Samsung Foundry was established to challenge TSMC's dominance in the contract chipmaking space but the division has remained unable to take any significant chunk of the market. The reported yield issues on the 3nm process aren't helping as major clients, including Qualcomm whose chips Samsung uses in its phones, have all opted for TSMC's tried and tested 3nm process.
Recent reports have revealed that Samsung Foundry lost nearly a billion dollars in the third quarter of this year. This has forced the company to shut down nearly 50% of its production capacity as there's simply no demand for chip designers. It's difficult to say what the future may hold for Samsung Foundry. It continues to work on advancing its competitiveness in the manufacturing space, and the market could certainly use a dependable alternative to TSMC, but it seems that the stars just refuse to align for some reason.
Many market analysts and investors have been calling on Samsung to spin-off the foundry division from the conglomerate and list it on the US market separately. Similar calls were also made by Samsung Securities. They feel that the foundry has become a drag on Samsung Electronics' bottom line.
Spinning it off would increase shareholder value for the most valuable listed company in the conglomerate. There has been consistent criticism over a lack of shareholder returns for Samsung Electronics and while the company has taken some steps to improve returns, investors aren't satisfied. However, the idea was recently shot down by the top boss Jay Y. Lee who said that “We are hungry to grow the business. Not interested in spinning off.”
Yet, Korean media reports that the idea remains under discussion at the conglomerate. Some reports claim that a task force is being set up to create a roadmap for spinning off the foundry within 3 to 5 years. This decision would understandably have huge implications for the conglomerate and it does find itself between a rock and a hard place.
One argument in favor of the spin-off is that if Samsung Foundry becomes an independent company, chip designers might feel more comfortable entrusting their trade secrets to it. As it stands, the foundry is a division of Samsung Electronics, which also has a chip design unit that competes against many of the customers that Samsung wants for its foundry.
For example, Qualcomm makes mobile processors and 5G chips, products that Samsung's chip design division also makes. Qualcomm would have to provide trade secrets on its upcoming products so that they can be manufactured by the very same company that makes similar chips and wants to win over its clients.
Sure, there would be various protections and legal measures in place and Samsung wouldn't want to give the impression that the trade secrets of its foundry customers aren't safe, but there would always be that concern because these different units still exist under the same legal entity.
That entity's influence would be reduced if the foundry is spun off and any dealings between the entities would need to be at arm's length, much in the way they would be with any non-Samsung company. This would ostensibly provide customers with more peace of mind when entrusting the foundry with their trade secrets. This may very well have been one of the reasons why Intel spun off its foundry from its parent company as it seeks to become a major player in this billion-dollar industry.
One argument against the spin-off is the fact that chipmaking is a seriously expensive business. Right now, Samsung Foundry can rely on the insanely deep pockets of Samsung Electronics for tens of billions in funding, with its most recent investments including $44 billion in new chip plants in the US. Last year, Samsung announced plans to spend $230 billion over the next 20 years to significantly expand its chipmaking business.
Therein lies the $200 billion dollar problem. Samsung Foundry might find it difficult to raise such obscene amounts of money on its own as an independent company. An IPO could help but with its issues in attracting orders for advanced nodes very well known, investors are likely to take a cautious approach, while piling on debt at commercial terms even as the situation remains unpredictable for the order book would be an extremely risky move. This is a classic case of being stuck between a rock and a hard place.
Ultimately, the decision to spin off the foundry rests largely on balancing these risks against improving market trust and shareholder value. A spin-off may remain just an option for Samsung, but the need to keep refining its technology and improving yields across the board is a necessity. Samsung Foundry sits at 11.5% of the market against TSMC's nearly 63% share. That gap isn't going to close itself.
