In a bid to challenge Taiwan Semiconductor Manufacturing Company's (TSMC) dominance, Samsung (KS:005930) is considering bypassing the mass production of 3nm chips for smartphones and directly transitioning to the production of advanced 2nm chips. This strategic move comes as Samsung seeks to increase its foundry market share, currently at 11.7 percent, against TSMC's significant majority share of 56.4 percent. TSMC holds a strong position in the market, with InvestingPro highlighting its consistent earnings per share increase and its impressive gross profit margins.
The era of the 3nm semiconductor was initiated by both Samsung and TSMC in 2022. TSMC took the lead by manufacturing the first-ever 3nm processor for smartphones, specifically for Apple’s iPhone 15 Pro and iPhone 15 Pro Max models. The A17 chip, powered by TSMC's technology, is currently the only commercially available 3nm smartphone chip. TSMC, according to InvestingPro, is a prominent player in the Semiconductors & Semiconductor Equipment industry and has maintained dividend payments for an impressive 20 consecutive years.
Both companies have faced significant challenges with yield issues at the 3nm level. Neither Samsung nor TSMC has managed to exceed a 60 percent yield rate, resulting in a large proportion of chips being defective or failing to meet the required standards. This has caused concerns about their ability to retain major clients like Qualcomm (NASDAQ:QCOM) and Nvidia (NASDAQ:NVDA).
Samsung's struggles extend beyond smartphones, as it has also been grappling with yield improvement in non-smartphone applications. The company's early production of 3nm gate-all-around (GAA) semiconductors hasn't been sufficient to regain trust from major clients. Despite these challenges, Samsung remains committed to transitioning to the 2nm process by 2025. The company's first mover advantage with GAA transistor architecture could potentially provide it with a competitive edge in increasing its foundry market share. InvestingPro data shows Samsung's market cap at a robust 426.14B USD, with a P/E ratio of 13.96.
TSMC, on the other hand, also plans to shift to the 2nm process in 2025. It has been facing lower yields than expected and is suspected of being behind schedule on optimizing its 3nm FinFET process. The company's 3nm process, used in Apple (NASDAQ:AAPL)'s iPhone 15 Pro's A17 processor, has experienced overheating issues, which Apple claims are software-related and has addressed with an iOS 17 patch. InvestingPro data reveals TSMC's revenue growth at 18.64%, with a gross profit of 41925.03M USD.
Meanwhile, Intel (NASDAQ:INTC) is eyeing an opportunity with its upcoming 3nm Sierra Forest and Granite Rapids chips and their successful Intel 3 node. The relatively low expected performance and efficiency gains from the transition to 2nm production could extend the market longevity of the matured 3nm process. Despite the industry’s plans for 2nm production, companies are preparing for more efficient 3nm processes by 2024 and 2025. Readers interested in more insights about these companies can find additional InvestingPro Tips here.
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