The Microchip Race: A Look at Samsung’s Goal to Dominate the Global Microchip Industry

Currently sitting at the top of the world in memory chip production with an annual revenue of $22 billion, Samsung has set sights on its next horizon: dominating the microchip manufacturing industry. On October 7, Samsung confirmed that it will commence manufacturing the world’s most advanced logic microprocessors, or microchips, based on its new three-nanometer transistor design in 2022. It also announced a plan to mass-produce two-nanometer chips starting in 2025. 

Samsung’s entry into the microchip industry comes as the latest of Chairman Lee Jae-yong’s reforms seeking to position Samsung strategically in a rapidly shifting semiconductor market. Following his release from prison last August after a scandal ending on charges of bribery and embezzlement, Lee—the scion of the Lee family that founded Samsung in 1938—has taken full control over the company from his late father Lee Kun-hee. The innovation and development of sub-five nanometers microchips comes as the younger Lee’s attempts to make Samsung his own. Thus far, furthermore, Lee has proven no miser—the company forecasts that it will invest $37 billion in the venture in hopes of sparking innovation and attracting new business partners.

Historically, Samsung has been a conglomerate company. It can be roughly separated into the software department, which produces appliances and phones, and the hardware department, which produces chips. Within the hardware department, Samsung has dominated the production of memory chips. In recent years, however, Samsung has significantly underperformed; its shares have traded far below its peers. Lee’s investment in microchips seeks to reverse this trend. His vision seeks to control a big slice of the fast-growing market for non-memory chips, which account for 70 percent of the $550 billion global semiconductor market. In his recent entry, Lee aims to curate within microchip sectors an empire akin to the 40-percent market share that Samsung enjoys in memory chip sectors.  

Such moves, however, come at a price—Lee’s commitments pit Samsung against two of the world’s largest chipmaking powerhouses: Taiwan Semiconductor Manufacturing Company (TSMC) and Intel. While TSMC is also set to put its 3-nanometer tech into mass production in the second half of 2022, Intel has a more ambitious plan to produce two-nanometer chips in 2024, which will put it ahead of both Samsung and TSMC. Both companies are each pouring billions into building and expanding semiconductor facilities. The semiconductor business is poised for a showdown—and Samgsung has launched itself into battle.

For all its corporate zeal, Samsung faces some significant disadvantages. First, TSMC has partnered with Apple, Advanced Micro Devices (AMD), and other major tech companies; in 2016, Apple moved all its business for the A-series processor for the iPhone to TSMC. It is not hard to believe that Samsung’s lack of similar partnerships—and its resulting customer bases—places the company at a severe disadvantage. Second, Intel CEO Pat Gelsinger unexpectedly shared in early 2021 that his company would be partnering with TSMC to produce CPUs for data center customers, among other constituencies. This partnership could potentially further advantage Samsung’s rivals. Third, in the past year, the world has suffered from a critical global chip shortage that has catapulted semiconductor production to the top of national agendas. Amidst such shortages, many argue that Samsung failed to make big strategic decisions and delayed investments while competitors charged ahead. Even in the wake of Lee’s announcement, Samsung’s lethargy has continued. Samsung currently occupies just 15 percent of the foundry market, compared with TSMC’s more than 50 percent. The company has its work cut out.

But Samsung is not without advantages. As China’s tension with the West continues to rise, the East Asian superpower has also continued to increase its military presence in the Taiwan region. This encroachment has elicited great fear over the Taiwan-based TSMC’s future. Many firms have already begun to cut their connections with the Taiwanese company, weary of tensions escalating further. TSMC’s rivals, including Samsung, are the biggest beneficiaries of such shifts. Additionally, Samsung also has investors from various tech companies, including Tesla, an automobile company, and Nvidia, an American chip designer. These companies could potentially supercharge the customer base for Samsung’s products. Finally, with the past year’s global chip shortages and the demand for microchips still on the rise, Samsung has great potential to assert itself profitably. In fact, according to its quarterly reports, the company’s profits from chips for the last quarter have already risen to a three-year high. 

If Samsung succeeds in reaching its microchip goal, it will make a significant impact on South Korea’s economy, whose president justified Lee’s parole as being in the national interest. It will also impact the global semiconductor industry amidst a historic global chip shortage. While the future of Samsung’s expansion into the semiconductor market is uncertain, Samsung’s entry will catalyze a step forward for semiconductor technology—no matter which company wins the race. 

By: Arielsie Li

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