Semiconductor Foundry War What Stocks to Buy? Huh Lan’s Overseas Stocks20

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With the news that the semiconductor foundry industry is booming in 2021, expectations are high in the stock market. It was a fire that Taiwan Semiconductor Manufacturing (TSMC), the No. 1 foundry industry, poured out a previous-generation facility investment plan this year.

Specifically, shall we take a look at what the foundry industry is, why the demand for foundries is soaring, how the competition between TSMC, the No. 1 foundry industry, and Samsung Electronics in pursuit of it will unfold in the future, and what stocks to buy.

What is a foundry

Before explaining what a foundry is, if semiconductors are simply classified, they can be divided into memory semiconductors and non-memory semiconductors.

As the name suggests, memory semiconductor refers to DRAM, NAND, etc. that store data.

System semiconductors, which act as brains to perform tasks and act, are classified as non-memory semiconductors. System semiconductor is a central processing unit (CPU) for computer processing functions, a microcontroller (MCU) specialized for control, an application processor (AP) in charge of operation and control in a smartphone, an analog IC, and the system itself in one chip. System on Chip (SoC), and image sensor.

System semiconductors require high-level design capabilities and microprocessing technology, so the business structure is a fabless, specialized in design without a factory (fab) for each process, a foundry, a semiconductor consignment manufacturer, and a comprehensive range from design to production. It is differentiated into a semiconductor company (IDM).

Major fabless companies are Broadcom, Qualcomm, NVIDIA, MediaTek, and AMD. TSMC is the overwhelming number one foundry company, followed by Samsung Electronics. Intel, Toshiba, and Samsung Electronics are IDMs that perform the entire process of system semiconductors from chip design to manufacturing and testing.

On the other hand, in the case of memory semiconductors, the IDM business model is the most efficient because the importance of design is low in chip production and mass production of small items is possible. Samsung Electronics, third place SK Hynix, and fourth place Micron, are a comprehensive manufacturer of memory semiconductors after Intel, which is the number one in global semiconductor sales.

Emerging as a game changer in the semiconductor industry

The global semiconductor market is expected to reach USD 4324 billion by 2020, with an annual average growth of 4.7% and reach USD 5188 billion by 2024. The size of the memory and non-memory market is about 3 to 7, and the system semiconductor field is remarkably large.

In the system semiconductor market, it is becoming more difficult to convert microprocessors, and the number of semiconductor companies with their own factories is continuously decreasing as the amount of facility investment for new expansion increases. As such, the foundry market is growing. When artificial intelligence (AI), Internet of Things (IoT), self-driving cars, and 5G are expanded in earnest, the ransom price of the foundry market that commissions multi-species customized semiconductors is likely to rise further.

According to Lee Soo-bin, an analyst at Daishin Securities, the share of foundries in the non-memory semiconductor market increased from 14% in 2010 to 22% in 2020. It is expected to increase to 27% in 2024. The foundry market is expected to grow at an annual average of 9% to $66.7 billion in 2020 and $94.9 billion in 2024.

3 events that sparked foundry demand

The success or failure of system semiconductors depends on who develops the chip first and puts it on the market, so fabless and pound models with division of labor are spreading to the mainstream rather than IDM, which is done alone.

There have been three incidents that triggered this trend recently.

The first is the separation between Intel and Apple. Last year, Apple announced that by 2023, Mac PCs will have Arm-based processors designed by themselves instead of Intel’s CPUs. This internalization of Apple’s processors represents a 7% decline in Intel’s CPU sales.

From the end of last year, Apple began mass-producing its own processors through the TSMC 5nm (nanometer, 1nm = 1 billionth of a meter) process.

Secondly, AMD’s share of the Intel-led CPU market is increasing. As fabless company AMD increasingly steals from Intel’s market, the consignment production of foundry companies increases. AMD’s desktop CPU market share expanded from 12.2% in the first quarter of 2018 to 18.9% in the second quarter of 2020, and notebook CPUs increased from 8% to 18%.

AMD has been entrusting CPUs based on 7nm process to TSMC from 2019 as its subsidiary Global Foundry abandoned 7nm process development in 2018.

The third news is Intel’s plans to use the foundry. The delay in development of the 7nm process of Intel, a general semiconductor manufacturer, has raised expectations for consignment production. In the earnings announcement on the 15th of this month, it drew a line that most 7nm products in 2023 are planning to be produced in-house, but the proportion of foundries is expected to increase gradually.

As industry evaluation is that Intel’s 7nm and TSMC’s 5nm are similar, it is expected that TSMC’s 5nm process will be used if Intel outsources 7nm.

TSMC vs Samsung Electronics production capacity

I introduced TSMC as the overwhelming number one in the foundry market. TSMC’s foundry market share is 55.5%, far ahead of Samsung Electronics’ 16.4%. In fact, about half of Samsung Electronics’ foundry sales are its own, so when it comes to purely foundries, TSMC’s market share is only 60% and Samsung Electronics is only 10%.

TSMC, which stands for’Everyone’s Foundry’, is consigning production of more than 10,000 semiconductor products to 480 customers. Wafer (300mm) shipments in the fourth quarter of last year reached a record high of 3.24 million units, a 15% increase over the previous year.

TSMC’s monthly production is over 1 million wafers, but Samsung Electronics is less than 400,000. Foundry sales for the fourth quarter were $12.6 billion by TSMC, which is three times higher than that of Samsung Electronics at $3,715 billion.

TSMC also has a significantly higher proportion of 5~7nm, which is considered a leading technology in the field of microprocessing. TSMC’s 5nm and 7nm sales in the fourth quarter accounted for 50% of the total. Samsung is only 20%.

TSMC vs Samsung Electronics Investment Scale

TSMC announced its previous-class facility investment plan this year and received great response from the market. There is also a side of investing in facilities, which has been delayed so far, but it is also evaluated that the foundry has emerged as a’game changer’ in the semiconductor market.

TSMC’s facility investment last year was $17.2 billion, but in 2021, it is planning to invest up to 28 billion dollars and 30,774.4 billion won in Korean money. It means that more than half of the sales are devoted to facility investment.

Samsung Electronics has declared that it will invest 133 trillion won by 2030 with the goal of surpassing TSMC in 2019 and achieving the number one system semiconductor. Meritz Securities estimates that Samsung Electronics’ 2021 foundry facility investment is KRW 11 trillion and the memory semiconductor sector is KRW 24 trillion.

From the second half of this year, the NAND and foundry lines of the new Pyeongtaek Plant 2 are scheduled to operate.

TSMC vs Samsung Electronics technology

Samsung Electronics and TSMC began to compete for technology in the foundry market in earnest when Samsung Electronics started mass production of 14nm processes in mobile APs for the first time in the industry in January 2015. The following year, TSMC began mass production of the 10nm process first. However, since then, Samsung Electronics has been behind TSMC in the 7nm process. Currently, only TSMC and Samsung Electronics are capable of 5nm process.

Samsung Electronics is currently advocating to reverse the 3nm process. 3nm semiconductors are expected to be applied to areas where processing speed is important and the amount of information to be processed is large, such as AI 5G communication, autonomous driving, and cloud computers. Depending on who first mass-produces the ultra-fine process technology of the 2~3nm level, the market share can change significantly.

Overseas market analysts believe that TSMC’s technology is far superior to Samsung Electronics. However, domestic stock markets believe that the technological gap between TSMC and Samsung Electronics has narrowed considerably.

Samsung Electronics, which was focused on memory semiconductors, started the non-memory process in 1996. At that time, the purpose was to use old memory factories and facilities. Starting with buying an Alphachip process license from the old DEC, we have gone through a lot of trial and error. I learned the non-memory process while developing the process with the client’s IBM.

Then, it has been about 10 years since Samsung Electronics announced that it would start a foundry in earnest. Meanwhile, it is evaluated that it is great to compete for 5~7nm technology with TSMC, overtaking traditional foundry companies such as Global Foundry UMC.

It is expected that the EUV (extreme ultraviolet) process will be fully utilized in the place where the two companies fought fiercely. The key is how stable the production of EUVs below 5nm is.

The two companies are also competing to secure ASML’s EUV exposure equipment, which is essential for semiconductor microprocessing. According to the stock market, as of the end of last year, the number of EUV equipment owned by TSMC and Samsung Electronics is estimated to be 40 and 18, respectively. The industry expects TSMC to purchase 10 units in their 20s and Samsung this year.

TSMC vs Samsung Electronics Customer

It is expected that Samsung Electronics will use a strategy to increase foundry orders with price competitiveness as a weapon. From the perspective of customers, it is the most fearful thing for TSMC to dominate the foundry market. It is obvious that TSMC will use its monopoly position to increase semiconductor prices.

The customer companies of TSMC and Samsung Electronics are separated from each other. Since the two companies have different design methods, it is not easy to change or disperse foundry companies in the middle of a fabless position.

TSMC’s customers are Apple, AMD, and Intel. Apple is the largest customer, accounting for about 23% of TSMC’s sales. It would be realistically difficult for Apple to entrust its foundry to Samsung Electronics, which competes for smartphones.

AMD, which has Taiwanese CEO Lirasu, has been entrusting the 7nm process to TSMC since 2019. AMD’s share of 7nm process sales is 22%.

According to Trend Force, Intel has entrusted non-CPU chips to TSMC and UMC, and plans to start mass production of Core i3 CPUs at TSMC’s 5nm node in the second half of this year.

Samsung Electronics successfully won orders for IBM NVIDIA Qualcomm chips last year. Samsung Electronics is producing the GPU foundry of NVIDIA’s GeForce RTX 30 series in the 8nm process, and customers such as Google, Cisco, and Baidu in China are also steadily increasing. The ordered products have also been expanded from APs for smartphones to graphics processing units (GPUs) and AI chips.

Samsung Electronics will be aiming to win orders for non-memory processes below the 3nm process of Intel. The market is paying attention to whether Intel will diversify its foundry with TSMC and Samsung Electronics.

Which stock should I buy?

Which stock to buy during the foundry boom?

The stock price of TSMC (NYSE: TSM), listed on the New York Exchange, was $121.52 a day, down more than 10% from the stock price shortly after the announcement of a large-scale investment plan. That’s more than twice as high as $53 a year ago.

According to Yahoo Finance, the analyst target price is as low as $74 and as high as $171. Bernstein Securities recently posted a target price of $148. TSMC’s earnings outlook for this year is good, but it doesn’t seem easy to expect the share price increase rate of last year.

TSMC is not the only beneficiary of the foundry industry boom. The Dutch lithography manufacturer ASML (NASDAQ: ASML), which exclusively produces EUV exposure equipment essential for semiconductor microprocessing, accounts for 55% of its foundry sales. ASML will continue to show strong growth as semiconductors grow.

In its earnings announcement on the 28th, Samsung Electronics decided to increase its annual dividend amount by KRW 200 billion to 9.8 trillion KRW for the next three years. Samsung Electronics’ share price is 82,000 won (closed on January 29), which is less than the analyst’s lowest target price of 92,000 won. The highest target price is 120,000 won.

Samsung Electronics’ semiconductor division and TSMC’s annual operating profits are similar at 18 trillion won and 22 trillion won, respectively, as of 2020, but based on the 12-month expected performance, TSMC is 26 times and Samsung Electronics is. At 17 times, Samsung Electronics is receiving low evaluation. The total operating profit of Samsung Electronics, including the home appliance mobile phone division, reached 35.9 trillion won. However, the market is evaluating that profit quality and growth are lower than that of TSMC, which is focused on pure foundries.

As Samsung Electronics expands its foundry market share in accordance with the’Semiconductor Vision 2030′, it is expected that the stock price gap with TSMC will close.

Reporter Hurran [email protected]