Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Samsung Foundry Talks a Big Game, But Can It Deliver?

By Ashraf Eassa - Mar 4, 2014 at 10:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Samsung says it's going to take over the (chip) world, but can it really afford to?

Samsung (NASDAQOTH: SSNLF) has been talking a rather big game with respect to its growing foundry business. In various investor conferences, the company has repeatedly claimed that it is aiming to be the world's top foundry and will transition to new technologies at a lightning pace. While such aggressive claims are always great for investor morale, it's important to understand that Samsung -- in the scheme of the semiconductor logic foundry business -- just isn't very significant.

What's the pecking order?
According to IC Insights, the largest player, by far, is Taiwan Semiconductor ( TSM -0.43% ), which did nearly $20 billion in foundry revenue during 2013. Global Foundries is a distant second with about $4.2 billion, the struggling United Microelectronics is third, and Samsung is fourth at just shy of $4 billion. Notice that even with all of the Apple business to date, as well as some business from the likes of Qualcomm (traditionally TSMC customers), the company is still just barely pushing the $4 billion mark.

Compared to TSMC, Samsung is downright small, and compared to the world's largest semiconductor company, Intel, which does $50 billion per year in semiconductor sales, both of them combined are still no match. What's even worse for Samsung is that the majority of its foundry revenue, derived from its relationship with Apple, is likely to plummet unless it can sign on a significant number of new customers to make up for what is, at best, a second source to TSMC and, at worst, a complete ousting from the Apple A-chip supply chain.

Is Samsung's roadmap realistic?
On Samsung's most recent call, and on the road map it gave at its recent analyst meeting, the company claimed that it would deliver 20nm apps processors this year and its 14 nanometer FinFET process would be ready for the end of the year.

Source: Samsung

What's interesting is that the most recent Exynos products are still built on the company's 28-nanometer HKMG process. Further, there have been pretty loud whispers among the investment community that Samsung's yields on 20-nanometer are so horrendous that Samsung will be pulling out of the A8 supply chain completely, leaving that contract wide open for the more-established TSMC.

More interestingly, if Samsung's 20-nanometer yields are terrible, what are the odds that it will be able to waltz into 14-nanometer FinFET by the end of 2014? This doesn't really make much sense, although the company is likely to say whatever is necessary to keep investors from losing faith. While Samsung will likely eventually get to 14-nanometer FinFET, it will probably be a much more difficult road than the company has seemed to suggest on the various calls and in presentation materials.

Foolish bottom line
The takeaway here is that TSMC is, by and large, the leader in logic chip fabrication from both a revenue standpoint as well as a technology standpoint. TSMC has, regarding volume production, good yields on 20-nanometer. Of course, that excludes Intel as a foundry. More importantly, though, is whether Samsung really has the money to go head-to-head with TSMC as a leading-edge foundry. TSMC spends upward of $1.6 billion per year in R&D, and that amount is growing. It represents about half of Samsung's foundry revenue. Without significant growth, Samsung's non-memory semiconductor business simply can't afford to compete with TSMC and still remain profitable.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Taiwan Semiconductor Manufacturing Company Limited Stock Quote
Taiwan Semiconductor Manufacturing Company Limited
$121.80 (-0.43%) $0.52

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/08/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.