// Samsung, in a race to build your next smartphone chip, may just win ~ EDUCATION & TECHNOLOGY

Wednesday, 13 May 2015


Samsung isn't just the world's biggest smartphone maker but is also one of the largest semiconductor vendors on the planet. Its operations are based in South Korea, as pictured here in 2013.Shara Tibken/CNET
Samsung, the world's biggest maker of smartphones and TVs, is also dead serious about chips.
So serious that it will spend about $15 billion to open a new semiconductor factory in South Korea by 2017. That's big bucks even compared with the rest of industry, which spends closer to $10 billion for each new factory.
Samsung is proof that Moore's Law matters, the idea that processor power improves exponentially every two years. But to keep up the pace of chip innovation, the industry has had to throw a lot of money and a lot of great minds at the problem. So far, it's paid off for Samsung. The company is the world's biggest vendor of memory chips and the second biggest processor maker overall after Intel, which was co-founded by Gordon Moore, the man behind Moore's Law. Chances are you have a Samsung product in your life, even if it's the flash memory in your favorite tablet.

Today's chip-making business is a race to the tiny. The first companies to make next-generation products smaller and faster stand to win more customers -- at their rivals' expense -- and to recoup their investments. The also-rans? Not so much.
"It's very important for us to be first," said Kelvin Low, senior director of foundry marketing for Samsung's semiconductor business. "These days, second and third becomes extremely challenging ... because from that point on, securing market share is difficult."
Being first is so important, in fact, that Samsung skipped a step in the manufacturing process to get to more advanced chip technology before most of its rivals. Instead of having to learn one new technique, it's implementing at least three at once. That, though, can lead to problems like poor yields.
So far, the risk is paying off. Samsung is attracting new customers, which will give it a bigger slice of the foundry market -- manufacturers hired to build chips designed by so-called "fabless companies" like Qualcomm and Nvidia. Analysts believe Samsung's chip manufacturing business has won back Apple as a customer for the next iPhone processor, giving it both revenue and prestige. Apple buys more chips than any other company on the planet except Samsung, but the Korean company lost Apple's business last year because of ongoing legal fights over phone and tablet designs.
One misstep or delay, though, and all of Samsung's newly won customers might defect to other processor manufacturers.

Keeping up with Moore

In 1965, Intel's Moore noted that chips would double in complexity at a rapid, regular rate -- initially he thought every year, but later revised that to every two years -- as the building blocks of the processor got smaller and were more tightly packed together. That made devices faster, cheaper and more power efficient. His observation, dubbed Moore's Law, has been true for the past 50 years.
But it's become massively expensive for chipmakers to keep up.
Moving to each new generation of processor technology takes years of development and billions of dollars in research, equipment and construction costs. Building a new semiconductor factory can cost upwards of $10 billion, limiting the companies willing and able to play at the leading edge of chip technology. It's also become exponentially more expensive for fabless chip companies to design advanced processors, which means those that don't need the most-advanced technologies for things like high-end smartphones and data centers will be slower to adopt the newer chips.
It's now largely up to four manufacturers to keep Moore's Law going -- Intel, Samsung, Taiwan Semiconductor Manufacturing Co. (TSMC) and Globalfoundries. If those companies don't keep advancing, the smartphones we use will stop getting smarter, and the battery life of those devices will never stretch past a day or two.
Innovation could simply stall.
Chip manufacturing is a big business. Last year, foundries made $46.85 billion in sales, up 16 percent from 2013, according to Gartner. TSMC led the group with more than half of all market share. Samsung, by comparison, ranked No. 4 with 5.1 percent share (though the figure didn't take into account the chips the company builds for itself for use in its smartphones and tablets).
Samsung is in a unique position in the chip market. It not only designs and manufactures semiconductors for its own electronics but also builds processors for other companies -- most notably, smartphone rival Apple. TSMC solely manufactures processors designed by others. Globalfoundries licenses Samsung's technology to build advanced processors for other companies. While Intel has dabbled in the foundry market -- building chips for a few small companies it doesn't compete against -- it dedicates the bulk of its manufacturing capacity for its own processors.

Second place = first loser

Being first with new technology doesn't just bring bragging rights. It attracts more customers and fills a manufacturer's factories -- helping it make more money that it can then invest in even more factories. If a chip manufacturer doesn't have a factory running at capacity, it doesn't make back the money it invested to build the facility in the first place.
Samsung surprised the industry when it started producing what's currently the most advanced technology -- known as 14 nanometers, or billionths of a meter, in reference to the size of part of a transistor -- ahead of TSMC by several months. TSMC said it plans to move to the newer technology later this year, but being even six months behind has put it at a disadvantage when it comes to attracting customers.
TSMC didn't respond to a request for comment, but the company on Thursday projected lower revenue in its current quarter in part because of tougher competition in the chip market.
Samsung is the world's biggest memory chip maker, which most of its processors built in South Korea factories, pictured here in 2013.
"In the last two decades ... the most bleeding-edge technology [aside from Intel] was all developed by TSMC and its foundry service," said Gartner analyst Samuel Tuan Wang. "Now Samsung, for the first time in history, is beating the schedule of TSMC in process technology by almost two quarters."
Samsung also hit that milestone about six months after Intel -- instead of lagging its US rival by years. But Intel, while currently selling many 14-nanometer PC chips, has been slower to apply the technology to its mobile processors. Since more smartphone chips are sold than PC chips, Intel has been missing out on the faster-growing market. Samsung's Galaxy S6, which will likely be the Korean company's top-selling smartphone this year, is the first product to use Samsung's 14-nanometer chips.
How did Samsung beat TSMC? It decided to skip over 20 nanometers, the technology that's currently used by TSMC to build Apple's A8 and A8X iPhone chips and iPad processors. Instead, Samsung turned its attention and R&D investment to 14 nanometers.
"It was not an overnight thing ... [and] it's not magic," Low said. "We basically put more focus on 14 nanometers, while some other foundries chose to put [their] focus on 20 or 22."


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