Samsung Electronics is taking a step back in its once-ambitious contract chip manufacturing business, known as foundry, to concentrate its resources on the pressing AI memory chip industry.
Or, to be frank, it doesn't have any other option.
During its conference call for third quarter earnings on Thursday, Samsung hinted at collaborating with other chip manufacturers to make high bandwidth memory (HBM) chips, admitting to the disappointing yield of its dynamic random-access memory (DRAM) silicon.
"We are preparing customized HBM with multiple clients, and since it is important to live up to HBM clients' requests, we are going to respond flexibly when selecting foundry partners for manufacturing the base die regardless of it being internal or external," said Kim Jae-june, executive vice president at Samsung Electronics, in the call.
The competitiveness of the contract manufacturing business depends significantly on the yield, which indicates to how many dies are produced per wafer input. It is directly linked to the cost and speed of manufacturing.
Samsung, which has been emphasizing its "turnkey" service in the AI chip realm providing memory chip, contract manufacturing and packaging all at once, is now ditching that core strategy in order to win orders from the biggest HBM client, Nvidia.
"A possible partnership with TSMC, which is an unprecedented move, indicates that Samsung's foundry business has yet to improve its yield and that its technology is not preferred by major clients in HBM," said Park Sang-wook, a chip analyst at Shinyoung Securities.
"Outsourcing the foundry business to TSMC while it also has a dedicated division should also put a serious dent in Samsung's confidence, but it has no other choice but to listen to its clients' demands at the moment."
Although Samsung said it is currently supplying HBM3E chips to multiple clients, it has not yet received a green light from AI chip goliath Nvidia, which has a dominant share of at least 80 percent of the AI processor market.
The U.S. chip giant instead has a close partnership with SK hynix, which is almost exclusively supplying it with HBM products. TSMC is also deeply embedded in the Nvidia ecosystem by manufacturing its logic processors and also packaging it with SK hynix's HBM.
SK hynix announced a further partnership with TSMC early this year by co-developing the base DRAM die for the sixth generation HBM — HBM4 — which is slated for shipment to clients in the latter half of next year.
"Working together with TSMC is likely the only way to join Nvidia's ecosystem for Samsung," said one industry insider.
Samsung Electronics Executive Chairman Lee Jae-yong once put forward an ambitious goal of catching up with TSMC by 2030 and becoming the global No. 1 player, but its foundry business has barely gotten closer to its target.
Samsung Electronics' chip manufacturing facilities in Taylor, Texas [SAMSUNG ELECTRONICS]
Samsung's market share by revenue in the contract manufacturing of chips stood at 11.5 percent as of the second quarter of this year, trailing far behind TSMC with a 62.3 percent share.
The foundry business is also pointed out as one of the main culprits of Samsung's disappointing third quarter earnings by incurring an estimated 1.5 trillion won ($1.09 billion) loss — together with the LSI division in charge of chip designing — dragging down its entire chip business profit to 3.86 billion won, significantly missing the market estimate of at least 4 trillion won.
Despite pledging a whopping $23 billion to build advanced chip manufacturing facilities in Taylor, Texas, Samsung has failed to grab major clients due to poor yield, and has delayed its operation timeline from the initially planned 2024 to 2026.
It said it will downsize capital expenditure in contract manufacturing this year compared to last year for investment efficiency.
Samsung Electronics is vying for a rebound with its 2-nanometer process, which will begin mass production next year.
Or, to be frank, it doesn't have any other option.
During its conference call for third quarter earnings on Thursday, Samsung hinted at collaborating with other chip manufacturers to make high bandwidth memory (HBM) chips, admitting to the disappointing yield of its dynamic random-access memory (DRAM) silicon.
"We are preparing customized HBM with multiple clients, and since it is important to live up to HBM clients' requests, we are going to respond flexibly when selecting foundry partners for manufacturing the base die regardless of it being internal or external," said Kim Jae-june, executive vice president at Samsung Electronics, in the call.
The competitiveness of the contract manufacturing business depends significantly on the yield, which indicates to how many dies are produced per wafer input. It is directly linked to the cost and speed of manufacturing.
Samsung, which has been emphasizing its "turnkey" service in the AI chip realm providing memory chip, contract manufacturing and packaging all at once, is now ditching that core strategy in order to win orders from the biggest HBM client, Nvidia.
"A possible partnership with TSMC, which is an unprecedented move, indicates that Samsung's foundry business has yet to improve its yield and that its technology is not preferred by major clients in HBM," said Park Sang-wook, a chip analyst at Shinyoung Securities.
"Outsourcing the foundry business to TSMC while it also has a dedicated division should also put a serious dent in Samsung's confidence, but it has no other choice but to listen to its clients' demands at the moment."
Although Samsung said it is currently supplying HBM3E chips to multiple clients, it has not yet received a green light from AI chip goliath Nvidia, which has a dominant share of at least 80 percent of the AI processor market.
The U.S. chip giant instead has a close partnership with SK hynix, which is almost exclusively supplying it with HBM products. TSMC is also deeply embedded in the Nvidia ecosystem by manufacturing its logic processors and also packaging it with SK hynix's HBM.
SK hynix announced a further partnership with TSMC early this year by co-developing the base DRAM die for the sixth generation HBM — HBM4 — which is slated for shipment to clients in the latter half of next year.
"Working together with TSMC is likely the only way to join Nvidia's ecosystem for Samsung," said one industry insider.
Samsung Electronics Executive Chairman Lee Jae-yong once put forward an ambitious goal of catching up with TSMC by 2030 and becoming the global No. 1 player, but its foundry business has barely gotten closer to its target.
Samsung Electronics' chip manufacturing facilities in Taylor, Texas [SAMSUNG ELECTRONICS]
Samsung's market share by revenue in the contract manufacturing of chips stood at 11.5 percent as of the second quarter of this year, trailing far behind TSMC with a 62.3 percent share.
The foundry business is also pointed out as one of the main culprits of Samsung's disappointing third quarter earnings by incurring an estimated 1.5 trillion won ($1.09 billion) loss — together with the LSI division in charge of chip designing — dragging down its entire chip business profit to 3.86 billion won, significantly missing the market estimate of at least 4 trillion won.
Despite pledging a whopping $23 billion to build advanced chip manufacturing facilities in Taylor, Texas, Samsung has failed to grab major clients due to poor yield, and has delayed its operation timeline from the initially planned 2024 to 2026.
It said it will downsize capital expenditure in contract manufacturing this year compared to last year for investment efficiency.
Samsung Electronics is vying for a rebound with its 2-nanometer process, which will begin mass production next year.
Foundry woes push Samsung to weigh once-unthinkable collaboration with TSMC
Waving the white flag on the back of a poor third quarter, Samsung Electronics has announced that it will collaborate with other chip makers in a bid to get serious traction in the HBM game.
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