Samsung: The Titan of Memory Chips
Samsung is known for its wide range of consumer electronics, from Android phones and TVs to refrigerators and microwaves. But the company has a lesser-known side that has made it one of the world’s most important and valuable companies: the production of memory chips.
Leading Memory for Three Decades
Samsung has been a leader in memory chips for three decades. It has nearly a 50% share in both DRAM and NAND, and is the world’s second biggest maker of the most advanced logic chips. These chips are used in Teslas, supercomputers, AI smartphones, and more.
Inside Samsung’s Austin Chipmaking Factory
Recently, a U.S. journalist was given an in-depth tour of Samsung’s Austin chipmaking factory. The company is aiming to overtake the massive advanced chip leader, Taiwan Semiconductor Manufacturing Company. Samsung is determined to not settle for second place.
Record Revenues and Profits
At the end of 2022, Samsung reported an annual revenue of $245 billion, which was $47 billion more than Microsoft. However, memory chip prices have taken a dive and are expected to fall up to 23% more in Q2 2023. In April, Samsung reported dismal earnings for the first quarter of 2023, with profit plunging 95% to its lowest level since 2009.
Doubling Down on Foundry
In response to the falling profits, the company cut production of memory chips, but doubled down on its Foundry business. Foundry is the side of Samsung’s business that focuses on long and short term data storage.
Samsung: From Grocery Store to Global Tech Giant
Samsung has come a long way since its humble beginnings as a trading company for exporting fruit, vegetables and fish in Korea in 1938. Founded by Lee, Byung Chul, the company was given the name Samsung, which literally means three stars, in order to signify its founder’s vision of the company being “eternal, strong and powerful”. Over the years, Samsung has diversified into sugar refining, construction, textiles, insurance, retail and more, and remains a multifaceted business to this day.
Samsung’s Expansion into Chip Manufacturing
In recent years, Samsung has been making a major push into chip manufacturing. The company is currently building a 228 Billion mega cluster of five new fabs in its home country of South Korea, scheduled to come online in 2042. Additionally, Samsung is building a huge 17 billion fab in Taylor, Texas, which is set to make its first advanced chips in the U.S. next year.
CNBC Interview with Head of Samsung’s U.S. Chip Business
CNBC recently got a rare interview with the head of Samsung’s U.S. chip business, Jinman Han, to get an inside look at how the Korean powerhouse plans to dominate not only devices but U.S. chip making. According to Jeffrey Kane, author of Samsung Rising and a journalist who has been covering the company from Korea and the U.S. for over a decade, the transformation of Samsung from a small grocery store in Korea to a global tech giant is remarkable. Samsung’s expansion into chip manufacturing is part of the company’s mission to be a “bedrock for U.S. industry”.
Introduction
Samsung Electronics, the division it is known for most, was established in 1969. Since then, Samsung has grown to become one of the most powerful families in tech, and its presence is so ubiquitous in South Korea that they call their country the Republic of Samsung. This article will explore the history of Samsung and its journey to becoming the world’s biggest smartphone provider.
1972: Samsung’s First TV
In 1972, Samsung released its first television. Just two years later, Lee Kun-hee, the head of Samsung, bought Hankook Semiconductor in a bold move towards making Samsung the vertically integrated consumer electronics giant it is today.
1978: Samsung’s First U.S. Office
In 1978, Samsung opened its first U.S. offices in New Jersey. Two years later, Samsung Semiconductor was born with a fab in Korea. By the early 1980s, Samsung was making 64 kilobyte DRAM memory and had a new U.S. office in Silicon Valley.
1987: Lee Kun-hee’s Son Takes Over
After Lee Kun-hee’s death in 1987, his son took over and Samsung released its first mobile phone a year later.
1992: Samsung’s International Notoriety
Just a decade after making its first memory chip, Samsung gained international notoriety with the world’s first 64 megabit DRAM chip in 1992, placing it squarely at first place in memory where it remains today.
1996: Samsung’s Big Fab in Austin
In 1996, Samsung broke ground on its big fab in Austin and it opened another one there.
2007: New U.S. Headquarters Building
In 2007, Samsung got a new U.S. headquarters building in Silicon Valley in 2015, designed to look like a three layer stack of flash memory chips. This is based on three nanometer, which is the most advanced technology we have.
Present Day
Today, Samsung is the world’s biggest smartphone provider, often neck and neck with Apple.
Samsung’s Longstanding Memory Chip Business
Han has been with Samsung for more than three decades, and the company’s primary chip manufacturing still happens in South Korea. It also makes them in Texas and China. Memory chips make up the biggest part of Samsung’s revenue, accounting for 57%.
The Impact of the Pandemic
The pandemic has caused shoppers to cut back, weakening demand for memory chips. This has been compounded by supply chain disruptions and a global chip shortage. As a result, Samsung’s customers have been asking for more chips, but there has been no way to provide them.
The Slump in Demand
Smaller memory chipmakers like SK Hynix and Micron cut production in late 2022, while Samsung waited until April 2023 to do the same. This has resulted in the worst slump in terms of semiconductor demand, and it is believed that the market will rebound by the end of the year. Micron and SK Hynix have started laying off staff and cutting their spending on new fabs.
Samsung’s Focus on Foundry
Despite the current unprofitability, Samsung is not cutting back on spending. Instead, they are shifting focus to foundry making computing chips designed by fabless chip companies. Samsung is unique in that they make their own chip designs for their own products as well as for thousands of others, whereas TSMC, the top foundry player, does not.
Samsung Stock Rises Amid Chip War
As tensions between the U.S. and China continue to mount, Samsung stock has been trending up despite dismal Q1 profits. This may be a reaction to the latest move in the geopolitical chip war between the two countries. In May, China banned products from U.S. memory chipmaker Micron, which in turn could boost demand for Samsung.
Samsung and SK Hynix Granted Waiver
In October, the U.S. placed big restrictions on chip companies exporting their most advanced tech to China. However, Samsung and SK Hynix were given a one year waiver to operate their existing chip fabs in China. The Department of Commerce crafted these rules to make sure that those existing fabs are not impacted, but Samsung and SK Hynix are not allowed to build new fabs.
Samsung a Top Pick
Morgan Stanley recently named Samsung a top pick, and the company is one of only three companies in the world capable of manufacturing the world’s most advanced chips. It ranks second, between TSMC and Intel. With mounting U.S. China, Taiwan tensions, the U.S. is eager to entice all three to make more chips on American soil. This includes Tesla, Sony, NXP, STMicroelectronics, Intel, Soon, AMD, and IBM, who are all customers. Qualcomm is, of course, their biggest customer, but they are moving significantly towards TSMC.
President Biden Visits Samsung in South Korea
Good motivation for President Biden’s visit to Samsung in South Korea on his first presidential trip to Asia last year. During his visit, he said: “By uniting our skills and our technological know-how, that allows the production of chips that are critical to both our countries and our essential, essential sectors of our global economy.”
Samsung’s Expansion to Taylor, Texas
Jon Taylor joined Samsung 26 years ago as part of the team at the Austin Fab that broke ground in 1996. Since then, he has risen to the position of heading up the entire Austin site. Taylor’s experience and expertise will be invaluable as Samsung expands to Taylor, Texas, a city about 30 miles north of Austin.
Samsung’s Investment in the US
Since first coming to the U.S. 45 years ago, Samsung has invested 47 billion dollars and has some 20,000 U.S. employees. Construction began on the 1200 acre, 17 billion dollar site in Taylor, Texas less than a year ago and Samsung says it is on track to be operational by the end of 2024.
Advanced Chips
The new Taylor, Texas site will be producing the most advanced chips that Samsung makes in the U.S. This expansion is largely due to customer demand, largely due to the geopolitical risks swirling around Taiwan, where more than 90% of advanced chips are currently made. Chips such as the current self driving chip in the Tesla cars is made in their Austin campus. The foundry in Austin currently is for 14 nanometer and older technologies.
S. and the Chips Act is helping to bring more of the supply chain to the U.S.
The Chips Act: Bringing More of the Supply Chain to the U.S.
The U.S. share of global chip production has plummeted from 37 to just 12 over the last 30 plus years, due to the fact that it costs at least 20 more to build and operate a new fab in the U.S. than in Asia. Labor is cheaper there, the supply chain is more accessible and government incentives are far greater. The Chips Act aims to change this by setting aside 52 billion for companies like Samsung to manufacture in the U.S.
Samsung’s Taylor, Texas Fab
Samsung’s Taylor, Texas fab has a total price tag of 17 billion, 11 billion of which is going to machinery and equipment like the 200 million EUV lithography machines made by ASML. These are the only devices in the world that can etch with enough precision for the most advanced chips. The massive machines are made by Applied Materials, the world’s next biggest microchip equipment company. Every chip in the world made goes through these machines a few times at least.
Applied Materials: A Key Samsung Supplier
Applied Materials is a key Samsung supplier already based in the U.S. and the Chips Act is helping to bring more of the supply chain to the U.S. Inside these machines, billions and billions of transistors are built in a small chip under 100km of wiring. With the Chips Act, Samsung is aiming to bring more of the supply chain to the U.S. in order to overcome the differences in construction costs that they get out of Asia versus the United States.
And Samsungs Texas fabs are no exception.
Samsung’s Growing U.S. Operations
Samsung is making the biggest semiconductor project Silicon Valley has seen in 30 plus years. This growth has been centered in Santa Clara, where collaboration between customers, leading universities, and partners is taking place.
Concerns in Texas
However, this growth has not come without concerns. In 2021, Samsung used about 38 billion gallons of water to make its chips. With 80 percent of Texas in drought, the Texas Water Board is working to ensure that businesses and the growing population will have enough water.
In addition, Texas has a unique, independent grid that is largely cut off from borrowing power across state lines. In 2021, this grid failed during an extreme winter storm, leaving millions of Texans without power and causing at least 57 deaths.
Sustainability Goals
Samsung is taking its sustainability goals seriously. In Austin, the company has a goal to reuse over 1 billion gallons of water this year. The Taylor project is aiming to reclaim over 75 percent of its water.
Electricity is the lifeblood of a semiconductor fab, and Samsung’s Texas fabs are no exception. The company is committed to ensuring that its operations are sustainable and environmentally friendly.
Samsungs Expansion and Controversy
Samsung has made headlines recently for their ambitious expansion plans, as well as the scandals that have kept the companys founding Lee family in the spotlight for decades. The company has announced plans to use advanced chip etching EUV machines in the U.S., which are rated to consume about one megawatt of electricity, 10 times more than the previous generation. One study showed that Samsung used more than 20 of South Koreas entire solar and wind power capacity in 2020.
In order to ensure that businesses moving to the U.S. have access to the power they need, the U.S. has already signed 12 laws to make the power grid more reliable, more resilient and more secure.
The Controversy Surrounding Samsungs Founding Family
The most recent member of Samsungs founding family to lead, Jay Y. Lee, served over a year in prison for bribery and was officially pardoned in August. He took the helm as executive chairman in October.
The Lee family has been at the center of multiple controversies over the years, from corruption charges to shareholder battles and generational intrigue. Despite the scandals, Samsung remains one of the most influential companies in the world, with Apple and other major companies having to bend the knee to Samsung in order to get the chips and displays they need.
The Big Seven Year Legal Battle Between Samsung and Apple
The seven year legal battle between Samsung and Apple was a complicated one. Samsung was arguing that its phones were simply using a form factor in a design that would be generic – a rectangle with rounded circles. Apple, however, said that they had been copied and so they settled, with Apple receiving a payment from Samsung. Despite this, when all the legal costs were added up, it was a neutral zero on zero for both sides.
The Complicated Relationship
To this day, the relationship between the two companies remains a tricky one. Samsung is supplying components to Apple, while also competing with them in the smartphone market. Apple, meanwhile, is buying chips from Samsung while competing with their smartphones. This creates a very strange situation.
Samsung’s Forward Momentum
Despite the controversies, Samsung’s forward momentum has not been impeded. In 2022, it announced an ambitious new roadmap with the ultimate goal of surpassing TSMC, the industry leader. Samsung wants to triple its capacity of leading edge manufacturing and to make industry leading two nanometer chips by 2025 and 1.4 nanometer by 2027. If Samsung hits their targets, they will leapfrog ahead of TSMC, but this is a big if. TSMC is the only one that the industry trusts to hit their roadmap.
Geopolitical Tensions Mount Around China and Taiwan
As geopolitical tensions mount around China and Taiwan, customers are eager for a second source for advanced chips beyond TSMC. Intel, the next biggest advanced chip maker, is also adding manufacturing outside Asia, building big new fabs in Ohio and Europe.
The United States Needs to Make Sure We Manufacture Everything We Need
We can’t be relied upon hostile countries for our everyday needs. And so the United States of America needs to make sure that we are manufacturing everything that we need. We learned that during the time of Covid – and we shall not make that mistake again.
Will Samsung Lose Focus on Legacy Chips?
But as Samsung races into leading edge chips, will it lose focus on legacy chips, the kind that saw the biggest shortages during the pandemic, slowing down production of everything from cars to game consoles? This factory that we’re in right now is a mature node factory, where some people would call that legacy. But there’s no pulling back here. It’s really full steam ahead.
The AI Boom Means Entirely Different Chips
But now the AI boom means entirely different chips, namely GPUs from Nvidia have taken center stage. Nvidia relies primarily on TSMC to make its chips, giving shares of the Taiwanese giant a boost.
Samsung’s Decision to Focus on Foundry
There are more and more people around the world who can make memory chips and to stay ahead of the game. You’ve got to get into the newer some of the newer logic technologies. Samsung’s decision to pull back on memory and focus more on foundry, which is all it makes in Austin, now means more custom chips for customers, including perhaps those driving the large language model craze.
Samsung’s Future in the Logic Chip Segment
The future of semiconductor technology is rapidly advancing, and Samsung is looking to dive deeper into the logic chip segment. AI chips are becoming increasingly popular, and Samsung is looking to compete with Nvidia in this space. But the question remains: can Samsung achieve their goal of making three nanometer chips in 2024 in Texas, where they have only one fab announced?
The Benefits of Texas
Texas is an ideal location for Samsung to expand their chip production. The state has plenty of room for more fabs, and the cost of living is lower than in other parts of the country. Additionally, Texas is home to some of the most advanced research facilities in the world, which can help Samsung stay ahead of the competition.
The Challenges Ahead
Making three nanometer chips in 2024 is no small feat. Samsung will need to invest heavily in research and development, as well as in the necessary equipment and personnel to make this goal a reality. Additionally, they will need to ensure that their chips are competitively priced in order to remain competitive in the market.
Samsung is looking to make a big splash in the logic chip segment, and Texas is the ideal location for them to do so. However, they will need to invest heavily in research and development, as well as in the necessary equipment and personnel to make their goal of making three nanometer chips in 2024 a reality. Only time will tell if Samsung will be able to achieve this goal.
