With the ongoing competition in the AI semiconductor sector, the foundry (contract chip manufacturing) industry is facing a new challenge due to stagnant demand and overcapacity. Concurrently, the rivalry for dominance in the high-bandwidth memory (HBM) segment, a crucial component in AI, is intensifying, escalating the battle among semiconductor firms.
Samsung Electronics has postponed the operation of its Taylor factory from late 2024 to 2026. This delay is seen as a strategic move to adjust investment speed considering the foundry market conditions.
The industry has been signaling that the foundry sector’s growth this year might not meet expectations. TSMC, during its Q1 earnings call on April 18, downgraded its forecast for this year’s foundry growth from “about 20%” to the “mid-teens.”
The extreme ultraviolet (EUV) lithography market, essential to the foundry process, is experiencing a similar trend. The new order value for ASML, a Dutch company, plummeted by 88.4% from 5.6 billion euros in Q4 2022 to 650 million euros in Q1 2023.
Amid this backdrop, there are concerns about overcapacity as new foundry plants are set to open from next year. TSMC is building two foundry factories in the state of Arizona in the U.S. The first factory is expected to start operations in early 2025, while the second is slated for 2028. The first factory in Kumamoto, Japan, opened in February, and the second factory is set to start operations before 2027. Intel, with its sights set on a resurgence in the foundry business, has plans to build new foundry facilities across the U.S., Europe, and Israel.
In the HBM market, which is crucial for AI semiconductors, the competition between the “SK hynix-TSMC” alliance and Samsung Electronics is intensifying.
SK hynix recently announced its partnership with TSMC to develop the next-generation HBM, utilizing TSMC’s foundry technology to improve the energy efficiency and performance of its 6th-generation HBM products. Both companies are customers of Nvidia, creating a formidable AI semiconductor alliance involving GPUs (Nvidia), foundries (TSMC), and HBM (SK hynix).
On the other hand, Samsung Electronics must compete against them. While SK hynix only produces memory, making it not a direct competitor to TSMC, Samsung Electronics, as an Integrated Device Manufacturer (IDM) that manufactures memory, foundries, and system LSI, overlaps with TSMC in business operations.
Samsung Electronics plans to regain market dominance with products exceeding 12 layers. In February it successfully developed the HBM3E with 12 layers, the highest capacity in the industry, and is expected to supply it to Nvidia alongside the 8-layer product in the second quarter. For HBM4, Samsung aims to introduce 16-layer technology.
Despite the slump in foundry demand, the earnings outlook for Samsung Electronics and SK hynix is expected to improve significantly compared to the previous year. The financial investment industry forecasts that SK hynix’s Q1 revenue will reach 12.1021 trillion won with an operating profit of 1.7654 trillion won. Projections suggest an annual operating profit exceeding 21 trillion won this year. For Samsung Electronics’ DS division, estimates suggest an operating profit of between 700 billion and 1.8 trillion won in Q1, with the overall annual operating profit expected to be around 35 trillion won due to improvements in the DS division’s performance.
