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Why Did Intel Choose Samsung Electronics as Its Foundry Service Provider Instead of TSMC?
A Big Boost for Samsung's Foundry Business
Why Did Intel Choose Samsung Electronics as Its Foundry Service Provider Instead of TSMC?
  • By Kim Eun-jin
  • June 18, 2019, 08:56
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Intel has chosen Samsung Electronics instead of Taiwan’s TSMC for production of its central processing units (CPUs). 

Intel, which has been suffering a supply shortage of central processing units (CPUs) from last year, chose Samsung Electronics as its foundry service provider instead of Taiwan’s TSMC, the largest foundry firm in the world. This seems to be a strategic decision not to upset the U.S. government which is strengthening sanctions against Huawei. Accordingly, experts say that Samsung Electronics, which has now secured another mega customer after Qualcomm, NVIDIA and IBM, will be able to become the world's largest non-memory semiconductor company by the year of 2030.

Samsung Electronics’ foundry business division is in the final stage of discussion on manufacturing of 14 nanometer (nm) processors with Intel, according to semiconductor industry sources on June 17. Intel, which has been experiencing CPU supply problems from the second half of last year, seems to have chosen Samsung to secure miniaturization capability and respond to the surging demand. Taiwanese media outlets reported at the end of last year that Intel would consign the production of CPUs to TSMC. However, Intel chose Samsung Electronics instead of TSMC.

Chances are that Intel made the decision consider its CPU market competitor, AMD. After GlobalFoundries, which used to manufacture AMD's chips, put its 7-nm finFET program on hold last year, AMD decided to build all of its 7-nm CPUs and GPUs at TSMC. Intel almost monopolizes the CPU market, but its nerves are on edge as expectations are growing that AMD would expand its market share due to Intel’s delay in miniaturization. In this regard, some say that it was not easy for Intel, which does not think highly of the performance AMD’s products, to decide to produce its products at TSMC.

The U.S. government’s intensifying anti-Huawei campaign have probably also influenced Intel’s decision. Previously, TSMC, which produces most products of HiSilicon, the semiconductor design subsidiary of Huawei, said it would continue supplying products for Huawei despite the U.S. government's ban on the latter.

The aggressive sales strategy of Samsung Electronics’ foundry business division probably appealed to Intel. Samsung’s price offer to Intel was reportedly about 60 percent level of TSMC’s. Samsung quoted the cost of full mask sets which were even lower than the multi-layer mask service (MLM) sets that were introduced by TSMC to reduce costs for small quantity production. A mask is a type of films used to draw circuits on a wafer.

Samsung Foundry, which has secured a number of  big customers, is expected to see its performance rapidly improve until next year. In particular, the latest agreement with Intel will contribute to expanding the firm’s foundry sales. This is because the 14-nm process has a long period of maturity unlike the latest 7-nm extreme ultraviolet (EUV) process chosen by Qualcomm and NVIDIA. An official from a semiconductor firm said, “Currently, most sales in the foundry industry come from 10-nm to 14-nm processes. Since yield and performance have been verified, manufacturers can attract many customers with lower costs.”

Addressing Intel’s problems with CPU supply is highly likely to help Samsung Electronics’ memory business division as well. This is because the price of memory chips plunged in the first half of this year after Amazon and Google postponed investment in data centers due to the delay in supply of server CPUs. The demand for memory chips for PCs is also forecast to pick up when Intel secured an additional capacity of 14-nm production.

In addition, it is worth noting that Intel is a company that competes with Samsung Electronics for top spot in the world in terms of semiconductor sales. Market research firm IC Insights said that Samsung Electronics ranked top in terms of semiconductor sales with US$78.50 billion (93.22 trillion won) last year, followed by Intel with US$69.90 billion (83.01 trillion won). However, it also expected that Samsung with US$63.10 billion (74.93 trillion won) will hand over the throne to Intel with US$70.60 billion (83.84 trillion won) this year because of the sluggish memory market.