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TSMC tests 7-nanometer chips, edges ahead of Samsung

World's no.1 contract chipmaker will spend 'astonishing' amount on R&D

TSMC co-Chief Executive C.C. Wei spoke at the company's annual technology symposium on May 25. (Photo by Cheng Ting-fang)

HSINCHU, Taiwan -- Taiwan Semiconductor Manufacturing Co., the world's largest contract chipmaker, is testing cutting-edge 7-nanometer chips for 12 customers, and the company will start to make the product in large quantities in the first half of 2018.

Co-Chief Executive C. C. Wei at a company symposium on Thursday said TSMC is well-prepared to face intensifying competition from Samsung Electronics.

"We will always be the most trusted technology and capacity provider for customers for many years to come," said Wei.

The executive also reaffirmed that his company will introduce the world's first 5-nanometer chip in the second quarter of 2019.

Earlier this year, TSMC said it had asked a team to research 3-nanometer chips. No other company in the world has announced plans for such advanced technologies.

Nanometer refers to the size of transistors on a chip. The smaller the transistors are, the more easily they fit onto a chip, and the more powerful or faster a chip becomes.

At the same time, the smaller the transistor, the more difficult it is for companies to build such sophisticated chips.

Wei said that TSMC's research and development spending for 2017 will be an "astonishing" amount and larger than that in 2016, without disclosing the exact figure.

Wei said his company spent more than $2.2 billion in 2016, or more than 7.4% of TSMC's annual revenue last year, and more than 5,400 engineers were committed to research and development.

Wei's remarks came hours after Samsung announced in a statement plans to build advanced chips using 8-nanometer, 7-nanometer, 6-nanometer, 5 nanometer, and also 4-nanometer process technology.

The two companies have long been jostling for market share, and TSMC appears to have the upper hand for now.

Apple will adopt TSMC's 10-nanometer chips for iPhone's upcoming 10th anniversary range.

According to recent South Korean media reports, Samsung Electronics will boost and spin off its foundry unit that makes chips for others. The move is widely believed to be part of Samsung's efforts to gain more orders from global tech giants such as Apple, Nvidia and Qualcomm.

Samsung's chip unit relies on its parent company's handset and TV business for a significant chunk of its revenue. Samsung's premium Galaxy S8 that was just released adopts the company's own 10-nanometer chips.

Externally, Qualcomm is its biggest customer, and it has some orders from Nvidia.

Samsung does not disclose spending on research and development for its foundry business.

In 2016, TSMC's capital expenditure reached $10.19 billion, while Samsung LSI, Samsung's own chip unit that also controls the foundry business, spent some $2.64 trillion won ($2.36 billion), according to the companies.

Nobunaga Chai, an analyst at the research unit of Taipei-based electronics publication Digitimes, said Samsung's foundry unit may still be hurt by its core business.

"Since Samsung design many chips for its own use, and make its own end products, it could somehow compete with the clients that it wants to pursue such as Apple," Chai said. "It is doubtful whether Samsung could convince its potential competitors to hand over their design blueprints."

Separately, Chinese smartphone brands could slow down significantly this year and may be difficult to reach the 10% growth in shipments this year as new iPhones will squeeze demand for other handsets, according to TSMC Asia-Pacific Senior Director Tsai Chih-chun.

Tsai said iPhone changes such as cancellation of the home button and the increase of screen ratio in the flagship handset coming out in the second half of 2017 are features Chinese companies may be eager to replicated.

He said that a very tight supply of NAND flash memory chips will put further pressure on Chinese smartphone makers and that demand for entry level and mid-range handsets may take a serious hit.

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