TSMC vs. Samsung: Semiconductor Showdown

1. Summary

• The analysis delves into the competitive dynamics between TSMC and Samsung Electronics within the semiconductor foundry business and their strategic roles in the AI semiconductor market. TSMC distinguishes itself by focusing exclusively on foundry services, building strong customer loyalty through tailored solutions and partnerships with major clients like Apple and Nvidia. Through significant Research & Development investments and expansion into global markets including Europe and Japan, TSMC has cemented its leadership with a robust market share. On the other hand, Samsung Electronics operates a diversified business model, leveraging its expertise in memory semiconductors to achieve competitiveness in the foundry sector. Despite its advanced process technologies and initiatives like AI semiconductor development and partnership with Seoul National University, Samsung faces notable challenges in customer acquisition, exacerbated by a decline in revenue and market share. Nonetheless, Samsung's production capabilities and innovation in AI semiconductor solutions underscore its growth potential. The report further highlights the evolving landscape of the AI semiconductor market, stressing the influence of global supply chain dynamics and technological advancements.

2. TSMC's Competitive Analysis

• 2-1. TSMC's Business Model: Focused on Foundry Services

• TSMC has operated exclusively in the semiconductor foundry business since its establishment in 1987, distinguishing itself from Samsung Electronics. TSMC produces semiconductors designed by its customers, thus providing customized solutions and building strong partnerships. This focus has reinforced collaborations with key clients including Apple and Nvidia.

• 2-2. TSMC's Technology and R&D Investment

• TSMC has secured a dominant position in the global market through ongoing investments in R&D and foundry technology innovation. For the first half of 2023, TSMC's revenue reached 63 trillion KRW, representing a 28% increase year-over-year. The company recorded approximately 28 trillion KRW in revenue for the second quarter, showcasing growth through enhanced production capabilities.

• 2-3. TSMC's Global Expansion Strategy

• TSMC has announced global market expansions into regions such as Europe, Japan, and the Middle East. Notably, TSMC plans to construct a vehicle semiconductor manufacturing plant in Dresden, Germany, projected to be operational by 2027 with an investment of approximately 10 billion euros (14.7 trillion KRW). Additionally, TSMC has unveiled plans for a second plant in Kumamoto, Japan, which is anticipated to achieve a monthly wafer production capacity exceeding 100,000 units.

• 2-4. Customer Relationships and Trust Building

• TSMC has achieved sustained growth based on strong trust relationships with its customers. Apple entrusts TSMC with the chips for major products like the iPhone series, reinforcing the collaboration between the two. TSMC meets the customized needs of its clients, creating an environment that is difficult for customers to leave. This is aligned with TSMC's motto, 'ICIC' (Commitment must be fulfilled).

3. Samsung Electronics' Foundry Competitive Analysis

• 3-1. Samsung's Diversified Business Portfolio

• Samsung Electronics has leveraged its longstanding leadership in the memory semiconductor market to enhance its global competitiveness in the foundry business. The company operates on a model where fabless semiconductor design firms outsource their production to Samsung’s foundries. This approach enables Samsung to aim for a diverse range of semiconductor chip production, particularly focusing on high-performance semiconductor manufacturing through advanced processes. This integrated business structure allows Samsung to respond effectively to customized chip demands by combining memory, foundry, and packaging services.

• 3-2. Samsung's Technology and Advanced Process Adoption

• Samsung Electronics boasts advanced technologies, including ultra-fine processes below 5nm. These allow the production of semiconductors used across various applications such as smartphones, data centers, AI, and autonomous vehicles. To strengthen its capabilities in AI semiconductor development and production, Samsung has made significant research and development (R&D) investments and established dedicated production lines for AI semiconductors. The company has introduced cutting-edge technologies like Gate-All-Around (GAA) and started mass production using 3nm processes since 2022, increasing its yield significantly.

• 3-3. Challenges in Securing Key Customers and Experience

• Currently, Samsung ranks second in the global foundry market, following TSMC. However, it has faced a decline in revenue and market share due to a shortage of major customer orders. In the first quarter of 2024, Samsung's foundry revenue fell by 7.2% from the previous quarter, totaling $3.357 billion, resulting in a market share decrease to 11.0%. This scenario indicates an increasing gap with TSMC, with issues related to customer trust and experience being identified as primary causes.

• 3-4. Samsung's Global Production Facilities

• Samsung Electronics maintains its market share in the global foundry sector despite TSMC leveraging its Arizona facility to gain an advantage in securing AI chip customers. Consequently, there are rising calls for Samsung to establish production facilities in the U.S. to enhance its position in the AI semiconductor market. Currently, Samsung holds an 11.5% market share; however, strategic investments are essential to bridge this gap.

4. Roles and Strategies of Both Companies in the AI Semiconductor Market

• 4-1. Increased Demand for AI Semiconductors and TSMC's Response

• According to the report, TSMC currently holds a dominant position in the global foundry market with a market share of 62.3%. As demand for AI semiconductors has increased, TSMC has strategically positioned itself by establishing production capabilities at its facility in Arizona, which is advantageous for securing AI chip customers. This proactive response has enhanced TSMC's standing in the rapidly growing AI semiconductor sector.

• 4-2. Samsung's Development of AI Semiconductor Turnkey Solutions

• Samsung Electronics has made significant strides in the AI semiconductor market by developing turnkey solutions that cater to specific customer needs. In the first quarter of 2024, Samsung successfully sold 13.5 million units of the Galaxy S24 series, achieving a market share of 58.4% in the generative AI smartphone segment. To further bolster its AI capabilities, Samsung has established an 'AI Joint Research Center' in collaboration with Seoul National University, planning extensive joint research over the next three years.

• 4-3. Collaboration and Talent Development Strategies

• Samsung has implemented robust strategies for talent development and collaboration across various technical fields. The company is actively partnering with leading educational institutions in South Korea to research the latest trends in AI technologies. This initiative is deemed essential for securing talent and fostering innovation in the era of AI.

• 4-4. Impact of Global Semiconductor Supply Chain Dynamics

• The AI semiconductor market is undergoing transformative changes due to the integration with various technologies such as cloud computing, edge computing, and IoT. Current dynamics in the global semiconductor supply chain are being reshaped by regulatory frameworks such as the U.S. Semiconductor Support Act and export regulations on Chinese companies. These factors are expected to significantly affect the industry's landscape, necessitating enhanced technical capabilities within supply chains.

5. Comparative Analysis of TSMC and Samsung's Competitiveness

• 5-1. Corporate Value and Market Share Comparison

• As of recent reports, TSMC's market capitalization has surpassed $1 trillion on the New York Stock Exchange. In contrast, Samsung Electronics' market capitalization is approximately 2.5 times that of TSMC. This has resulted in a growing disparity in corporate value between the two companies. Prior to 2020, Samsung had a higher market capitalization than TSMC; however, TSMC currently maintains over 60% market share in the global foundry market, reflecting the increasing prominence of its foundry technology in relation to AI demand.

• 5-2. Comparison of Technology Innovation and R&D Investments

• TSMC has adopted GAA technology for its 2nm process, while Samsung started using this technology from the 3nm process to enhance yield. In the capacity of the global foundry market, TSMC recorded a market share of 61.7% in Q1 2023, whereas Samsung held 11%, ranking second. The key differentiator between the two companies lies in customer acquisition, with Samsung yet to receive orders from major tech companies. TSMC, concentrating solely on foundry services, has maximized its R&D and production efficiencies, while Samsung has diversified its operations across various fields.

• 5-3. Customer Acquisition and Trust Comparisons

• TSMC has established strong partnerships through close collaborations with major clients, including Apple, AMD, and Qualcomm. Conversely, while Samsung offers differentiated services by integrating foundry, memory, and packaging, its lack of direct focus on pure foundry operations places it at a slight disadvantage in competitive positioning. Additionally, Samsung faces challenges in building trust with customers, which necessitates long-term efforts.

• 5-4. Global Market Strategy Comparisons

• TSMC employs a 'selective and focused' strategy that dedicates resources solely to semiconductor foundries, thus ensuring high levels of technical expertise and production capacity. On the other hand, Samsung has expanded its business across various sectors including memory and system semiconductors, actively driving growth in the AI semiconductor market. However, the gap between the two companies is not easily narrowed due to their differing strategic focuses.

Conclusion

• The report underscores how both TSMC and Samsung Electronics possess distinct competitive strengths within the foundry market. TSMC's refined focus on foundry services, continuous innovation, and robust client connections solidify its market dominance and leadership in the AI semiconductor sector. By maintaining high technical expertise and production power, TSMC effectively adapts to the growing demand in AI chips, as evidenced by its proactive strategies like the construction of a production facility in Arizona. In contrast, Samsung Electronics, while capitalizing on its diverse operational model and advanced technological solutions such as Gate-All-Around (GAA) in 3nm processes, confronts issues in securing key clients due to a broader focus on memory and system semiconductors. This not only affects its foundry market share but also highlights a critical need for trust-building initiatives with potential customers. Limitations within Samsung's current strategical framework indicate the necessity for expanding U.S-based production facilities to remain competitive. Looking forward, both entities need to continuously adapt to the transformative shifts in the AI semiconductor market driven by global supply chain changes and regulations. For practitioners, these analyses suggest the importance of refining core strategies to navigate the complexities of the foundry market while addressing the heightened demands for AI-driven technologies.

Glossary

• TSMC [Company]: TSMC, headquartered in Taiwan, is the world's largest semiconductor foundry company, recognized for its advanced technology and significant market share. Its focus on R&D investment and global expansion strategies solidify its leadership in the semiconductor industry.

• Samsung Electronics [Company]: Samsung Electronics is a leading global electronics company based in South Korea, excelling in various sectors, including memory and system semiconductors. Its strategy involves leveraging a diversified portfolio to enhance competitiveness in the foundry market.

• AI Semiconductor [Technology]: AI semiconductors are specialized chips designed to accelerate artificial intelligence tasks, crucial for applications in machine learning, data processing, and analytics. The market for AI semiconductors is growing rapidly due to increased demand for AI applications across industries.

Source Documents

• TSMC와 삼성전자 파운드리 사업의 경쟁력 비교 및 AI 반도체 시장에서의 전략 분석go-public-report-ko-d192e08e-00d2-4c7e-a775-079afc2ab7fb-0-0