The gap between the world's top foundry corporation TSMC and second-ranked Samsung Electronics is not narrowing. According to market research firm TrendForce, the foundry market share gap between the two corporations in the second quarter of 2024 is 50.8 percentage points, which is wider than the 32.7 percentage points recorded in the second quarter of 2020. The problem is that Chinese companies, supported by massive government assistance and a large domestic market, are quickly entering the foundry market. A prime example is SMIC, a Chinese foundry corporation that was once out of the rankings but has secured the third spot this year, closely trailing Samsung.
Ron Lin, author of 'TSMC, the World's No. 1 Secret,' which was published in translation in Korea this November, recently noted in an interview that 'Samsung must accelerate its transition to advanced (ultra-fine) processes.' He is currently an advisor for a Taiwanese economic weekly and has been closely covering TSMC for 30 years as a semiconductor journalist. In his view, Samsung must now reduce its reliance on legacy (outdated) processes, which are becoming a 'red ocean' due to competition from China. Ultimately, 'differentiation' and 'non-substitutability' are key. This aligns with the 'super gap' emphasized by the late Lee Kun-hee, former chairman of Samsung.
Although Ron is known locally as a 'TSMC expert,' he also has a deep understanding of the Korean semiconductor market, having authored works such as 'The Commercial Giant, Samsung.' I asked him about the reasons behind TSMC's rise to the world's top position, along with the causes of Samsung's crisis and possible solutions.
What are the secrets behind TSMC's dominance in the global foundry market?
He stated, 'I believe the most important factor is TSMC's unique business model focused solely on foundry services. TSMC has concentrated solely on the foundry business since its establishment on April 1, 1987. It did not produce its own products. Over the past 40 years, TSMC has seized opportunities during the paradigm shift from vertical integration to vertical specialization in the global semiconductor industry. Coupled with a customer-centric service spirit, this has enabled TSMC to reach its current position.'
Did you expect from the start that TSMC would reach the No. 1 position in the world?
'I did not expect it. TSMC had to pass several tests during its growth process. Before 2000, it faced fierce competition from Taiwan's second-ranked foundry UMC, and around 2014, Samsung pressured TSMC by securing orders from Apple. However, TSMC did not back down. In 2002, it succeeded in developing 0.13µm (micrometers; 1µm is one-millionth of a meter) process technology, overtaking UMC, and after deploying a nighttime shift team called the 'Nighthawk Team,' it was able to regain the Apple orders from Samsung.'
Why haven’t corporations like TSMC emerged in other countries?
'In the cases of Korea, Japan, and China, the semiconductor industry is structurally different from Taiwan's. They are taking an approach to try to solve all stages, including branding, technology, manufacturing, and components, on their own. In general, the industry structure is based on vertical integration. This approach inevitably leads to direct competition with major companies in the United States and Europe. Of course, Taiwan also challenged standard product markets in the past, such as DRAM and displays, but they failed under competition from Korea and China. Instead, they focused on high-value-added manufacturing and differentiated Original Equipment Manufacturing (OEM), quickly meeting the demands of U.S. companies. Thanks to this, Taiwanese companies, including TSMC, were able to secure competitiveness in the semiconductor industry.'
According to Japan's Nikkei, out of 28 executives at TSMC with the rank of vice president or higher, 17 hold doctoral degrees, and among them, 14 received their doctorate in the United States. Does this indicate that the presence of overseas PhDs has driven TSMC's growth?
'I consider the high proportion of overseas PhDs at TSMC to be just one of its many competitive advantages. Nevertheless, the experience of many senior TSMC executives who received their PhDs in the United States and worked in multinational companies played a significant role in understanding and meeting the needs of American clients and establishing close relationships with them. In fact, more than 60% of their clients are American corporations.'
Will TSMC's dominance continue in the future?
'In terms of advanced processes, TSMC has secured strong competitiveness. Additionally, as it continues to make large-scale investments, it is expected to maintain its lead in the future. In contrast, the legacy processes are facing intense competition due to the entry of Chinese firms. If Samsung or Intel cannot quickly shift to the advanced process domain, they may further lose market share.'
In fact, China's presence in the semiconductor industry has been quite significant lately.
'The Chinese semiconductor industry has adopted a strategy of sacrificing profitability and taking on losses to increase production for market share. This approach has the potential to disrupt existing market structures. However, the United States has barred the export of advanced process technology and equipment to China, making it difficult for them to technically enter this market. The problem lies in the legacy institutional sector. China will give it their all. Taiwan remembers the past when industries involving China turned into a 'red ocean.' That is why it focuses on differentiated industries and areas that are technically difficult to substitute. This is a lesson that Korea also needs.'
From your long observation of Samsung, what do you think are the causes of the recent 'Samsung crisis'?
'First, it is the rise of China. Samsung has now found itself competing with Chinese corporations in smartphones, displays, and memory. Second, the rapid advancement of artificial intelligence (AI) has changed the landscape of the semiconductor market. TSMC successfully combined NVIDIA's GPU (graphics processing unit) with SK hynix's HBM (high bandwidth memory) through advanced packaging technology 'CoWoS.' In this process, Samsung was excluded. Third, in 2019, Japan banned the export of certain chemicals to Korea due to compensation issues related to forced labor during the Japanese occupation. This affected Samsung's production yield and led to delays in their processes. Fourth, after the passing of Lee Kun-hee, the chairman of Samsung, in 2020, Lee Jae-yong took over management. The issue is that this period was a very unstable time characterized by the U.S.-China technology war, COVID-19, and supply chain disruptions. During this time, Lee Jae-yong became embroiled in scandals and lawsuits, causing significant delays in key management decisions and preventing proper coordination of overall strategy.'
What does Samsung need going forward?
'The most precious resource for all corporations is the time of the Chief Executive Officer (CEO). Samsung operates several product lines and chooses to resolve most issues internally. However, in an era of specialized division of labor, such extensive business operations distribute the CEO's time resources too thinly. As a result, decision-making becomes slower, and management becomes more challenging. In particular, large corporations like Samsung have different competitive strengths in each business sector, but consolidating them inevitably leads to internal conflicts. Hence, the organization must compromise on a minimal point of agreement, which may weaken the competitive strength of each business unit. This needs to be addressed. Samsung's management must seriously consider how changes will happen internally. They need to find the answers themselves.'
What can Samsung learn from TSMC?
'The spirit of dedication to customers and a philosophy of co-prosperity with customers, as well as a culture that encourages all employees to demonstrate entrepreneurial spirit, are points worth emulating. I believe that regaining customer trust is the most urgent task for Samsung at this moment.'