Samsung, which missed the AI feast, tried to "spoil" the situation with $230 billion

Produced | Tiger Sniff Technology Group

Author | Marutsune-san

Edit | Ivan Chen

Head figure | Visual China

Despite the signs of downturn in the semiconductor industry, Samsung's determination to catch up with TSMC does not seem to waver.

On March 15, Yonhap News Agency reported that Samsung plans to invest 300 trillion won (about $230 billion) to build the world's largest semiconductor cluster in Gyeonggi Province, which will include at least five wafer foundries with advanced processes.

In a statement released by South Korea's Ministry of Industry, Energy and Trade on the same day, Samsung's blueprint is expected to attract more than 150 semiconductor components, materials and fabless (fabless) manufacturers near Seoul.

Such a huge investment plan cannot be ruled out as Samsung's compliance with the South Korean government's moves, because just yesterday (14th) the South Korean government just announced that by 2026, it will invest 550 trillion won (about 422 billion US dollars) in chips, batteries, new energy vehicles and biotechnology industries to create a high-tech industrial cluster around Seoul.

However, considering the many counter-cyclical investment cases in Samsung's development history, this investment plan is also very likely to be Samsung's strong man's move.

After all, in the current slump of consumer electronics and the explosion of the AI industry, Samsung's semiconductor business has almost fallen into the dilemma of "only seeing beatings, not eating meat".

ChatGPT exploded, but it had nothing to do with the Korean factory

In the three months since ChatGPT went live, TSMC has become almost the biggest winner besides Microsoft.

On February 23, according to the Taiwanese media "Electronic Times", under the influence of ChatGPT, many companies including NVIDIA, AMD and Apple urgently signed a number of orders at TSMC, including 7nm and 4nm processes.

This unexpected joy may not even be expected by TSMC itself.

In the second half of last year, due to the decline in consumer electronics market demand and the high inventory of terminal manufacturers, there was an obvious oversupply in the chip industry, resulting in a decline in the capacity utilization rate of the global wafer foundry. In September, TSMC's new 7nm plant in Kaohsiung capacity utilization capacity expansion stalled; In November, the industry broke out that the utilization rate of 7nm capacity of the power deposit battery was less than 50%.

However, after ChatGPT detonated the technology industry, the situation quickly reversed, due to the huge demand for GPU chips in data centers, TSMC's customers held a large number of orders influx, especially NVIDIA's A100 and H100, which use 7nm and 4nm process chips respectively, which greatly boosted the operating rate of TSMC's advanced process.

In fact, TSMC almost exclusively manufactures all of Nvidia and AMD's AI and server chips, and in this technology carnival, TSMC has become the biggest behind-the-scenes beneficiary.

On the other side, South Korea's "chip duo" Samsung Electronics and SK Hynix did not get a share in this feast.

According to data from the General Administration of Customs of Korea, in the first 10 days of March this year (1-10), South Korean semiconductor exports fell 41.2% year-on-year. As of last month, South Korea's semiconductor exports have declined year-on-year for seven consecutive months. According to data released by the Statistics Agency in February, South Korea's chip inventory rate reached a staggering 265.7% in January this year, the highest level since March 1997.

The direct cause of this problem is the excessive dependence of Samsung and SK Hynix on the memory chip business.

According to Samsung's previously released financial report, the revenue of memory chip business reached 60.37 billion US dollars in 2021, contributing 56% of Samsung Electronics' total revenue, while SK Hynix's memory chip revenue proportion is even higher. In the past few years, memory chips have been the largest source of profits for both companies, but as the DRAM and NAND memory markets fell below the cost of cash last year, Samsung and SK Hynix faced a "sell one piece for a loss" situation.

Not long ago, South Korea's chip double-heroes released a "miserable" financial report: in the fourth quarter of 2022, the revenue of Samsung Electronics' DS division (semiconductor business unit) fell by 24% year-on-year, and its profit plummeted by 96.9% to 270 billion won (about 220 million US dollars); SK Hynix recorded the largest loss in the past 10 years.

Unit: (US$ billion)

However, unlike SK Hynix, Samsung's business layout in wafer foundry is obviously more extensive. In the middle of last year, Samsung took the lead in announcing that its 3nm process node based on the initial mass production has begun.

In the investment plan announced by Samsung, the fabs it plans to build are also advanced process factories, but the current problems of Samsung seem to be reversible without expansion.

Counter-cyclical investment, this time still not working?

In Samsung's history, there have been several successful counter-cyclical investments that have turned the company into magic, the most famous being the "God Operation" that single-handedly disrupted the memory market 15 years ago.

In 2007-2008, the global memory market plummeted due to poor sales of Windows Vista, and many companies in the industry stabilized prices by limiting production to restore the market to normal supply and demand. However, Samsung has greatly increased production capacity during this period, so that the memory chip market has fallen below the cost of materials, including Qimonda, Elpida and other memory chip giants have gone bankrupt, Samsung has since been the largest.

But unlike at that time, Samsung may not have the capital to disrupt the market in the foundry industry.

On March 12, Samsung released an "Electronics Business Report", which mentioned that Samsung will start mass production of third-generation 4nm chips in the first half of 2023. It is reported that Samsung's third-generation 4nm chip has improved energy efficiency, power consumption and chip area miniaturization.

Announcing the mass production of a new generation of 4nm processes at this point in time is likely to be a helpless move by Samsung to save customers. At the beginning of this year, Korean media Business Korea reported that Qualcomm's upcoming Snapdragon SM7475 processor (4nm process) will be transferred to TSMC. If the news is true, this will be a huge blow to Samsung's foundry business, after Snapdragon's 8 series platform was transferred by Qualcomm due to yield problems.

In fact, the yield problem of advanced process chips has been a lingering nightmare for Samsung in recent years.

When the first generation of 4nm process was mass-produced, the Wall Street Journal reported that its yield was only 60%, while TSMC's yield in this process could reach 80%.

When 3nm mass production, due to the use of a new GAA (full surround gate) architecture, according to Business Korea, its yield even fell to 20%, which led to its 3nm process delay in getting orders from large companies.

Samsung 3nm process wafers, image source: Business Korea

In this context, Samsung's current round of counter-cyclical investment is worth playing.

On the one hand, the consumer electronics market does not see signs of recovery in the short term; On the other hand, Samsung's yield problem in advanced processes has not been properly solved, and whether this counter-cyclical investment will lead to increased risks in the "not rich" DS sector.

A semiconductor industry insider believes that it is difficult to make predictions at this stage. First of all, Samsung's expansion plan does not give a detailed time node, which cannot be judged according to market conditions; Secondly, Samsung's confidence in expanding production comes from its huge outlet to the sea, including Samsung Electronics' various business units, as well as SDI, SDS and other subsidiaries can help consume production capacity, this business layout can not be learned by other manufacturers.

The industry insider told Tiger Sniff that the expansion logic of domestic semiconductor manufacturers is similar, such as BYD Semiconductor, which has expanded rapidly in recent years, its "core strength" is BYD Automobile, the outlet to the sea, even if the market fluctuates, the former can rely on its own industrial chain to achieve the adjustment of inventory levels. In contrast, those independent foundries are much more conservative in terms of capacity expansion.