July 11, 2017 9:00 pm JST

Samsung and TSMC in big battle to make smallest chip

Playing catch-up, South Korean company invests heavily to make 7nm chips

KIM JAEWON and CHENG TING-FANG, Nikkei staff writers

Samsung Electronic's semiconductor factory in Hwaseong, South Korea © Getty Images

SEOUL/TAIPEI -- Asia's two leading semiconductor companies are competing for the top spot in the fast-growing foundry market amid rising demand for advanced chips for use in the internet of things and artificial intelligence.

South Korea's Samsung Electronics is throwing down the gauntlet to market leader Taiwan Semiconductor Manufacturing Co. by investing aggressively in advanced 7-nanometer chips. Samsung plans to kick off mass production from next year.

"We plan to produce more advanced 7nm chips from next year with extreme ultra violet technology," said Samsung in a forum for domestic customers on Tuesday.

EUV lithography could help make advanced chips more efficiently, but a number of technical issues need to be overcome. No company has successfully adopted the technology so far.

TSMC said it was leading the development of the advanced chip, already producing small quantities as well as drawing orders from eager customers. The company said that it had already started to test its 7nm chips and will begin mass production in 2018.

"We also have many customers that are working with us on the 7nm chips," said Elizabeth Sun, a TSMC spokesperson. TSMC also said it would introduce second-generation 7nm chips using EUV in 2018 and begin churning out such cutting-edge chips in the second half of 2019.

The smaller the chip, the more advanced it is and the more challenging to develop. Apple, for example, uses TSMC's 10nm process technology for core processor chips packed in its upcoming new iPhone and 16nm chips for iPhone 7 handsets last year.

The global foundry market is growing quickly as the internet of things and AI technology require advanced chips which can process and connect huge data. Samsung said the global foundry market is expected to generate $61 billion in revenue this year, up 7.2% from a year ago. It sees the market growing to $65.2 billion next year.

"Demand for logic semiconductors are increasing in the domestic market as they are applied to internet of things, automotive and artificial intelligence sectors," said Lee Sang-hyun, a Samsung director.

Samsung said it had 7.9% share of the global foundry market last year, making it the fourth-largest player. It said TSMC led the market with 50.6%, followed by U.S. manufacturer Global Foundry which garnered 9.6%. Taiwanese company United Microelectronics, or UMC, came third with 8.1%.

Analysts say Samsung and TSMC are competing neck-and-neck.

"Regarding the schedule for these most cutting-edge chip process technologies, we do not see major difference between Samsung and TSMC," said Nobunaga Chai, an analyst at Taipei-based DigiTimes Research. "What really matters is which company can eventually grab as many customers, and whose technologies have better quality and commercial values that can really bring in revenue and net profit."

TSMC supplies to around 450 clients globally including Apple, Qualcomm, Nvidia, Broadcom, MediaTek, and Huawei Technologies' chip arm Hisilicon Technologies.

Chai said Samsung mostly makes chips for its own use, although it has had some orders from Qualcomm. "Based on previous track records, we don't think Samsung can quickly gain other new customers to use its advanced chip process technology anytime soon," said Chai.

But Doh Hyun-woo, an analyst at Mirae Asset Daewoo based in Seoul, expects Samsung to surpass TSMC with its aggressive investments.

"Recently, Samsung Electronics is becoming more competitive in foundry market, surpassing Taiwan's TSMC in the 10nm process," said Doh. "Samsung plans to adopt new process and next-generation facilities more quickly than its rivals, aiming to expand its foundry production capacity in a few years."

Samsung Electronics shares hit a fresh record high of 2,450,000 won on Tuesday, up 0.7%. South Korea's benchmark index KOSPI also reached an all-time high of 2,396.00 points.

In Taipei, TSMC rose 2.9% to close at 212.0 New Taiwan dollars, outpacing the benchmark Taiex which inched up by 1.2% on Tuesday. TSMC shares have risen 17% so far this year.

Asia300

Samsung Electronics Co., Ltd.

South Korea

Market(Ticker): KRX(005930)
Sector:
Industry:
Electronic Technology
Telecommunications Equipment
Market cap(USD): 323,129.55M
Shares: 149.31M
Asia300

Taiwan Semiconductor Manufacturing Co., Ltd.

Taiwan

Market(Ticker): TAI(2330)
Sector:
Industry:
Electronic Technology
Semiconductors
Market cap(USD): 181,847.77M
Shares: 25,930.38M
Asia300

United Microelectronics Corp.

Taiwan

Market(Ticker): TAI(2303)
Sector:
Industry:
Electronic Technology
Semiconductors
Market cap(USD): 6,401.00M
Shares: 12,624.31M

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