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How Samsung turned the world’s No. 2 superior chipmaker and set the stage for a U.S. manufacturing growth

Samsung’s model is in every single place. From Galaxy telephones and sensible TVs to washing machines and fridges, the corporate says its merchandise could be present in almost three-quarters of U.S. households. 

However Samsung is way more than devices and home equipment, and there is another excuse why it is one of many world’s most precious firms. It is the second-biggest maker of chips which can be powering so many in style gadgets.

For greater than three many years, Samsung has been a pacesetter in reminiscence chips, that are used for digital knowledge storage. However that is been a market in turmoil. During the last yr, costs for reminiscence chips have taken a dive, they usually’re anticipated to fall as much as 23% extra within the present quarter. In April, Samsung reported dismal earnings for the primary quarter, with revenue plunging to its lowest degree since 2009.

Samsung responded by chopping manufacturing of reminiscence chips. Elsewhere within the {industry}, smaller rival Micron stated lately that it expects to slash 15% of its workforce.

Amid the wreckage, the large firm has discovered development in one other nook of the semiconductor market, doubling down on its foundry enterprise, the aspect that makes customized chips for large clients like Qualcomm, Tesla, Intel and Sony, in addition to hundreds of smaller gamers.

Samsung is constructing a $17 billion chip fabrication plant, or fab, in Taylor, Texas, the place it is promised to start out the primary U.S. manufacturing of superior chips subsequent yr. In February, functions opened for firms like Samsung to get their minimize of the $52.7 billion CHIPS and Science Act, handed by lawmakers final yr with the purpose of bringing chip manufacturing to the U.S. after 30 years of market share losses to Asia.

Samsung can be including capability in its dwelling nation of South Korea, spending $228 billion on a mega cluster of 5 new fabs which can be scheduled to come back on-line by 2042.

“They’re spending and spending and spending,” stated Dylan Patel of analysis and consulting agency SemiAnalysis. “And why is that? To allow them to atone for expertise, to allow them to proceed to take care of their management place.”

Samsung’s $17 billion new chip fab is below building in Taylor, Texas, on April 19, 2023.

Katie Brigham

‘We don’t settle’

Samsung is one in every of solely three firms that manufacture the world’s most superior chips, rating second behind Taiwan Semiconductor Manufacturing Firm and forward of Intel.

Now Samsung is setting its sights on catching TSMC.

“We don’t settle to be No. 2,” stated Jon Taylor, Samsung’s company vp of fab engineering, in an interview. “Samsung is rarely glad with No. 2 as a enterprise, as an organization. We’re very aggressive.”

The corporate introduced an formidable new street map in October, pursuing a purpose to triple capability of modern 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’re going to leapfrog forward of TSMC, however that is a giant if,” Patel stated. “TSMC is the one one which the {industry} trusts to hit their street map.”

CNBC lately went inside Samsung’s Austin chip fab, for the primary in-depth tour given on digital camera to a U.S. journalist. Whereas there, we obtained a uncommon interview with the pinnacle of Samsung’s U.S. chip enterprise, Jinman Han.

A 34-year veteran of the corporate, Han’s U.S. oversight contains the foundry operations and the reminiscence chips enterprise.

“We actually need to be a bedrock for U.S. {industry},” Han advised CNBC.

Samsung obtained its begin in 1938 because the Samsung Sanghoe Buying and selling Firm, based by Lee Byung-chull in Korea.


Samsung obtained its begin 85 years in the past, when founder Lee Byung-chull created it as a buying and selling firm for exporting fruit, greens and fish in Korea. 

“His imaginative and prescient was for our firm to be everlasting, robust and highly effective,” Han stated. “So, he selected the identify Samsung, which accurately means three stars.”

To outlive two main wars, the corporate diversified into industries like textiles and retail. Samsung Electronics was established in 1969, the primary Samsung TV got here out in 1972, and two years after that Samsung purchased Hankook Semiconductor in a daring effort to ascertain the vertically built-in client electronics large the corporate is at present.

Samsung opened its first U.S. places of work in New Jersey in 1978. By 1983, it was making 64KB dynamic random-access reminiscence (DRAM) chips, which have been generally utilized in computer systems, and the corporate had a brand new U.S. workplace in Silicon Valley.

Lee Kun-hee took over after his father’s dying in 1987, and Samsung’s first cell phone got here a yr later. And now Samsung is the world’s greatest smartphone supplier, going head-to-head with Apple.

Only a decade after making its first reminiscence chip, Samsung was coming to market with a model that had 1,000 occasions the capability. It gained worldwide acclaim in 1992 with the world’s first 64MB DRAM chip, inserting the corporate squarely in first place in reminiscence, the place it stays at present.

“Its presence is so ubiquitous in South Korea that they name their nation the Republic of Samsung,” stated Geoffrey Cain, creator of the e book “Samsung Rising,” revealed in 2020.

Samsung began making chips within the U.S. with its fab in Austin, Texas, which broke floor in 1996. It opened a second fab within the Texas capital metropolis in 2007. Immediately, Samsung’s Austin operation is fully dedicated to foundry.

Samsung staff within the cleanroom of the corporate’s Austin chip fab on April 19, 2023.


Samsung’s enlargement has introduced with it some authorized battle.

In 2018, the corporate lastly ended a seven-year authorized battle with Apple over whether or not Samsung copied the iPhone. Phrases weren’t disclosed.

“Apple obtained a fee from Samsung, so Apple technically received,” Cain stated. “However whenever you add up all of the authorized prices, all of the preventing, all these years, it was only a impartial zero on zero for either side.”

Challenges have not been restricted to the courtroom.

In South Korea, protests have erupted round Jay Y. Lee, the third era of Samsung’s founding household to take the helm. He served time in jail for bribery earlier than being pardoned in August and changing into government chairman in October.

And in the course of the pandemic, Samsung was damage by the worldwide chip scarcity as demand peaked and the availability chain was disrupted.    

“It was actually painful,” Han stated. “Once you take a look at your clients asking for extra chips, however there is no manner you possibly can present that, it was so painful.”

That dynamic is altering. As customers rein of their spending within the face of rising inflation, demand for reminiscence chips has weakened sharply. Han stated Samsung’s inner knowledge evaluation reveals “the market will rebound probably by finish of this yr.”

Geopolitical tug of conflict

Buyers have already been coming again. The inventory dropped nearly 30% final yr, alongside a broader decline within the international tech {industry}. The shares are up 28% this yr and hit a 52-week excessive on June 5, on the Korea Inventory Trade. Morgan Stanley lately named it a high choose.

A part of the rally might replicate the newest chapter within the geopolitical chip conflict between China and the U.S.

In Could, China banned merchandise from U.S. reminiscence maker Micron, which led to a inventory pop for Samsung. The U.S. additionally granted Samsung a one-year waiver to function its two chip fabs in China, regardless of new guidelines in October that cease many chip firms from exporting their most superior expertise to the world’s second-biggest financial system.

Samsung says it is including capability in Taylor, Texas, which is northeast of Austin, due to U.S. demand. Greater than 90% of superior chips are at present made in Taiwan.

“Bringing Taylor on board is simply going to extend their capacity to supply their chips domestically and never have to enter areas of the world the place they might have some discomfort,” stated Samsung’s Jon Taylor.

During the last three many years, the U.S. share of worldwide chip manufacturing has plummeted from 37% to only 12%. That is largely as a result of estimates present it prices a minimum of 20% extra to construct and function a brand new fab within the U.S. than in Asia, the place labor is cheaper, the availability chain is extra accessible and authorities incentives are far better.

South Korean President Yoon Suk-yeol appears on as U.S. President Joe Biden delivers remarks throughout a go to to a semiconductor manufacturing facility on the Samsung Electronics Pyeongtaek Campus in Pyeongtaek, South Korea, Could 20, 2022. 

Jonathan Ernst | Reuters

Energy and water

For Samsung’s Texas enlargement, environmental issues are large and rising.

The best-price items of kit Samsung will convey into Taylor are most likely the $200 million EUV lithography machines made by ASML. They’re the one gadgets on the planet that may etch with sufficient precision for essentially the most superior chips. 

Every EUV machine is rated to devour about 1 megawatt of electrical energy, which is 10% greater than the earlier era. One examine discovered Samsung used greater than 20% of South Korea’s complete photo voltaic and wind energy capability in 2020.

“Electrical energy is the lifeblood of a semiconductor fab in a way,” stated Patel of SemiAnalysis. “There have been a number of situations the place electrical energy has gone out and corporations have needed to scrap months of manufacturing.”

Texas’ power grid is essentially minimize off from its neighbors, limiting its borrowing energy throughout state strains. In 2021, that grid failed throughout an excessive winter storm, leaving thousands and thousands of Texans with out energy and inflicting a minimum of 57 deaths.

“I already signed 12 legal guidelines to make the ability grid extra dependable, extra resilient and safer,” Texas Republican Gov. Greg Abbott advised CNBC in April. “And so we will undoubtedly guarantee any enterprise shifting right here they are going to have entry to the ability they want, but additionally at a low value.”

Water is one other main want for chip fabs. In 2021, Samsung used about 38 billion gallons of water to make its chips. Roughly 80% of Texas stays affected by drought.

“We’ve the Texas Water Board that is engaged on that and laws that we’re engaged on this session to be sure that with a rising inhabitants in Texas, we will present for the water wants, not simply of companies, but additionally for our rising inhabitants,” Abbott stated.

Samsung advised CNBC its purpose in Austin is to reuse greater than 1 billion gallons of water in 2023. On the new Taylor fab, it goals to reclaim greater than 75% of the water used.

Of late, all of the hype in expertise has been round synthetic intelligence fashions to energy companies like OpenAI’s ChatGPT. These functions require much more highly effective processors, made primarily as of now by Nvidia.

“There are increasingly more folks around the globe who could make reminiscence chips,” Cain stated. “To remain forward of the sport, you have to get into the newer logic applied sciences.”

Cain stated he sees Samsung “diving deeper into the logic chip section. So, [that’s] the AI chips, the longer term functions for semiconductor expertise.”

When requested about what’s subsequent, Samsung’s Taylor stated the corporate finally plans so as to add extra chip manufacturing capability at its 1,200-acre website in Texas.

“We at present simply have one fab introduced there,” he stated. “However loads of room for extra.”

Watch the video to go behind the scenes at Samsung’s Austin chip fab and the constructing venture in Taylor, Texas.

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