Review the Details of the Wafer Foundry Battle Between TSMC and Samsung

According to IC insights, in 2017, the world's top eight wafer foundry accounted for 88% of the total market share. Among them, TSMC continues to occupy a dominant position and ranks first.Among the eight generation factories, Samsung is the only IDM manufacturer. Although it only increased by 4% in 2017, it is still the largest IDM foundry.Data source: IC insights

Foundry business is the core of Samsung. In recent years, it has made great efforts to compete with TSMC for the voice in the advanced process technology market, and has always been a hot topic in the industry.In recent years, as a big Mac level IDM, Samsung has always felt that the level of its wafer foundry business is not good enough. It regards the industry overlord TSMC as a "thorn in the eye", and continues to improve its wafer foundry technical ability and customer recognition through vigorous investment, independent foundry business, personnel excavation and other measures.From 2015 to 2016, with the gradual maturity of Samsung foundry's advanced process capability, it won many large customer orders from TSMC and made a lot of revenue. At that time, the smartphone market was in the platform stage (it began to decline, but it had a lag effect on the relevant industrial chain), and the demand for relevant chips was still relatively strong. These two factors led to a substantial increase in Samsung foundry in 2016.

From 2016 to 2017, with the further maturity of TSMC's advanced manufacturing process, some large orders of Samsung foundry were snatched back by TSMC; In addition, the global smartphone market is in full recession, and its negative effects are beginning to appear, greatly reducing the demand for relevant advanced process chips. It can be said that these two factors are the main reasons for the sharp decline in the year-on-year growth (4%) of Samsung foundry's sales in 2017.In early 2018, at the Samsung wafer foundry forum held in Seoul, South Korea, the relevant person in charge of Samsung said: "the goal of this year is to increase the market share of wafer foundry from the fourth to the second by the end of the year, surpassing liandian and lattice. In the future, he plans to surpass TSMC".In 2017, the revenue of Samsung Wafer Foundry Department was $4.6 billion, accounting for 6% of the market. According to IC insights, in 2018, TSMC will achieve a revenue of US $34.765 billion, and the revenue of Globalfoundries, the second largest, is US $6.64 billion. This year, Samsung's wafer foundry revenue is expected to increase to US $10 billion, and the market share will rise to 14%. In this way, it surpassed global foundries and ranked second after TSMC.

However, the report also points out that the increase in Samsung's share is mainly due to the effect of splitting the wafer foundry department, not a substantial growth in performance. As Samsung's Wafer Foundry Department is independent and no longer subordinate to the system LSI business, the production of Samsung's own exynos mobile phone chips is included in Samsung's wafer foundry revenue, and the market share has soared.capital expenditureAs a heavy asset business with high-tech content, foundry needs a huge amount of capital.

In 2017, the total capital expenditure of the top five manufacturers in the wafer foundry industry accounted for 95.6% of the capital expenditure of the whole industry, and the capital expenditure of TSMC and Samsung accounted for 70% of the global foundry plants. TSMC occupies half of the country and has been vigorously building factories and expanding production to continuously consolidate its leading position in the industry.

For Samsung, the R & D cost of its 90nm process node was US $280 million, while the R & D cost of 20nm soared to US $1.4 billion, excluding the production cost and plant construction cost of the new production line in the later stage. Therefore, advanced process R & D has gradually become a giant's game. As a result, there are 22 manufacturers with 130nm process production capacity, and the number of manufacturers capable of wafer foundry with 16 / 14nm process technology has been sharply reduced to 5. There are only three manufacturers with 10nm, 7Nm and more advanced process technology capabilities, namely TSMC, Samsung and Intel. Because the R & D cost of 7Nm and 5nm is too high, without sufficient and stable customer support, it can only be a huge loss. Therefore, Globalfoundries and UMC withdrew from the competition for 10nm and more advanced processes this year.

Advanced process competitionAccording to IC insights, the global foundry sales in 2017 was US $62.31 billion, of which advanced processes of 16 / 20nm and below accounted for 24%, about US $15 billion. IDM shares equally with OEM market share.

In terms of advanced processes, TSMC is in an absolute leading position, followed by Samsung. TSMC conquered the 28nm HKMG process in 2011. Since then, the advanced process has developed rapidly. Its 7Nm process has achieved mass production in the second half of 2018. It is expected that the revenue will account for more than 20% in 2019. 5nm will conduct risk trial production in April 2019 and is expected to achieve mass production in 2020. Samsung announced that it would put into production in the second half of 2018, and advanced processes of 7Nm, 5nm and below are also under planning.

Figure: development route of TSMC and Samsung advanced process technology (source: CICC)The advanced wafer foundry process market has always maintained a highly monopolized pattern. At present, only TSMC and Samsung have the mass production capacity of 10nm process in the world. As an all-round IDM manufacturer, Samsung has a certain competitive relationship with its OEM customers. It has the mobile phone market and exynos series SOC chips developed by itself as negotiation chips, which puts a lot of pressure on cooperative customers.Mobile phone SOC chip is the most important application field of top process. Among the world's major SoC design manufacturers, Apple's processors were OEM in Samsung and are all OEM in TSMC. Qualcomm's flagship chip Xiaolong 800 series and medium and high-end chip Xiaolong 600 series have placed orders in both TSMC and Samsung; Up to now, all the SOC chips of MediaTek have been OEM by TSMC. Samsung Electronics' exynos series SOC are all OEM in Samsung, and Huawei Hisilicon's SOC chips are all OEM in TSMC up to now.

Overall, TSMC and Samsung monopolize the OEM of mobile phone SOC chips using advanced processes.In terms of transistor densityIt is reported that TSMC's 16nm chip has about 29 million transistors per square millimeter, Samsung's 14nm chip has 30.5 million transistors per square millimeter. In terms of gate length, TSMC's is 33nm and Samsung's is 30nm.

In terms of 10nm, the transistor density of TSMC is 48.1 million per square millimeter, and that of Samsung is 51.6 million per square millimeter.In terms of 14nm, the fin height of Samsung is 49nm and that of TSMC is about 44nm.Despite the differences in naming, TSMC and Samsung are on the same level in terms of technology. From the perspective of various indicators, it is expected that the parameters of TSMC 7Nm EUV (N7 ) and Samsung 7Nm produced in 2019 are basically similar.

At present, TSMC's first generation 7Nm (without EUV) has been in mass production, which is the most advanced process in mass production on the market. It has a first mover advantage in time. This advantage can be maintained until 2019 (competitors start mass production), and TSMC is still expected to take the lead in mass production of EUV in 2019 to maintain the first mover advantage. It is estimated that TSMC will mass produce more than 50 7Nm chips in 2018, including CPU, GPU, AI acceleration chip, mining machine ASIC, network, game, 5g, automobile chip, etc.In terms of EUV useTSMC and Samsung are the top two ordering customers of ASML.

At present, TSMC has the largest number of EUV devices, with 10, which is the largest customer of ASML, followed by Samsung, with 6. As a necessary process equipment for processes below 7Nm, EUV plays a vital role in the mass production of manufacturers' latest processes. Due to the high precision requirements, TSMC and ASML have in-depth cooperation in R & D.TSMC has fast iteration speed

After the semiconductor manufacturing technology has entered the 14 / 16nm node, FinFET process needs to be used to suppress the problems of transistor leakage and reduced controllability, resulting in a significant increase in the difficulty of technology development and capital investment. Therefore, this threshold is also regarded as the access standard of advanced process technology. TSMC's 28nm process has been in mass production since 2011, 3-5 years ahead of its competitors, and 16 / 20nm has been in mass production since 2014. After that, it has entered a rapid growth period, and the proportion of the two processes has reached 49% by 2015.

In order to give full play to its technical advantages, TSMC attaches great importance to the rapid capacity expansion after mass production of advanced processes. For example, after TSMC's 130nm process was put into mass production in 2003, its revenue proportion increased sharply from 0 to 28% in only one year; The revenue share of 28nm process climbed from 2% to 22% in just one year after it was put into mass production in 2011. The rapid expansion of advanced production capacity helps TSMC to quickly seize customer resources, expand the first mover advantage at each advanced process node, and make its production capacity structure significantly better than its competitors. In this way, higher product added value brings higher gross profit margin.

Figure: revenue share of TSMC's advanced manufacturing processes in 2017Defects of Samsung IDM modeSamsung is the largest semiconductor company in the world in terms of revenue in 2017, with an annual revenue of US $43.54 billion. Its main businesses include Ce (Consumer Electronics), im (it & Mobile Communications) and DS (device solution) related to semiconductor manufacturing.

From the revenue structure of Samsung Electronics in the past three years, the expansion speed of its DS business is the most obvious. In the fourth quarter of 2017, the revenue of its DS Department accounted for more than 40% of the total revenue, becoming one of the two pillar businesses of Samsung Electronics.DS business is subdivided into semiconductor and display equipment, and its Wafer Foundry Department is in the semiconductor segment. In 2017, the wafer foundry revenue of Samsung Electronics was only $4.4 billion, accounting for only 13% of the total revenue of Samsung Electronics DS. As Samsung Electronics is an IDM, its equipment investment and resources should give priority to the production of storage products such as DRAM and NAND flash of Samsung Electronics, and the resources that can be allocated to the wafer foundry department are relatively limited.

Another problem of Samsung Electronics OEM department is industry competition. Samsung has a wide range of business. Major customers such as apple and Qualcomm are also competitors of Samsung Electronics. Even if intellectual property rights and patents are well protected, it can not guarantee the flexible autonomy of the supply chain and the impact of upper level competition. For example, Apple's A4 A7 series processors are OEM by Samsung. After a series of patent lawsuits broke out between the two sides in 2011, apple transferred A8 to TSMC, A9 to TSMC and Samsung respectively, and A10 is all OEM by TSMC.

For the above reasons, although the Foundry Department of Samsung Electronics is equal to TSMC in the progress of manufacturing technology, its background determines that it is difficult to become a giant in the field of wafer foundry.Therefore, Samsung decided to separate the wafer foundry business in 2017 to further enhance its market competitiveness.To sum up, in order to improve its competitiveness, Samsung is adjusting the business structure of wafer foundry, while TSMC is still consolidating its advantages. The market competition between the two giants will be more attractive in the next two years.