In order to remain competitive, Intel plans on becoming a chip supplier rivalling TSMC and Samsung. This move potentially has huge implications for the semiconductor industry, as it could change the relationships between Intel, TSMC, and Samsung.
To further understand the impact of Intel’s plans, this article will cover how Intel plans to compete with these two semiconductor giants and what it means for the industry as a whole.
Overview of Intel’s Plans
Investors and industry watchers have closely followed Intel’s plans to expand its data centre and PC businesses. At its investor meeting in October 2020, Intel announced plans to increase capital equipment spending from approximately $14 billion in 2021 to as much as $25 billion in 2023. This significant investment is expected to improve the competitiveness of Intel’s products, reduce its reliance on third-party suppliers, and reduce costs.
The move stands to have a major impact on Intel’s competitors, especially those chipmakers that depend heavily on foundry services provided by companies such as Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung Electronics. However, while many analysts expect the two companies’ profits to suffer due to the increased competition from Intel in both markets, some also believe that long-term opportunities may offset any near-term disruption.
In particular, TSMC and Samsung may benefit if Intel develops expertise or technology that needs extensive follow-up services. These could include chip design assistance or wafer supply agreements—services that TSMC and Samsung already offer customers beyond the scope of foundry services for pure chip manufacturing. In addition, China may also present attractive opportunities for these two players over the medium-to-long term by reducing its performance gap with more advanced markets like the US.
How Intel Plans to Rival TSMC and Samsung as a Chip Supplier
Intel’s new plans to become the leading chip supplier for tech companies could have a major impact on the current market leaders, TSMC and Samsung. Intel’s plans to develop 5nm chips, which are currently only made by the two companies above, could seriously blow their dominance in the market.
It is important to look at the potential effects of Intel’s plans on TSMC and Samsung.
In particular, TSMC and Samsung may benefit if Intel develops expertise or technology that needs extensive follow-up services. These could include chip design assistance or wafer supply agreements—services that TSMC and Samsung already offer customers beyond the scope of foundry services for pure chip manufacturing.
Impact on TSMC
Intel’s move to outsource more of its production to a third-party chipmaker such as Taiwan Semiconductor Manufacturing Company (TSMC) has the potential to considerably affect the global chipmaking landscape. Intel currently produces its CPUs, but its plans to shift 14-nanometer and larger chip production to TSMC could drastically change the industry’s competitive dynamics.
In moving major parts of its production needs outside its facilities, Intel is freeing itself from expensive investments in new fabrication plants or costly updates in existing ones. The move could also potentially increase manufacturing flexibility and reduce costs through economies of scale units at TSMC. However, this shift will likely leave relatively few winners, with Samsung and TSMC claiming those top spots.
For TSMC, it means a potentially large influx of new customers attracted by its low prices and large capacity for producing high-performance chips. Furthermore, it allows TSMC to spread its technology roadmap to better compete with Intel on future designs and process nodes that would otherwise be inaccessible without an x86 CPU provider. Similarly, Samsung may experience similar growth due to Intel’s decision as it also has an increasing focus on chipmaking services beyond TV displays and mobile devices. In doing so, Samsung will look to capitalise on more custom products such as modem chipsets for 5G networks available through design houses like Qualcomm Technologies Inc.
Impact on Samsung
Intel’s decision to outsource some of its more energy-consuming chips has significantly impacted both TSMC and Samsung, two major companies that supply chips to the CPU giant. Although Intel’s choice to subcontract its production to third-parties has caused a decrease in revenue for both companies, the financial consequences have been seen at different levels.
TSMC has felt only a minimal decrease in profit due to the company’s diversified product portfolio. As a result, throughout 2020, although TSMC’s sales declined by about 4%, its market share rose from 56% to 60%. Samsung, on the other hand, was not as fortunate: as Intel went through with its plans, Samsung witnessed its market share drop from 16% in 2019 to 12.5%.
The effects spurred by Intel’s choices were particularly evident in Q2 2020 when Samsung reported revenues roughly 30% lower than those of TSMC. These financial drops might have been even more drastic if Apple hadn’t distributed orders between both fabless chip makers reasonably equally. Since then, TSMC’s 5nm process capacity utilisation rate is currently hovering around 100%, while Samsung’s 6nm capacity utilisation rate is roughly 70%.
Overall, it can be assumed that Intel’s decisions are set to impact both these companies’ bottom lines differently throughout 2021 and beyond. While TSMC may continue its dominance among CPU market players during the upcoming year, it remains uncertain whether how much or little influence this trend will have on Samsung within the semiconductor space.
Counter Strategies
Intel announced that they plan to challenge the domination of the semiconductor market by TSMC and Samsung. Both companies have implemented strategies to counter Intel’s incursion, such as investing in advanced technologies, strengthening their supply chain, and increasing marketing activities.
Let’s look closer at the strategies that Samsung and TSMC have used to respond to Intel’s plans.
Samsung has focused much of their attention on developing new innovative products in the System-on-Chip industry.
TSMC’s Counter Strategies
In response to Intel’s increased efforts to manufacture semiconductor chips, Taiwan-based TSMC (Taiwan Semiconductor Manufacturing Co.) and South Korean-based Samsung have developed strategies for competing with Intel in the chip production space.
TSMC has deployed various counter strategies to combat the pressure of Intel’s increased output capabilities. One such strategy is to invest heavily in research and development to stay ahead of Intel’s technological advancements. This includes investing in new technologies and forming partnerships with leading companies such as Apple, Qualcomm, and Nvidia to access their design know-how.
Another counter strategy adopted by TSMC is the increasing usage of extreme ultraviolet (EUV) lithography – a technology that maximises yield while minimising cost. By leveraging this technology, TSMC will be able to produce smaller chips with higher performance and better power efficiency – an advantage against Intel, which still relies on optical lithography for their chip production process.
TSMC has also secured agreements from multiple businesses including Mozilla and Xilinx that commit them to using TSMC’s chips instead of Intel’s – an indication that many customers value quality over quantity when it comes to chipsets. This move serves not only as a sign of confidence towards TSMC, but also reinforces its position as a viable alternative for chip manufacturing compared to Intel.
Samsung’s Counter Strategies
As Intel pivots to become a leader in chip manufacturing, Samsung has faced increased competition to its market share. But the company is adapting their strategies to meet this challenge.
Samsung has focused much of their attention on developing new innovative products in the System-on-Chip industry. For example, the company recently opened a new facility in Korea that focuses on automotive industry components, emphasising chip solutions for vehicles’ sensors, wireless connectivity and AI computer vision.
Samsung has also been leveraging its expansive foundry capabilities to attract more customers from the fast-growing 5G equipment supplier market. In addition, the company has begun offering custom designed packaging services using advanced processes such as 2D and 3D stacking for higher integration speeds and smaller physical area designs essential for high performance 5G communications products.
In addition to these initiatives, Samsung continues to press its advantage into premium markets with cutting-edge technology including High Bandwidth Memory (HBM). HBM provides up to 4x bandwidth over GDDR5, offering increased bandwidth per watt efficiency amidst increasingly power hungry processors due to greater feature integration.
All of these have led Samsung’s revenue from outperformance chips such as mobile image signal processor (ISP), network processing units (NPUs) and mobile display drivers, steadily increasing yearly despite intensifying competition from cash burning rivals such as Intel. Indeed, many investors view Samsung’s position as advantageous given Intel’s late start into contract manufacturing compared with TSMC’s and Samsung’s decades of experience. Moving forward, it remains unclear how well Intel will balance its efforts between hardware development internally and outsourced chip fabrication through external foundries like TSMC and GlobalFoundries/Samsung but it is certain that this competitive landscape will demand constant adaptations from all parties involved.
tags = TSMC, Samsung, chip supplier, rivalry, U.S. tech giant’s, biggest semi conductor company, major contract chipmaker, china, Geopolitics, qualcomm russian usimposed ukrainemathewsreuters, boost strategy
