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Samsung Electronics in Talks with IBM for Production of High-Performance Server CPUs
A Lucrative Business for Samsung
Samsung Electronics in Talks with IBM for Production of High-Performance Server CPUs
  • By Kim Eun-jin
  • November 21, 2018, 11:18
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Samsung Electronics recently had talks with IBM regarding the production of CPUs for high-performance servers.

IBM is considering commissioning Samsung Electronics to produce high-performance CPUs for next-generation mainframe servers.

According to server industry sources on Nov. 20, Samsung Electronics recently held talks with IBM regarding the production of CPUs using its extreme ultraviolet (EUV) lithography technology.

IBM is reportedly closing in on striking a deal with Taiwan's TSMC, the world's No. 1 foundry, for production of seven-nanometer (nm) server CPUs. IBM has entrusted production of its self-designed CPU chips to foundry vendors instead of purchasing finished products from Intel, the market leader in server chips.

IBM contacted TSMC and Samsung Electronics to commission CPU chip production because Global Foundry, the second largest player in the foundry industry, has abandoned sub-7 nm lithography process. Traditionally, IBM asked Global Foundry to produce its CPUs. An explosive rise in data centers compelled IBM to use high-performance under-7 nm server CPUs and had no choice but to reach out to Samsung Electronics and TSMC, as they are the only semiconductor makers with under-7nm process technology.

If the contract is inked between Samsung Electronics and IBM, it will be a significant achievement for Samsung's semiconductor business division. Samsung Electronics has been investing heavily in the foundry business since last year, but it has not been able to secure a large corporate customer other than Qualcomm. Moreover, most of the sales of the company’s foundry division recently came from application specific integrated circuits (ASICs) for cryptocurrency mining. As the cryptocurrency mining market has stagnated due to a plunge in the price of virtual money, Samsung needed another big customer badly.

As the era of the Fourth Industrial Revolution began, server chip orders have become more important. This is because the commercialization of AI and autonomous vehicles will kindle the construction of more data centers which can collect, process and analyze a large volume of data. If a company receives orders for high-performance under-7 nm CPUs, the company will be more likely to lead the foundry market. "IBM is famous for high-performance servers, although its market share is not large. Partnership with IBM is good news to Samsung," said Kim Jong-seon, a professor of electrical and electronics engineering at Hongik University.

Server chips are highly profitable as data center companies value performance and quality. For Intel, server chips are its major cash cow. According to market researcher TrendForce, Intel's server CPU market share now stands at 96%. Intel posted US$17.09 billion in operating profits from server CPUs sales in the third quarter of this year and the figure accounts for 50 percent of Intel’s total operating profit. Nvidia, which dominates the global GPU market, also chalked up US$760 million in sales with GPUs for data centers in the second quarter.