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Samsung-Globalfoundries alliance a threat to Taiwan Semiconductor Manufacturing Company


Samsung is the world’s second-largest chipmaker and has the lead in the new production technology, while Globalfoundries has a broader customer list, and it doesn’t compete directly with potential customers. – Bloomberg News

Taipei: Samsung Electronics and Globalfoundries are teaming up in the made-to-order chip business, an alliance aimed at stealing orders from Taiwan Semiconductor Manufacturing Company (TSMC).

Globalfoundries will licence Samsung's most advanced new chipmaking technology, called 14-nanometer FinFET, giving customers access to production at plants in Texas, New York state and South Korea. Terms of the accord weren't disclosed.

The companies are seeking to pose a bigger challenge to Taiwan Semiconductor, which last year controlled about half of the $38.9 billion chip-foundry business. Samsung and Globalfoundries are betting the advanced technology and scale they can offer together will help ensure they remain central in the market for building smartphone and tablet parts.

"This offers a huge competitive threat to TSMC and provides an alternative to those companies who are looking to use leading-edge production," said Jim McGregor, an analyst at Tirias Research. "It's a huge deal."

Samsung will reach full production on the new manufacturing technology by year's end, said Jeong Seh Woong, an executive vice-president in charge of the foundry business.

Pooling resources
The Suwon, South Korea-based company is the world's second-largest chipmaker and has the lead in the new production technology, while Globalfoundries has a broader customer list, and unlike Samsung — which is also the biggest maker of mobile phones and televisions — it doesn't compete directly with potential customers. The alliance may also make it tougher for Intel to build a position in the foundry business, McGregor said.

Samsung rose 0.6 per cent to close at 1,378,000 won in Seoul. The benchmark Kospi index added 0.6 per cent. TSMC spokeswoman Elizabeth Sun didn't answer two phone calls and an e-mail seeking comment yesterday.

Globalfoundries ranked second in the made-to-order chip market last year, and Samsung was fourth, together generating about $8.2 billion of foundry revenue, according to market researcher IC Insights.

Samsung's main customers for chip-building work are Apple and itself — the company makes parts for its own phone and tablet divisions, McGregor said. If Samsung and Globalfoundries bring the technology to the market in the time frame they are promising, it could put them at least six months ahead of the competition and tempt multiple chipmakers to give them orders, said Len Jelinek, an analyst at market-research firm IHS.

The partnership would also reduce the cost for chipmakers of alternating between the two suppliers, because products wouldn't need to be redesigned, as they do now when companies switch, he said.

"Now you have two well-respected organisations combining forces. For a customer, if you can truly have multiple sources, it changes everything," Jelinek further said.

Advanced techniques
The foundry business is gaining importance as more semiconductor companies decide not to produce their own designs, instead outsourcing the manufacturing to the few chipmakers that can afford to keep developing advanced production techniques.

Most chips at the heart of smartphones and tablets are manufactured by foundries such as Taiwan Semiconductor.

The consequences of being limited to one supplier can be painful. Qualcomm, which in 2012 became the world's third-largest chip provider, has never built its own products.

In the same year it reached that position, the company told investors that sales would be held back because of limited smartphone-chip production at Taiwan Semiconductor. Switching manufacturing to other suppliers would take time, the company said, meaning that some demand went unmet.

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