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TSMC will snatch Qualcomm orders from Samsung in 2018

Battle for chip dominance expected to enter critical stage in 2019

TSMC Chairman and chief executive Morris Chang speaks at the Taiwanese chipmaker's earnings conference.   © Reuters

TAIPEI/SEOULTaiwan Semiconductor Manufacturing Co. will snatch some Qualcomm modem chip and core processor orders away from its biggest rival Samsung Electronics in 2018, according to industry sources.

The race is intensifying among semiconductor businesses to enhance the computing power of chips, enabling them to handle complex tasks such as those related to artificial intelligence and autonomous driving. TSMC's predicted win of Qualcomm orders shows that in the coming months the Taiwanese company is set to gain an edge over Samsung in this race.

According to chip industry executives familiar with the matter, Qualcomm is engaging TSMC to roll out a modem chip very early in the first half of 2018, and TSMC will manufacture the mobile giant's upcoming flagship Snapdragon processor, known as Snapdragon 855, before the end of next year.

Modem chips are needed for mobile devices to make calls and connect to the internet, while core processors are used for computing tasks in a wide range of electronics.

Qualcomm's core processors are popular with makers of Android mobile handsets, while Apple designs its own core processors for iPhones and has TSMC make them.

One of Qualcomm's modem chips and its new Snapdragon processor will adopt TSMC's latest 7-nanometer technology, which the Taiwanese company will also use to make the core processors going into new iPhones in 2018, two sources said.

TSMC has been the sole supplier of iPhone's core processors since 2016.

TSMC's advanced chip facility in the southern Taiwanese city of Tainan

Qualcomm's flagship Snapdragon 835 and Snapdragon 845 processors are made by Samsung using 10nm technology. Snapdragon 835 processors have been adopted by smartphone makers such as Samsung, Oppo, Sony and Xiaomi. Xiaomi will be the first to use the Snapdragon 845 chip that was unveiled in December.

Meanwhile, Apple's A11 bionic processor, used in the iPhone 8 range and the iPhone X, and Huawei's most advanced chip, the Kirin 970, used in the Mate 10, are both produced using TSMC's 10nm technology.

Nanometer refers to the size of transistors on a chip. The smaller the transistors, the more can fit onto a single chip, making it more powerful. But smaller sizes also mean the chips are more challenging and expensive to develop.

TSMC, Samsung and Intel are the only companies currently able to make chips with transistors smaller than 10nm.

BIG SPENDERS TSMC's capital expenditure for 2017 reached $10.8 billion, according to the company. It plans to spend more than $10 billion in the next few years as well. Samsung will have spent some $5 billion on its foundry business in 2017, out of its total spending of $26 billion on semiconductors -- mainly DRAM and NAND flash memory chips -- according to IC Insights.

With a 56% share, TSMC is the global leader in the foundry market, which entails making chips for others. Samsung, the world's No. 1 maker of memory chips, had a roughly 7.7% share of the foundry market in 2017, according to Taipei-based research company TrendForce. Samsung is looking to boost that to 25% by 2022.

Samsung is set to lose Qualcomm orders to TSMC because it will not be able to churn out 7nm chips in 2018, according to one chip industry executive.

But Samsung is expected to win back orders from the U.S. chip designer in 2019 if its 7nm chip facility is ready. This, the executive explained, is because Samsung, which is also the world's largest smartphone maker by shipments, buys chips from Qualcomm for its mobile devices.

TSMC and Samsung are adopting different development approaches for 7nm chips.

TSMC will begin mass producing 7nm chips in the first half of 2018 and will later install extreme ultraviolet, or EUV, tools to make so-called 7nm plus chips in 2019.

Samsung, on the other hand, says it will skip 7nm chips and instead start making 7nm plus chips with EUV. It says these chips will be available in the second half of 2018.

EUV can be used to produce advanced chips more efficiently, but the industry has found the process technically challenging.

According to industry executives, the battle between TSMC and Samsung for leadership in advanced chip technology will reach a critical stage in 2019, when both are expected to have EUV-made 7nm chips commercially available.

Nikkei staff writer Debby Wu contributed to this report.

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