researcher TrendForce, this year, Samsung Electronics' share in the world foundry market stands at 7.7%, ranking fourth after TSMC (55.9%), Global Foundry (9.4%) and Taiwan UMC (8.5%). A global strategy meeting held at Samsung Electronics' Giheung and Hwasung Plants reportedly focused on expanding the foundry business.
In May of this year, Samsung Electronics formed its foundry business team in the existing System LSI (non-memory semiconductor) Division an independent division. In addition, the company also laid out plans to become the world's second-largest foundry maker after TSMC in business briefings on its foundry business in Santa Clara, the US (May) and Tokyo, Japan (September). To this end, the company introduced new equipment to Giheung and Hwaseong Plants by spending six trillion won (US$5.4 billion).
To date, however, its scorecard has fallen short of the goal. According to TrendForce, sales of the foundry business of Samsung Electronics are expected to increase 2.7% from the previous year to US$4.398 billion. Considering that the world foundry market grew 7.1% this year, the rate is below the market average. TSMC and Global Foundry grew roughly 8 percent, respectively.
In the semiconductor industry, it is pointed out that the foundry market is moving against Samsung's expectations. Samsung Electronics started mass production of 10-nanometer (one billionth of a meter) semiconductors in the world last year and completed the development of an eight-nano process in October of this year. The 10-nanometer process means that the semiconductor circuit line width is 10 nanometers. The smaller circuit line width, the smaller and better products can be produced. Samsung Electronics is ahead of its competitor TSMC by six months to one year in developing 10-nano process technology but customers ordering semiconductor production are not on the rise. "Since foundry semiconductors are relatively large compared to memory semiconductors, customers want stable and proven products rather than smaller ones," said Roh Keun-chang, head of Hyundai Investment & Securities Co. "This means that customers are not adopting more advanced technologies unconditionally as a more advanced technology was developed."
Some experts say that Samsung's process technology is optimized for memory semiconductors so not suitable for the foundry business. Technology for mass production of products of a few kinds holds the key to success in the memory semiconductor market. The foundry market, on the other hand, is based on small volume production of a wide array of products that roll out customized products in accordance with customers’ demands. In other words, Samsung Electronics' process optimization capability does not mix well with the foundry market. In particular, competitors such as TSMC and Global Foundry are using their strong price competitiveness as a weapon against Samsung Electronics. "A latecomer, Samsung Electronics, is technically superior to TSMC and Global Foundry but if Samsung produces products with the same specification, the company will lose its price competitiveness. Samsung lacks know-how to save money efficiently by developing a process according to customers’ orders," said an official of the semiconductor industry.
"Samsung’s smartphone market competitors such as Apple tend to keep Samsung in check by intentionally excluding Samsung from their supply chains, and Chinese companies are inclined to place big orders with other Chinese companies," said Cha Sang-kyun, director of the Big Data Research Center at Seoul National University. “However, Samsung Electronics needs to make long-term investment as the emergence of new business such as AR and wearable devices is highly likely to drive up demand for semiconductors in various forms with a wide array of functions."