[ANALYSIS] Yield troubles at Samsung Electronics endanger big bets
Samsung Electronics is struggling with semiconductor yield problems that endanger its big bets on systems chips and the foundry business.
The problem, which has been evident for some time and a favorite topic of the semiconductor trade press, went prime time with the roll out of the latest Exynos, a system chip developed by Samsung Electronics that is supposed to compete with Qualcomm's Snapdragon line and allow the company, the largest smartphone maker in the world, to match the performance Apple products.
"Samsung Electronics encountered trouble ramping up production yields of 4-nanometer chips as shown in the delay of its Exynos 2200 delivery," said Jeong In-seong, a semiconductor specialist who authored "The Future of the Semiconductor Empire."
The Exynos 2200's introduction was delayed for 1 week in January.
"Samsung Electronics had to trim down the number of countries where Exynos-powered Galaxy S22 models retail because of the yield issue. It shipped them to only a handful of small markets in Europe," he said. In the company's major smartphone markets — the United States, Korea and India — all Galaxy S22s had Snapdragon processors.
The yield rate is the amount of a silicon wafer that is successfully made into dies, which are themselves packaged to become semiconductors. The lower the yields, the less product produced.
Samsung Electronics would not confirm the actual yields of its 4-nanometer chips, but media reports in Korea put the rate at between 20 percent and 30 percent. TSMC reported yields of around 80 percent for its 5-nanometer products in 2019.
Against this backdrop, Samsung Electronics recently initiated an internal probe into its foundry, or chip fabrication, business division. These probes are usually undertaken to look more closely into the operations of poorly-performing units, though a Samsung Electronics spokesperson said that in this case it is just "a regular event to enhance competitiveness."
It is the first time for the foundry business, which was made a separate division in 2017, to be the subject of such a probe.
Kang Moon-soo, head of the foundry market strategy team at Samsung Electronics, acknowledged the difficulties producing chips based on the latest manufacturing techniques during a conference call in January.
"It is true that we have trouble achieving a stabilized yield rate in the beginning stage" of adopting the new manufacturing process, Kang said, citing the complexity of the fabrication process.
With the steep rise in data traffic and the increased loads of sophisticated data functions for processing machine learning and metaverse functions, chip manufacturers like Samsung Electronics and Taiwan's TSMC are furiously working to pack more transistors onto integrated circuits (IC).
In doing so, they are beginning to bump up against certain technical and physical limits.
"To increase the chip performance, the manufacturer must integrate more transistors onto the ICs that are already infinitesimal," said Greg Roh, an analyst at HMC Investment Securities. "At the same time, it must manage possible overheating through different hardware and software techniques, since the higher the density of transistors the higher the chance of overheating."
Samsung Foundry manufactures chips installed in the company's Galaxy S22 series — Exynos 2200 and Qualcomm's Snapdragon 8 Gen 1.
The S22's data processing speed was on par with that of the S21, its predecessor, which came equipped with the Snapdragon 888 and the Exynos 2100. When compared to the iPhone series, the average score of the S22 Ultra, the high-end unit from the latest series, was in line with that of the iPhone 11 Pro, according to Geekbench.
TSMC fabricates processors for iPhones.
Local media outlets have reported that Qualcomm, one of the biggest foundry clients for the Korean chipmaker, has picked TSMC over Samsung Foundry to manufacture Snapdragon 8 Gen 1 Plus and the next version of the 8 Gen 1 series, which will be rated at 3 nanometer.
TSMC had 53.1 percent of the foundry market in the third quarter, according to Taiwanese research firm TrendForce, and Samsung Electronics had 17.1 percent.
When it comes to mobile processors, Samsung Electronics had 4 percent of market as of the final quarter last year, down 6 percentage points on year, according to Counterpoint Research.
"Samsung Electronics is in the middle of rejigging its smartphone portfolio strategy of in-sourcing as well as outsourcing to Chinese ODMs. As a result, the share of MediaTek and Qualcomm chips have been growing across Samsung's smartphone portfolio, from the mid-range 4G and 5G models manufactured by ODMs to the flagship ones," the research firm wrote, referring to original design manufacturers, which make products under contract.
TSMC plans to invest $44 billion this year alone to ramp up production at its foundry business. Samsung Electronics upgraded its investment plan last year on processor development and foundry to 171 trillion won ($137.9 billion) by 2030, which means it is investing at about half the rate of TSMC.
The Suwon, Gyeonggi-based company made a big move last year to build a new foundry plant in Taylor, Texas, by investing at least $ 17 billion. Construction hasn't started yet, despite its initial plan to break ground in the first quarter.
"Samsung Electronics' competitiveness in system-on-chips has weakened," said Kim Yang-jae, an analyst at KTB Investment & Securities.
"It has increased the portion of outsourced chips into its own products," he said, projecting that the upcoming folding models, set to be released in the second half, will use Qualcomm's Snapdragon chips.
BY PARK EUN-JEE [email@example.com]