In the first quarter of this year, Samsung’s operating profit fell 60% due to falling prices due to excess memory chips worldwide.

According to an executive at the company’s Giheung Park in southern Seoul, the Korean company now wants to increase its processor division’s revenue and says it will invest 1330 trillion won in the next decade to become the world’s largest and most advanced. Processor chip manufacturer.

Whoever dominates the industry will be the key to supporting new technologies such as artificial intelligence, 5G and autonomous vehicles. They are also expected to be winners in the foundry market. According to TrendForce, the Foundry market will have an annual production of nearly $70 billion this year. According to IC Insights, revenue growth in this area will soon exceed that of other chip markets.

Demand for memory chips has been high for the past three years, in part because of the boom in smartphones, in part because of the need to build more and more data centers to accommodate the vast amounts of data produced by individuals and businesses.

Samsung's huge chip division had sales of RM8.8 million ($73.3 billion) last year, with the processor division becoming the second largest area after manufacturing memory chips, and Samsung's storage data storage products accounted for 84% of these sales. %.

Samsung's success or failure will also have an important impact on the technology industry, including the dream of influencing China's semiconductor self-sufficiency, which may reduce Taiwan's long-term advantages in manufacturing processor chips and expand Korea's position in the electronics supply chain.

Although Samsung and TSMC are leading the way in terms of chip size and power consumption, TSMC has dominated the market since its founder, Morris Chang, hatched an independent foundry model in the late 1980s. The Hsinchu-based group is also the darling of technical analysts who have established strong relationships with a number of chip design companies, including Apple and Huawei.

Samsung only accounts for 8% of the processor chip foundry market. They need to increase their share significantly in order to challenge TSMC from Taiwan, which has controlled more than half of the market in the past few years. In the process, Samsung may also need to defend against challengers from mainland China.

For Samsung to succeed in this area, there are two things to focus on: money and trust.

Take TSMC as an example. In order to continuously develop and create the world's leading chip technology, they reinvested 8% of their annual revenue into research and development. Their investment in 2018 was 2.9 billion US dollars.

The news released by Samsung in April shows that in order to leave itself in the competition to produce cutting-edge chips. Of the $115.7 billion they invested, about $63.5 billion was spent on research and development, and the rest was spent on manufacturing facilities.

Despite this, analysts pointed out that Samsung's chip manufacturing sector's annual capital expenditure is expected to reach about 5 billion to 6 billion US dollars in the next decade, which is still a gap from TSMC's 10 billion to 12 billion US dollars in the next few years.

Randy Abrams, an analyst at Credit Suisse in Taipei, said, "Samsung will invest a lot of research and development to become the 'second largest' foundry."

As Samsung has seen, the promise of cash by 2030 ensures the company's sustainable growth, and executives have not ruled out the possibility of further increases in spending. Compared with Taiwan Semiconductor Manufacturing Co., they also won Apple's core position as a core customer. TSMC won the dominant position by significantly increasing its spending on chip technology and capacity before the smartphone boom.

And Samsung is looking for similar opportunities, hoping that new applications around 5G, AI or the Internet of Things may give it an open. "If the timing is right, we can do something similar to TSMC," the executive said.

But Samsung is also an important player in the field of smartphones and devices, which means that some potential customers are cautious because of conflicts of interest.

Many companies that Samsung wants to do with chip manufacturing cooperation are direct competitors. Although the company split the chip manufacturing division from other departments in 2017, this concern still exists.

"Apple and Huawei both have a large chip share and are growing over time, which is the two big customers that Samsung can't get," Mr. Abrams said.

Will the company trust Samsung?

Samsung executives stressed their determination to resolve the issue of trust and pointed out the company's efforts over the past two years, including new legal compliance protection and firewalls to protect customers' intellectual property.

But industry observers still question whether Samsung has alleviated its concerns. “Building trust takes years. It’s not just a paper,” said Mark Li, an analyst at Bernstein in Hong Kong.

Analysts said that TSMC's position as a purely independent chip maker is attractive to some of Samsung's major competitors.

TSMC, director of corporate communications at TSMC, said that they are very aware of the competition from Samsung. However, TSMC is optimistic about itself and said that the Korean company will never become a foundry chip manufacturer like TSMC.

“We will never compete with our customers,” Ms. Sun said. “What we do is to work with customers... but Samsung is competing with everyone. But that doesn’t mean they will never get any foundry customers...but will they rely on Samsung to be like TSMC?”

Japan's new export controls on materials used in semiconductor manufacturing may undermine Samsung's use of EUV lithography, which is critical to making the most advanced chips, which will cast a shadow over Samsung's future development.

But some analysts pointed out the history of several cycles of Samsung's successful transformation.

In 1983, the Korean company sent the first dynamic random access memory chip; 10 years later, it defeated Toshiba Corporation of Japan and became the world's largest memory chip manufacturer. Industry watcher Don Dingee wrote in the history of his chip industry. Road.

Then in 1994, the company shipped the first batch of NAND flash components, and by the end of 2002 it provided more than half of the market. Mobile phones take longer: from the "reverse engineering Toshiba car phone" in the early 1980s to the number of smartphones shipped in 2011 over Apple.

"If you ask me if Samsung can surpass TSMC in five years? My answer is just 'no'," said Daniel King, a chip analyst at Macquarie in Seoul. "But after 20 to 30 years, Samsung has been transformed many times and it has been very successful. Microsoft has done it once and Nokia has done it once. But are there other [technical] companies doing it three or four times?"