Samsung’s brand is in all places. From Galaxy phones and smart TVs to washing machines and fridges, the corporate says its products might be present in nearly three-quarters of U.S. households.
But Samsung is way more than gadgets and appliances, and there is one more reason why it’s one in every of the world’s most useful firms. It is the second-biggest maker of chips which might be powering so many popular devices.
For greater than three a long time, Samsung has been a frontrunner in memory chips, that are used for digital data storage. But that is been a market in turmoil. During the last yr, prices for memory chips have taken a dive, they usually’re expected to fall as much as 23% more in the present quarter. In April, Samsung reported dismal earnings for the primary quarter, with profit plunging to its lowest level since 2009.
Samsung responded by cutting production of memory chips. Elsewhere within the industry, smaller rival Micron said recently that it expects to slash 15% of its workforce.
Amid the wreckage, the large company has found growth in one other corner of the semiconductor market, doubling down on its foundry business, the side that makes custom chips for large customers like Qualcomm, Tesla, Intel and Sony, in addition to hundreds of smaller players.
Samsung is constructing a $17 billion chip fabrication plant, or fab, in Taylor, Texas, where it’s promised to begin the primary U.S. production of advanced chips next yr. In February, applications opened for firms like Samsung to get their cut of the $52.7 billion CHIPS and Science Act, passed by lawmakers last yr with the aim of bringing chip manufacturing to the U.S. after 30 years of market share losses to Asia.
Samsung can be adding capability in its home country of South Korea, spending $228 billion on a mega cluster of 5 latest fabs which might be scheduled to return online by 2042.
“They’re spending and spending and spending,” said Dylan Patel of research and consulting firm SemiAnalysis. “And why is that? In order that they can compensate for technology, in order that they can proceed to take care of their leadership position.”
Samsung’s $17 billion latest chip fab is under construction in Taylor, Texas, on April 19, 2023.
Katie Brigham
‘We don’t settle’
Samsung is one in every of only three firms that manufacture the world’s most advanced chips, rating second behind Taiwan Semiconductor Manufacturing Company and ahead of Intel.
Now Samsung is setting its sights on catching TSMC.
“We don’t settle to be No. 2,” said Jon Taylor, Samsung’s corporate vice chairman of fab engineering, in an interview. “Samsung is rarely satisfied with No. 2 as a business, as an organization. We’re very aggressive.”
The corporate announced an ambitious latest road map in October, pursuing a goal to triple capability of leading-edge manufacturing, and to make industry-leading 2-nanometer chips by 2025 and get them right down to 1.4-nanometer by 2027.
“If Samsung hits their targets, they’ll leapfrog ahead of TSMC, but that is an enormous if,” Patel said. “TSMC is the one one which the industry trusts to hit their road map.”
CNBC recently went inside Samsung’s Austin chip fab, for the primary in-depth tour given on camera to a U.S. journalist. While there, we got a rare interview with the top of Samsung’s U.S. chip business, Jinman Han.
A 34-year veteran of the corporate, Han’s U.S. oversight includes the foundry operations and the memory chips business.
“We actually need to be a bedrock for U.S. industry,” Han told CNBC.
Samsung got its start in 1938 because the Samsung Sanghoe Trading Company, founded by Lee Byung-chull in Korea.
Samsung
Samsung got its start 85 years ago, when founder Lee Byung-chull created it as a trading company for exporting fruit, vegetables and fish in Korea.
“His vision was for our company to be everlasting, strong and powerful,” Han said. “So, he selected the name Samsung, which accurately means three stars.”
To survive two major wars, the corporate diversified into industries like textiles and retail. Samsung Electronics was established in 1969, the first Samsung TV got here out in 1972, and two years after that Samsung bought Hankook Semiconductor in a daring effort to ascertain the vertically integrated consumer electronics giant the corporate is today.
Samsung opened its first U.S. offices in Latest Jersey in 1978. By 1983, it was making 64KB dynamic random-access memory (DRAM) chips, which were commonly utilized in computers, and the corporate had a latest U.S. office in Silicon Valley.
Lee Kun-hee took over after his father’s death in 1987, and Samsung’s first cell phone got here a yr later. And now Samsung is the world’s biggest smartphone provider, going head-to-head with Apple.
Only a decade after making its first memory chip, Samsung was coming to market with a version that had 1,000 times the capability. It gained international acclaim in 1992 with the world’s first 64MB DRAM chip, placing the corporate squarely in first place in memory, where it stays today.
“Its presence is so ubiquitous in South Korea that they call their country the Republic of Samsung,” said Geoffrey Cain, writer of the book “Samsung Rising,” published in 2020.
Samsung began making chips within the U.S. with its fab in Austin, Texas, which broke ground in 1996. It opened a second fab within the Texas capital city in 2007. Today, Samsung’s Austin operation is entirely dedicated to foundry.
Samsung employees within the cleanroom of the corporate’s Austin chip fab on April 19, 2023.
Samsung
Samsung’s expansion has brought with it some legal conflict.
In 2018, the corporate finally ended a seven-year legal battle with Apple over whether Samsung copied the iPhone. Terms weren’t disclosed.
“Apple got a payment from Samsung, so Apple technically won,” Cain said. “But while you add up all of the legal costs, all of the fighting, all those years, it was only a neutral zero on zero for each side.”
Challenges have not been limited to the courtroom.
In South Korea, protests have erupted around Jay Y. Lee, the third generation of Samsung’s founding family to take the helm. He served time in prison for bribery before being pardoned in August and becoming executive chairman in October.
And throughout the pandemic, Samsung was hurt by the worldwide chip shortage as demand peaked and the provision chain was disrupted.
“It was really painful,” Han said. “Whenever you have a look at your customers asking for more chips, but there is no way you possibly can provide that, it was so painful.”
That dynamic is changing. As consumers rein of their spending within the face of rising inflation, demand for memory chips has weakened sharply. Han said Samsung’s internal data evaluation shows “the market will rebound possibly by end of this yr.”
Geopolitical tug of war
Investors have already been coming back. The stock dropped almost 30% last yr, alongside a broader decline in the worldwide tech industry. The shares are up 28% this yr and hit a 52-week high on June 5, on the Korea Stock Exchange. Morgan Stanley recently named it a top pick.
A part of the rally may reflect the newest chapter within the geopolitical chip war between China and the U.S.
In May, China banned products from U.S. memory maker Micron, which led to a stock pop for Samsung. The U.S. also granted Samsung a one-year waiver to operate its two chip fabs in China, despite latest rules in October that stop many chip firms from exporting their most advanced technology to the world’s second-biggest economy.
Samsung says it’s adding capability in Taylor, Texas, which is northeast of Austin, due to U.S. demand. Greater than 90% of advanced chips are currently made in Taiwan.
“Bringing Taylor on board is just going to extend their ability to source their chips domestically and never must go into areas of the world where they might have some discomfort,” said Samsung’s Jon Taylor.
During the last three a long time, the U.S. share of world chip production has plummeted from 37% to simply 12%. That is largely because estimates show it costs at the least 20% more to construct and operate a latest fab within the U.S. than in Asia, where labor is cheaper, the provision chain is more accessible and government incentives are far greater.
South Korean President Yoon Suk-yeol looks on as U.S. President Joe Biden delivers remarks during a visit to a semiconductor factory on the Samsung Electronics Pyeongtaek Campus in Pyeongtaek, South Korea, May 20, 2022.
Jonathan Ernst | Reuters
Power and water
For Samsung’s Texas expansion, environmental concerns are big and growing.
The very best-price pieces of apparatus Samsung will bring into Taylor are probably the $200 million EUV lithography machines made by ASML. They’re the one devices on this planet that may etch with enough precision for essentially the most advanced chips.
Each EUV machine is rated to eat about 1 megawatt of electricity, which is 10% greater than the previous generation. One study found Samsung used greater than 20% of South Korea’s entire solar and wind power capability in 2020.
“Electricity is the lifeblood of a semiconductor fab in a way,” said Patel of SemiAnalysis. “There have been multiple instances where electricity has gone out and firms have needed to scrap months of production.”
Texas’ energy grid is basically cut off from its neighbors, limiting its borrowing power across state lines. In 2021, that grid failed during an extreme winter storm, leaving hundreds of thousands of Texans without power and causing at the least 57 deaths.
“I already signed 12 laws to make the facility grid more reliable, more resilient and safer,” Texas Republican Gov. Greg Abbott told CNBC in April. “And so we will definitely assure any business moving here they may have access to the facility they need, but additionally at a low price.”
Water is one other major need for chip fabs. In 2021, Samsung used about 38 billion gallons of water to make its chips. Roughly 80% of Texas stays tormented by drought.
“We’ve the Texas Water Board that is working on that and laws that we’re working on this session to be certain that that with a growing population in Texas, we are going to give you the option to supply for the water needs, not only of companies, but additionally for our growing population,” Abbott said.
Samsung told CNBC its goal in Austin is to reuse greater than 1 billion gallons of water in 2023. At the brand new Taylor fab, it goals to reclaim greater than 75% of the water used.
Of late, all of the hype in technology has been around artificial intelligence models to power services like OpenAI’s ChatGPT. Those applications require much more powerful processors, made primarily as of now by Nvidia.
“There are an increasing number of people around the globe who could make memory chips,” Cain said. “To remain ahead of the sport, you’ve to get into the newer logic technologies.”
Cain said he sees Samsung “diving deeper into the logic chip segment. So, [that’s] the AI chips, the long run applications for semiconductor technology.”
When asked about what’s next, Samsung’s Taylor said the corporate eventually plans so as to add more chip manufacturing capability at its 1,200-acre site in Texas.
“We currently just have one fab announced there,” he said. “But loads of room for more.”
Watch the video to go behind the scenes at Samsung’s Austin chip fab and the constructing project in Taylor, Texas.