It is not an exaggeration to call Samsung a "gambler," especially in the field of storage. In the 2000s, Samsung made counter-cyclical investments again and again, like a gambler, and during the decline of the DRAM market, it successively defeated the German giant Qimengda and the Japanese "national team" Elpida, and ascended to the position of storage leader. Now, as the semiconductor industry is entering a downcycle, does this drama seem to be playing out again?

Counter-cyclical investment has brought Samsung a lot of benefits.

Samsung was founded by Lee Byung-chul in 1938, and has been involved in trade, sugar production, fertilizers, television, and more. The business empire of Samsung is too vast to be described in a few days and nights, so I will not go into too much detail here. Samsung's semiconductor business can be traced back to 1974 when Lee Byung-chul and Lee Kun-hee invested in Hankook Semiconductor with their own money. By the end of 1977, the business was fully merged and became Samsung Semiconductor. [1]

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Lee Byung-chul and Lee Kun-hee knew that when it comes to chips, Fab capital expenditure is the top priority. If the timing is right, profits will follow. Without sufficient wafer plant capacity when demand arises, even the best chip design cannot succeed. In 1979, Samsung established a VLSI wafer plant with a capacity of 16K DRAM. Subsequently, Samsung wanted to carry out competitive research, so it sought a license for DRAM technology everywhere, but at that time, manufacturers such as Hitachi, Motorola, NEC, Texas Instruments, and Toshiba, which were involved in storage chips, all rejected Samsung's licensing request.

It was not until June 1983 that Samsung finally obtained the design license for Micron's 64K DRAM. Since then, Samsung has embarked on a counterattack. Samsung developed from zero to 64Kb DRAM in just six months and sampled the manufacturing components in November 1983. Taking advantage of the situation, by October 1984, they had produced a 256Kb DRAM design (as shown in the figure below). At this time, Samsung was about two years behind Japan, which was also the first step on the road to becoming the world's largest producer of storage chips in 1993.

In 1985, the United States filed an anti-dumping lawsuit against Japanese semiconductor companies, and later the two sides reached an export restriction agreement (the semiconductor war between the United States and Japan can also be talked about for three days and three nights, but it is only briefly mentioned here for background reference). Samsung took advantage of the situation and made a huge investment in DRAM, investing $500 million each year for several years, as well as more huge investments in wafer plants.

Finally, in 1992, Samsung took the lead in launching the world's first 64Mb DRAM. In 1993, Samsung surpassed Toshiba to become the leader in the global DRAM market share. And then Samsung took the lead in releasing 256Mb DRAM, which completely made Samsung technologically ahead of Japanese storage giants.

In the field of DRAM, Samsung successfully counterattacked in ten years, and the same story also appeared in the field of flash memory.

In 1987, Toshiba Storage in Japan invented NAND flash memory, but Intel quickly surpassed Toshiba with NOR flash memory. In order to narrow the gap in capacity, Toshiba licensed the NAND flash memory design to Samsung in December 1992. Since then, Samsung has passed five passes and cut six generals, successively releasing 16Mb, 28Mb, 1Gb NAND flash memory, until 2002, Samsung became the first company in the world to mass-produce 1Gb NAND flash memory, and by the end of 2002, NAND flash led the world with a market share of 54%. From obtaining the license to the top leadership position, it was also about ten years.The rise of Samsung has also spurred the development of South Korea's memory industry cluster. The original Hyundai, now SK Hynix, also occupies a place in the storage market. Seeing the rise of South Korean storage companies, it is no longer just a competition between enterprises, but has risen to a competition between countries. As a result, the Japanese government integrated the DRAM business of Hitachi, NEC, and Mitsubishi, and established the "national team" Elpida.

If before the rise of DRAM, Samsung, even if it was losing money, invested heavily year after year to get a ticket, then the subsequent competition in the DRAM field with Germany's Qimengda and Japan's Elpida can better show Samsung's "gambler" attribute.

In 2006, Windows Vista was officially launched. DRAM storage manufacturers were optimistic about the growth of DRAM for one reason, which is that Vista consumes a lot of memory. However, due to the vulnerability issues of the Vista operating system, the sales volume did not meet expectations, and the DRAM memory market was over-supplied for a time, and the price of DRAM began to fall [2]. At this time, Samsung went against the trend and used all the profits of Samsung Electronics from the previous year to expand production capacity, and launched a price war by increasing production capacity, further expanding the industry's losses!

By the outbreak of the 2008 financial crisis, the price of DRAM broke through the cost price, and the price of DRAM particles plummeted from $2.25 to $0.31. During the same period, the material cost of DRAM manufacturers was $0.6-0.7, and the cash cost was about $1.4. This means that for each DRAM chip produced, there is a loss of $1.

Germany's Qimengda, due to its high cost and high selling price, was the first to be affected by the price plummet. Finally, in 2009, Qimengda announced bankruptcy due to the breakage of the capital chain. Although Japan's Elpida struggled for several years, it was also difficult to escape the collapse and was finally acquired by Micron in 2012; Japan's other giant Toshiba's flash memory business was also acquired by the United States Bain Capital in 2017. The Japanese storage industry has become a "star of yesterday."

It can be said that Samsung's contrarian expansion this time has allowed it to taste the sweetness of the fruits of victory. Since 1993, Samsung has always maintained its leading position in the storage chip market. According to data from the market tracking agency Omdia, as of 2021, Samsung's market share in DRAM is 42.7%, followed by SK Hynix's 28.6% and Micron's 22.8%. In the NAND flash memory field, Samsung has a market share of 33.9%, while Japan's Kioxia and the United States' Western Digital each account for 18.9% and 13.9% of the market share, respectively.

Will history repeat itself if Samsung does not reduce production again?

In 2022, the semiconductor industry has entered a down cycle, and the storage market, which accounts for 1/3 of the semiconductor market, has been more affected. Many storage manufacturers, including Samsung, Micron, and SK Hynix, have all suffered losses. As a result, manufacturers have become more conservative. Micron plans to reduce its investment in the fiscal year of 2023 from $12 billion in the fiscal year of 2022 to $7 billion to $7.5 billion, and will also significantly reduce capital expenditure in the fiscal year of 2024; SK Hynix also announced in October that next year's equipment investment budget will be reduced by more than 50% compared to 2022. However, Samsung not only does not plan to reduce production significantly but is also expanding production.

The semiconductor business is a tricky business. If there is not enough production capacity when demand arises, even the best chip design cannot succeed. If the production capacity is insufficient, competitors will take advantage of more favorable prices and shorter delivery times; and if there is an excess of production capacity, due to the idleness of expensive semiconductor equipment, it will drag down costs and inevitably face layoffs or shutdown of production lines.

However, Samsung Electronics' aggressive investment contrasts sharply with its competitors' retreat due to the global consumption shrinkage. Samsung Electronics has decided to increase its wafer capacity for memory and system semiconductors by about 10% in 2023. It can be seen that Samsung not only wants to suppress in the storage field but also wants to overtake in the wafer foundry field. Wafer foundry manufacturers TSMC and Intel have both expressed plans to reduce production. With the rising cost of wafer factories, competition with TSMC and other wafer foundries will intensify.Five years ago, Samsung's DRAM was superior to Micron and SK Hynix in density, performance, and cost structure. According to industry media semianalysis, in the 1α generation, although Samsung has been in mass production for a while, its production capacity has not yet been raised, while Micron has released a verification sample of 1β (1-beta) DRAM technology in November 2022, and mass production is fully ready. 1β is the world's most advanced DRAM process node. In October 2021, SK Hynix released a DDR5 DRAM with a speed more than twice that of the original product, and took the lead in Samsung to get the title of the world's first. MoneyDJ news report pointed out that according to people in the semiconductor industry, there was a technology gap of about one year between Samsung and its competitors in the past, but according to analysis, the gap has now narrowed to less than 0.5 years (within 6 months). Samsung's specific expansion plan is to build a new DRAM and semiconductor foundry line at its third plant (P3) in Pyeongtaek, Gyeonggi Province in the second half of 2023, which can produce 100,000 12-inch wafers per month. Samsung Electronics plans to increase the monthly wafer output of the P3 plant by 30,000 wafers and will operate a new 4-nanometer line. Considering that Samsung Electronics has production plants in Giheung and Hwaseong in addition to Pyeongtaek, its actual wafer capacity expansion may exceed 30,000 wafers. In terms of DRAM, Samsung Electronics will add a new equipment that can produce 70,000 wafers to the current production line that can produce about 20,000 12-inch wafers per month. Samsung Electronics' DRAM wafer production in the third quarter of 2022 (July to September) is 665,000 wafers per month. The plant is expected to mass-produce Samsung Electronics' recently released advanced 12-nanometer DRAM. In addition, Samsung Electronics has decided to install more than 10 extreme ultraviolet (EUV) lithography equipment for high-tech DRAM and foundry production. Samsung currently has about 40 EUV equipment. In addition to the DRAM field, the NAND flash memory equipment of Samsung Electronics' P1 plant will also be upgraded. The NAND line of P1 is expected to be transformed into a V8 (238-layer) NAND mass production line, which can process about 30,000 wafers. In addition, the new NAND production line is likely to be an investment target in the first phase of the Pyeongtaek Plant 4 (P4), which will complete the exterior construction in the second half of next year. According to data from Taiwan market research company TrendForce, Samsung Electronics' monthly NAND wafer production is currently about 645,000 sheets. In terms of semiconductor investment, Samsung Electronics decided to maintain last year's level in all areas. According to market research company Omdia, the market value of NAND is about US$66.5 billion. Given its growth potential, some analysts expect Samsung to squeeze smaller industry companies by increasing the supply of NAND. There are still 6 to 7 companies in the NAND field that are competing for market share. Samsung's counter-cyclical investment may have several reasons: on the one hand, semiconductors have become a new focus of global power competition, and Samsung will not decide whether to cut memory chip production due to market factors; on the other hand, considering the cyclical nature of the semiconductor industry, even a recession is not catastrophic, the cycle will always pass, and it is entirely possible to achieve an increase in market share when the industry recovers. In addition, there is another very important reason. Samsung has long been the main supplier of Apple's DRAM chips, but next, Samsung will eat up Apple's NAND chip supply and enter Apple's supply chain. Following the US trade ban on Chinese suppliers, according to a supply chain source, Apple will use Samsung Electronics as an alternative supplier of Chinese NAND memory chips from 2023 due to these restrictions. Samsung's NAND flash memory plant in Xi'an will supply NAND flash memory to Apple. The Xi'an plant currently accounts for 40% of Samsung's total 3D NAND flash memory production capacity. Other PC OEMs are also facing demand for 3D NAND. Digitimes reported that according to sources from IC distributors and test equipment suppliers, although uncertainty in demand remains, Samsung Electronics is expected to start slashing prices next year to further increase its share in the global memory chip market. Expansion of production, price cuts, everything looks so familiar. Historical experience shows that Samsung invests in semiconductor wafer fab technology and production capacity during downturns to prepare for the next upturn. Samsung is advancing at full speed in the fields of storage and wafer foundryAt its recent Memory Technology Day conference, Samsung introduced advanced developments in its DRAM and NAND businesses.

The following chart shows Samsung's DRAM roadmap up to 2030. To advance beyond the 10-nanometer range, Samsung is continuously making breakthroughs in patterning, materials, and architecture. Upcoming DRAM solutions include 32Gb DDR5 DRAM, 8.5Gbps LPDDR5X DRAM, and 36Gbps GDDR7 DRAM. Samsung also discussed custom DRAM solutions such as HBM-PIM, AXDIMM, and CXL. Samsung plans to achieve sub-nanometer DRAM by 2030.

In the NAND field, NAND manufacturers have been fiercely competing in increasing the number of vertical layers. SK Hynix and Micron have both introduced NAND technology with over 200 layers, but Samsung's view is that "the number of layers is not as important as productivity, and the focus is on providing better solutions with competitive pricing."

Samsung has already produced the eighth generation of V-NAND products, with about 230 layers. Samsung stated that its ninth-generation V-NAND is under development and is expected to be mass-produced in 2024. By 2030, Samsung believes they will create more than 1,000 layers in their V-NAND products. The following chart shows the progress of Samsung's V-NAND products.

At the Samsung Foundry Forum, Samsung proudly stated that they are the first semiconductor manufacturer to start mass production of 3nm products using the SF3E GAA process. Samsung also refers to these transistors as MBCFETs (MBC stands for multi-bridge channel). The following chart shows Samsung's foundry process roadmap for the next five years. The 5nm and 4nm FinFET processes are still being developed (green section); the GAA node starts from the current 3nm SF3E, reaches 2nm by 2025, and 1.4nm by 2027. It can be seen that Samsung's development in advanced processes is very aggressive, surpassing TSMC, which has been Samsung's long-term goal [3].

To continue the evolution of Moore's Law, advanced packaging technology is also needed. In August 2020, Samsung announced a 3D packaging technology called "X-Cube" and stated that the technology has been successfully trial-produced and can be used to manufacture 7nm and 5nm chips. Samsung's packaging technology covers solutions based on interposer (I-Cube), hybrid solutions (H-Cube), and vertical chip integration with or without bumps (X-Cube).Conclusion

The business empire of Samsung was not built in a day, and its path to success is not replicable. However, we can still learn a great deal from the pioneering experience of Samsung Electronics. How the story continues to unfold, let us continue to witness history.