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Business_news Samsung’s $8 billion semiconductor factory will challenge TSMC’s dominance in the foundry market

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Tech conglomerate Samsung broke ground on a semiconductor factory in Pyeongtaek, South Korea that will cost an estimated $8 billion to construct, according to the Financial Times. As part of Samsung’s made-to-order foundry business, the facility will be used to manufacture high-performance processors for companies likeIntel, which will have applications such as performing AI workloads for edge or cloud computing.

The logo of Samsung Electronics is seen at its office building in Seoul

Reuters


Samsung will manufacture the processors using the latest 5nm standard based on Extreme Ultraviolet Lithography (EUV), a highly automated process that requires expensive machinery, according to The South China Morning Post. Samsung expects construction of the facility to be completed in 2021. 

Big cloud players will help drive demand for 5nm processors, as the technology can deliver improved computing capabilities with lower power consumption. Compared with the 7nm standard, Samsung claims its 5nm processing technology offers a 20% reduction in power consumption and a 25% increase in logic area efficiency. These factors together address two important dynamics of public cloud competition: 

  • Performance. Using chips based on 5nm technology, public cloud providers will be able to charge for access to higher-performance computing (HPC) capabilities. HPC has been among the fastest-growing segments within the cloud market — it has applications such as financial risk modeling and genome sequencing. 
  • Operational cost. Advances in computing efficiency have helped keep cloud computing energy consumption relatively in check, though they still require considerable power — in 2018, global data centers consumed an estimated 198 TWh, representing approximately 1% of overall demand for electricity worldwide, according to the IEA. Cloud providers with more efficient operations can either pass those cost savings on to consumers, enabling them to grow market share, or simply boost operating margins. Amazon, Google, and Microsoft — the three largest cloud providers by revenue in 2019, per Canalys estimates — have all committed to reducing the carbon output of their public cloud operations. 

Samsung’s new factory is part of a larger push to challenge Taiwan Semiconductor Manufacturing Company (TSMC) within the advanced foundry business. In a bid to further diversify its revenue streams, Samsung last year announced plans to invest 133 trillion won ($112 billion) in its nonmemory and foundry business through 2030, according to The Korea Herald.

Samsung held an estimated 17% of the global foundry market by revenue in Q1 2020, second only to TSMC, which held 56%, according to Trendforce. Responding to US pressure, TSMC is believed to have recently stopped fulfilling new orders from Huawei, TSMC’s second-biggest client behind Apple.

Though this could help Samsung gain market share, it might not actually be good news for the company in the long term: Any market share Samsung gains from TSMC breaking ties with Huawei would be inorganic, and it could render TSMC more aggressive in terms of looking for new business opportunities to help justify the high up-front costs associated with maintaining an advanced foundry business.

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