Samsung is talking to foundry clients about hiking chipmaking prices by up to 20% in 2022, joining TSMC and UMC, which are planning more price hikes. Rumors suggest the South Korean company will raise the price of chips fabricated at 45nm or higher to $5 per square millimeter – up from between $2.5 and $3 currently. Prices won’t rise until 2022, but analysts are already predicting that Samsung’s shift could hurt its market share in long-term chip manufacturing.
“Samsung is at risk of losing its lead in the semiconductor industry to Taiwan Semiconductor Manufacturing Company and UMC,” said Mark Li, licensing analyst at IHS Markit. “It is planning to raise prices as it anticipates a worsening market situation with weaker demand for chips. Samsung’s shift will be a boost to TSMC, which is known as the ‘Sony of Asia’ due to its leading edge technology and production capacity. UMC has also caught up with a two-year advance, which has left TSMC trailing as a second-tier chip provider.”
IHS Markit also expects Samsung to soon surpass Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest semiconductor foundry and the leading supplier for mobile devices and automotive.
U.S.-based global chipmaker Intel agreed in January to buy Texas-based startup semiconductor company Capital Semi to bolster its manufacturing base. Intel’s move is seen as an attempt to compete with TSMC, which dominates the foundry market.
But Samsung’s rivals are also catching up in terms of manufacturing capacity and technology.
Market watchers believe the changing situation will impact Samsung’s chip-making business, as its main clients for contract manufacturing include Apple and Qualcomm.
On a call with investors on Tuesday, Samsung Group’s CEO Kim Jang-jin revealed Samsung is planning to expand the chip manufacturing business by 2021. At the moment, Samsung’s main clients are Apple and Qualcomm, but he said it will expand its chipmaker business to cover more markets.
“The semiconductor industry has been adjusting and becoming competitive and we need to be competitive,” Kim said. “Demand for semiconductors is expected to continue as they are key components in smartphones and other IoT devices. But there are many parts of the semiconductor industry and each part is competitive.”
“As Samsung Electronics’ major business, we need to measure ourselves in the semiconductor business. We need to develop our competitiveness and find new growth engines,” Kim added.
Samsung has already been diversifying its semiconductor business as it seeks to expand beyond smartphone chips. Samsung has been adopting advanced foundry processes and expanding its business in the automotive market.
According to IHS Markit, Samsung is ranked No. 3 for the total capacity in manufacturing chips after TSMC and UMC. The South Korean company’s overall capacity comes up to 23 million 12-inch equivalent wafers this year but the figure is seen reaching 26 million by 2021.
IHS Markit predicts that Samsung will overtake Intel as the world’s second largest semiconductor maker as early as 2021.
“Samsung is expected to pass Intel as the world’s second-largest semiconductor maker by 2021 owing to its advanced base in the mobile and automotive manufacturing industries,” said Mark Li, senior research director of IHS Markit’s Ecosystems group. “Samsung has developed the foundry business since 2005, but it still has a long way to go. Samsung will continue to grow strongly through 2019, but technology leadership will be challenged by other competitors starting 2020.”
“Developing technology leadership would be difficult for Samsung. It does have a long way to go, but technology leadership and customer relationships are essential for Samsung’s business,” said Mark Li. “Samsung has been focusing on advanced foundry and chip design. It has been developing technologies in the process and is concentrating more on R&D as it needs to be competitive.