Hmmm.....a Qualcomm/Samsung partnership starts to look intriguing with them entering the foundry market.
marketwatch.com
Samsung to build chips for others
Korean giant set to outpace Intel on big-ticket spending
By Chris Kraeuter, CBS.MarketWatch.com
Last Update: 7:41 PM ET Oct. 27, 2004
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SAN FRANCISCO (CBS.MW) -- Samsung says it will use up to half the capacity of a new factory to make chips for other companies, a significant entry into a fast-growing market that may help the Korean giant expand beyond its memory-chip business.
The new factory, set to open in South Korea in mid-2005, is part of a $4.1 billion push that will vault Samsung's (SSNGY: news, chart, profile) 2004 capital spending budget past that of Intel (INTC: news, chart, profile), the world's largest chipmaker and top industry spender since 1992.
"This is about trying to find some growth engines," Jon Kang, senior vice president of Samsung's chip division, told CBS MarketWatch. Samsung is shifting its spending priorities to prepare for the future of the semiconductor landscape, said Kang, who is in charge of the memory unit's strategy and development direction. Listen to part of interview with Kang.
Many chipmakers find the costs of building and equipping a new semiconductor factory -- which now exceed $3 billion on average -- to be prohibitive. A growing number of companies are turning to chip foundries, which mass-produce chips designed by others, to meet demand for their products.
Because of its financial resources and engineering prowess, Samsung may be the ideal candidate to try and tap this market segment, said Joanne Itow, a foundry analyst with Semico Research.
"I think it's evident in the way that [Samsung] pursues the memory market that when they put their mind to something, they definitely go after what they want," said Itow.
Samsung has long held the top position within the market for memory chips, but those products have become low-priced commodities subject to rapid, unpredictable price swings.
Yet the company's entry into the foundry business will be anything but a sure thing. For starters, the technical challenges posed by switching to a new manufacturing technology often cause snafus at big chip makers.
All companies go through learning curves when entering the foundry space, Itow said, adding that the extremely small scale of the latest chip-making processes compounds the manufacturing challenge.
The foundry market is also crowded with large and formidable rivals, including Taiwan Semiconductor Manufacturing (TSM: news, chart, profile), United Microelectronics (UMC: news, chart, profile), Chartered Semiconductor (CHRT: news, chart, profile) and Semiconductor Manufacturing International (SMI: news, chart, profile). IBM (IBM: news, chart, profile) and Toshiba (TOSBF: news, chart, profile) also have leading-edge foundry operations.
Those companies often have tight-knit relationships with their customers, who must transfer sensitive technology in a process that requires long lead times.
"The foundry market has a tendency to have customer relationships that are very loyal," Itow said.
Yet Kang said the foundry business is a key to Samsung's future.
The company sees itself as one of only a few today that has the scale and resources to support advanced chip manufacturing. Kang said the company will keep investing to meet this need and that its capital expenditures will approach billions of dollars for the next several years.
Inside the factory
Samsung's foundry services will be housed in a new factory in Giheung, outside of Seoul, with production slated to begin late in the second quarter or early in the third quarter next year.
The factory will make only logic semiconductors -- but no memory chips -- and be capable of producing 30,000 silicon wafers per month. Each wafer will have a diameter of 300 millimeters, or 12 inches.
In the past, Samsung had only a limited ability to produce leading-edge logic chips -- the specialized processors that function as the brains of electronic devices. That changed significantly this year as Samsung placed more emphasis on its logic operations, known as its System LSI unit.
That emphasis included Samsung setting aside about $1 billion of its capital budget for its non-memory chips, including those made in the Giheung foundry. That's a rise of more than three-fold compared to 2003.
Samsung logged chip sales last year of around $10 billion with about 80 percent of that coming from its memory unit and 10 percent coming from its logic unit.
The factory at first will make chips with transistor gates that are spaced 90 nanometers apart. A nanometer is one-billionth of a meter, and most chipmakers are currently transitioning to 90-nanometer production from 130-nanometer production.
Samsung's Giheung factory will eventually move to 65-nanometer production as it seeks to cram more chips onto each wafer. Other chipmakers also have similar technology transitions planned.
Kang estimated a third to a half of the factory's wafer starts would be used for foundry work.
"We've had really good feedback from some leading fabless companies who are interested in working with Samsung," he said.
Samsung intends to use its own capacity at the factory to make a variety of advanced logic chips including ASICs, or application specific integrated circuits, which are chips programmed with software for a specific use.
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