As Samsung Electronics targets new growth drivers for the chips business, aggressively adding clients is the strategy that the IT giant plans to triple the market share of its contract chip manufacturing business within the next five years, according a senior company executive.
In a clear statement that the technology giant was preparing to focus on the business and narrow the big market share gap with leader TSMC, the estimated 5.3 trillion won ($4.76 billion) business at Samsung was split off as a separate arm within its semiconductor division in May.
The company will seek to attract smaller customers in addition to big-name clients to fuel the growth and the firm wants a 25 percent market share within five years, said E.S. Jung, executive vice president and head of the new Samsung foundry division, to Reuters.
“We want to become a strong No. 2 player in the market,” Jung said.
On the back of a memory market boom, it is widely expected to pass Intel Corp as the world’s top chipmaker by sales in 2017 as Samsung is on track for record profits.
But in contract manufacturing, the firm lags well behind Taiwan’s TSMC. According to research firm HIS, compared with Samsung’s 7.9 percent, TSMC held a market share of 50.6 percent last year. Taiwan-based UMC’s 8.1 percent and U.S.-based Global Foundry, which had a 9.6 percent share, Samsung also trailed them.
The memory industry is unlikely to repeat the massive revenue gains seen this year because it is notoriously cyclical. Analysts say Samsung needs to strengthen the rest of its chip portfolio to secure future growth as new applications such as cloud computing, autonomous driving and virtual reality emerge.
Foundry and memory businesses will share the 6 trillion won next-generation chip production line that will be built in Hwaseong, South Korea, Jung said even as he declined to comment on revenue or investment targets.
With Daishin Securities forecasting it will see an increase of 10 percent or more this year, analysts estimated it at 5.3 trillion won last year, even as Samsung doesn’t reveal its chip contract manufacturing revenue.
Jung said Samsung will be able to keep production capacity flexible depending on market demand by relying on memory chip lines, while TSMC splurges around $10 billion of capital expenditure annually.
Samsung has a long way to catch up to TSMC even though it already counts as client major firms such as Qualcomm Inc, Nvidia Corp and NXP Semiconductors.
TSMC has had 100 percent of Apple’s mobile processor business in 2016 and 2017 as Samsung lost Apple to TSMC in 2015, analysts estimate.
“You need a technology that can wow your clients. Without such advanced technology, it’ll be difficult to win back customers from your rivals,” Jung said, without specifying any clients’ names.
Using the latest manufacturing technology called EUV (extreme ultraviolet) lithography ahead of rivals, Samsung was confident of producing chips, he said.
The cost and complexity of chip manufacturing is potentially lowered by the EUV which is a next-generation technology. In introducing EUV, Samsung and TSMC are neck-and-neck.
(Adapted from Reuters)