Fighting not with TSMC, but with all of Taiwan… Samsung’s tough competition A look at Hwang Jung-soo’s semiconductor issues

On the 15th of last month, the 40th anniversary ceremony was held in the Hsinchu Science Park in northern Taiwan, which is called the’heart of the Taiwan semiconductor industry’. A photo of two gray-haired elderly people holding hands attracted attention with most of Taiwan’s electronics industry giants attending. They were former TSMC chairman Morris Chang and former UMC chairman Robert Chao, who first pioneered the foundry (semiconductor contract manufacturing) business in the late 1980s. TSMC and UMC are the world’s No. 1 and No. 3 foundries, respectively. Locally, it was evaluated as “the people who can shake the world foundry market.”

Taiwan’s presence in the memory semiconductor market such as DRAM and NAND flash is insignificant. This is because Taiwanese companies such as Nanya and Winbond played a’chicken game’ on Samsung Electronics in 2010 and suffered damage that is difficult to recover. Taiwanese companies allied with Japanese companies to expand their market share in the memory semiconductor market by aggressive plant expansion, mass supply of products, and price cuts, but Samsung Electronics, the world’s No. 1 company, maintained its technological prowess and cost competitiveness. In the end, Taiwanese companies that did not win the’deficit’ raised their hands, and so far, they have maintained their ranks outside the top 5 in the world for memory semiconductors. For Taiwanese, Samsung Electronics is said to be a fearful entity and a target of overthrow.

But in the system semiconductor business, the story is different. The position of Taiwanese companies and entrepreneurs in the global market is significant. It is attracting attention as’super power’.

In simple terms, system semiconductors are all semiconductor businesses except memory semiconductors. It accounts for about 70% of the global semiconductor market. Unlike memory semiconductors, which are characterized by standardization and mass production, there are many cases that are made to be’customized’.

The business structure consists of’fabless’, which specializes in semiconductor design only,’foundry’ that produces semiconductors by receiving orders from fabless, and’packaging’ that processes the produced chips into devices.

Taiwan has a competitive edge that cannot be ignored. According to IC Insights, the global fabless market share is 65% in the US, 17% in Taiwan, and 15% in China as of 2019, and Korea, Japan, and the EU have a share of over 1%. Taiwanese fabless’Mediatech’ took the world’s No. 1 share of’AP’, a smartphone brain, based on shipments in the third quarter of last year. It surpassed Qualcomm, the traditional powerhouse, famous for’Snapdragon’ AP.

Needless to say, the foundry market, where the world’s No. 1 TSMC and No. 3 UMC are holding up. In the packaging market, three of the top five companies in the third quarter of last year were Taiwanese companies. The 1st place is ASE, the 4th place is SPIL, and ASE and the majority shareholder are the same. The fifth place is Powertech. There is no Korean company in the top 10.

Taiwanese giants such as Lisa Su (AMD) and Jensen Huang (Nvidia)

When fabless, foundry, and packaging develop evenly, the system semiconductor business can generate synergies and grow. This is because when fabless grows, orders for foundries increase, and when foundries are busy, the amount of goods falling on packaging increases. In addition, the possibility of winning orders is increased only when there are companies with excellent technology in each field.

An official from a domestic semiconductor company expressed it this way. “In order for a restaurant alley to be formed, a variety of restaurants must enter the alley. In Taiwan, there are many restaurants that say’the best makes’ for each menu.”

There are many semiconductor people who are treated as’big men’ in the world. Former Chairman Maurice Chang, founder of TSMC, is representative. Born in China, he worked for Texas Instruments (TI) in the United States, and then moved to Taiwan in the 1980s to work at a state-run semiconductor research institute. Founded TSMC in 1987 and retired as chairman in 2018. With a 0.45% stake, it is known as the’father of Taiwanese semiconductors’ and has a considerable influence on TSMC behind the scenes.

In the United States, AMD CEO Lisa Su and Jensen Huang, founder and CEO of NVIDIA, are considered Taiwanese semiconductor giants. The two have something in common: “Americans from Tainan, Taiwan”. Lisa Su, who took office in 2014, is evaluated as “leading the revival of AMD, which was declining”. Industry insiders call Lisa Su with respect as’Doctor’. Jensen Hwang is a leader who placed Nvidia as the world’s third largest semiconductor maker in market capitalization ($326.8 billion, as of the 14th). Taiwanese giants are giving and receiving help, raising the status of Taiwanese semiconductors. A typical example is that AMD and MediaTek are contributing mostly to TSMC, not Samsung Electronics.

Taiwan semiconductor ecosystem grown by TSMC

What is the reason Taiwan’s semiconductor business is doing well? I asked Cheol-sung Hwang, Chair Professor at Seoul National University, Ki-Hyun Ahn, Executive Vice President of the Korea Semiconductor Association, and Choi Hyun-Sung, Director of the Global Investment Information Center at Yuanta Securities.

▶ Why is Taiwanese system semiconductor so strong?
▷(Professor Chul-Sung Hwang) “It is because there is a strong foundry company called TSMC. We strongly support domestic companies.”

▷(Ahn Ki-Hyun, Managing Director) “Taiwan was the first thing in the world to start a foundry. That’s why the semiconductor manufacturing industry is strong. Because of the need for manufacturing to sell well and design well, fablesses were also big. TSMC raised fablesses. .”

▷(Present Center Director Choi) “It seems to be a case similar to how our country is doing well in IT. In the past, a European company, Philips set up a factory in Taiwan. Eventually, companies in developed countries in the Western world came in search of cheap workforce, but a quality workforce. Plus, after giving me a tax benefit, I sat down. In the process, I think I learned the assembly technique over my shoulder.”

▶How did Taiwan’s system semiconductor industry develop?
▷(Ahn Ki-Hyun, Managing Director) “We have grown based on the Chinese market. Now, Chinese fablesses have also developed a lot, but in the past, Taiwanese companies went to China to do business. So fabless is big. Among the fablesses in Taiwan, Mediatech is not the only one. There are many fablesses competing.”
▷(CEO Choi Current Center) “Mediatek is a Chinese company that makes fake products, it’s called’Gray Market’. I think that it has become a big company by designing chips for those cell phone makers. Another indispensable thing is the Foxconn factory, which is an Apple OEM. Most of them are in China. I went to Fujian Province and Guangdong Province in search of cheap labor. With the combination of cheap labor and Taiwan’s capital and technology, Taiwan is inexpensive, but with good technology, it seems that OEMs have been done.

▶ In the end, it seems that the power of China and TSMC was great. What is TSMC’s competitiveness compared to Samsung?
▷(Professor Hwang Chul-Sung) “Samsung Electronics’ foundry is not relatively long-standing. When it comes to the latest fabs (production facilities), it is called’legacy’, so it is not easy to service other than ultra-fine processes. Grab and grow your business is the first thing.”

▶TSMC is said to offer a variety of services.
▷(Professor Hwang Chul-Sung) “TSMC has many fabs in the past. We also do 150-nanometer (nm) processes. Among our professors, we make products in the TSMC 90nm process. We support small customers well. TSMC customers say that there are 8,000 customers. After all,’support’ is competitive.”

“30% of US semiconductor company employees are Chinese”

▶ It is said that Korea is difficult to supply and demand semiconductor manpower. How is Taiwan?
▷(Professor Hwang Chul-Sung) “Taiwanese semiconductor major is said to be very popular. It is said that Taiwan is also different from us and English is close to the official language. That is why Taiwan is open to foreigners. It is open. There are many foreigners in Taiwan TSMC. And Taiwanese have all English names and they call them English names. It’s easy to do business with a global business.” (In fact, the founder of TSMC is better known by the English name Morris Chang than the Chinese name’Jang Jung Mao’)

▶Is there any reason why Taiwanese-Americans like Jensen Huang and Lisa Su are making great strides in the global semiconductor market?
▷(Vice President Ahn Ki-Hyun) “Taiwanese workforce is considerable. If you go to a famous semiconductor company in the United States, 30% of Chinese are Chinese. These Chinese-American workers all went to Taiwan before the development of the Chinese semiconductor industry. So Taiwan’s semiconductor industry developed. At that time, I was concerned about the return of the Chinese to their home countries, and the fact that Taiwanese-Americans such as Dr. Lisa Su and Jensen Huang were able to grow up in the semiconductor industry did not indirectly affect the atmosphere of Chinese people who favor science and engineering. It is said that Taiwanese students choose a lot of science and engineering.”

▶In Taiwan, it is said that small and medium-sized IT companies are also struggling.
▷(CEO Choi, Current Center) “Taiwan’s characteristics are centered on parts companies. A few years ago, if the market cap of parts makers in Korea was over 1 trillion won, there were less than 10 such as LG Innotek, Samsung Electro-Mechanics, and more than 50 in Taiwan. 60% of the market cap. I guess the IT technology is stronger than IT.”

▶Can Korea catch up with the system semiconductor business?
▷(Professor Hwang Chul-Sung) “It is difficult for Samsung to deal with TSMC, and the best talent in Taiwan goes to TSMC. It is not that Samsung fights with TSMC, but fights with’the whole Taiwan.’ But in Korea, Samsung is totally like that. In such a situation, Samsung also has memory but also a foundry, and it is second in the foundry, with a wide gap, and TSMC invests 30 trillion won per year, and Samsung will spend 20-25 trillion won in memory and foundry combined. It’s not an easy situation.”

“Samsung is fighting the whole Taiwan, not TSMC”

What is the situation of system semiconductor in Korea? Samsung Electronics declared that it achieved’No. 1 in the world of system semiconductors by 2030′ in 2019. Vice Chairman Lee Jae-yong is also active in the system semiconductor business enough to take care of the 133 trillion won investment plan. In recent years, Samsung Electronics is also actively promoting’creating a system semiconductor ecosystem’ by increasing foundry partners and strengthening fabless support.

However, it is evaluated that it is not easy. Currently, among the Korean fabless, Samsung Electronics’ System LSI Division, which develops smartphone AP’Exynos’, image sensor’Isocell’, and DDI, is in the second to fourth place by product. Pan-LG-affiliated Silicon Works and Silicon Miters, founded by a Samsung-based executive, are struggling, but are not in the top 10.

In foundries, Samsung Electronics’ foundry division is in fierce competition with TSMC, ranking second in the world. In addition, DB HiTek is only in the top 10 foundries. In the packaging field, there are companies such as Nepass, which have recently shown prominence in the’high-end packaging’ market, but they are evaluated as having a different weight from Taiwanese packaging companies such as ASE.

The semiconductor industry agrees that from a long-term perspective, it is necessary to create a healthy ecosystem and increase competitiveness in the system semiconductor industry. It is that the role of Samsung Electronics is that important.

Reporter Hwang Jeong-soo [email protected]