The chip market has been growing consistently over the past few months and the high demand for high-performing chips has even made this growth faster. Samsung, no doubt, leads the park so long as operating profit in the chip market for 2017 is concerned but when you talk about contract manufacturing of chips, it is nowhere near top position. Samsung now has machinery and a five-year plan in place to breach the wide gap in the chip manufacturing business so as to hold a strong second place position in the market. Samsung chip manufacturing business which is estimated to be worth 5.3 million Won ($4.76 billion) was segregated as a separate unit within its semiconductor division in a bid to add clients and subsequently reduce the huge market share gap between it and the conspicuous top-player, TSMC.
In contract manufacturing of chips, Taiwan’s TSMC is way ahead with a staggering 50.6% market share as at last year while U.S.-based Global Foundries, Taiwan-based UMC and Samsung struggle with 9.6%, 8.1%, and 7.9% respectively. Samsung plans to triple its market share as it aims for 25% market share within the next five years. E.S. Jung, executive vice president and head of the new Samsung foundry division said “We want to become a strong No. 2 player in the market,” Samsung already have Qualcomm Inc (QCOM.O), Nvidia Corp (NVDA.O) and NXP Semiconductors (NXPI.O) as clients, however, it still has a lot of work to do if it must breach the wide gap with TSMC.
“You need a technology that can wow your clients. Without such advanced technology, it’ll be difficult to win back customers from your rivals,”.
Although Jung didn’t specify any clients name, analysts noted that Apple left Samsung for TSMC sometime in 2015 and since then, TSMC has 100% of Apple’s mobile processor business. In order to achieve any meaningful change, Samsung must quickly develop its Extreme Ultraviolet (EUV) technology which is believed to be the next-generation technology that will ultimately reduce the cost and complexity of chip manufacturing. By the second half of 2018, Samsung will use EUV to manufacture chips, however, the leading manufacturer, TSMC, has also said that its EUV tech will be the “most advanced technology in foundry industry” in 2018. The memory industry generated huge finance this year and this is probably why many players are throwing their weight behind this line. Nevertheless, analysts believe that the memory industry is spectacularly cyclical and unlikely to repeat the huge revenue accruals seen this year.