Samsung’s logic chip biz turns to AI chips and 5G for change of fortune

Samsung System LSI, which makes logic chips such as mobile application processors, sees the advent of the 5G era as an ‘unimaginable business opportunity’ that may turn its fortunes within a year. Expect AI chips for data centers and safety chips for autonomous vehicles soon, its chief says.
Samsung Electronics has a business dynamic that baffles outsiders, even within South Korea, but one that makes perfect sense internally. Here’s how it works: Every business is on its own. Boundaries are respected between them; they can cooperate, negotiate, or, on rarer occasions, compete. It’s all fair game, but it’s more contract than dialogue. It has three CEOs — in mobile, consumer electronics, and semiconductors. These are then subdivided further. For example, Device Solutions (DS), the conglomerate’s semiconductor business, is divided into Memory, Foundry, and System LSI, each with its own president.

The company is not shy about offloading businesses that don’t meet its high performance standards, can’t scale, or lack long-term vision. It sold its printer business to HP in 2016. It killed its digital camera division last year. System LSI, which makes logic chips, and Foundry, which contract-makes them for both Samsung and other firms, were under one roof up until May last year. Despite the advantages of keeping them together — Foundry made most of System LSI’s products for use mostly by Samsung itself — the conglomerate split them up.

In the first quarter of the year, Samsung’s semiconductor business posted 20.78 trillion won in revenue — 17.33 trillion won from memory while System LSI and Foundry together contributed the rest. Profits were negligible outside of memory’s record-high; the two other businesses are likely in the red, though the company declined to comment. Taking Samsung’s culture into account, then, the implications of the split are clear. Despite their underperformance, the conglomerate sees a long-term vision in System LSI, and wants it to stand on its own two feet.

“It’s a forward-looking direction for us,” said Inyup Kang, president and head of Samsung System LSI, in an interview with ZDNet at the company’s Hwaseong Campus where the business is based. “We embrace the split. We don’t have to look over our shoulders. In the long-run, we see both businesses increasing their respective competences.”

Customer relationships have been made easier, too. “There is a Chinese Wall between our set business and component business. Now there is a Chinese Wall between the component businesses. It makes it clearer for both us and clients.” The move also allows System LSI to approach other contract-chip makers such as TSMC and GlobalFoundaries. This allows the business to choose the most price-competitive partner for production
Standing tall on its own

Whether or not Samsung is innovative is a matter of debate, but few will deny the South Korean tech giant’s efficiency as a manufacturer. Despite its size — it is the world’s largest electronics maker by revenue — it is nimble. It’s the leader in markets like phones and memory chips where speed is important. If there is downside to this, it’s that Samsung is production conscious. System LSI is unique in that it is now the sole business that’s without a factory line. The business is now strictly R&D. Memory chips are essentially commodities. But logic chips — which arguably take more creativity and sophisticated instructions to make — is a different ball game, and Samsung is taking it very seriously.
“It’s something we [Samsung] never done before,” Kang told ZDNet. “We have changed management, increased staff by 5 percent over the past year. Our only asset is our people. I won’t call it a radical change; systemically there are limitations for us to do so.”

In a refreshing admittance for the company, Kang said he found the business’ competence “still very much lacking”.

“There are still many shortcomings we have to overcome. But we have a clear roadmap that looks at the next three-year and the next five-year period,” the president stressed. “We want to talk with results.” The president said System LSI is very open to merger and acquisitions (M&A) going forward as a way to increase competence but declined to comment on specific targets.

All of System LSI’s products are in fierce competition. Its CMOS image sensors, which it rebranded ISOCELL last year, are runner-up to Sony, but it’s a level playing field with varied players such as SK Hynix and Toshiba, among others. Samsung has reduced the pixel size to .9 micrometer so far, the industry’s first smaller than 1 micrometer. Both Sony and Samsung’s recent image sensors have an embedded DRAM layer.

“Our number one priority is technology breakthrough, especially in pixels,” Kang said. “Then it’s in market share. We are the runner-up, yes, but I would say we are still far behind.”

In fingerprint sensors, the situation is less clear. According to IHS Markit, “under-display” fingerprint sensors will reach 9 million units this year and 100 million in 2019. The players are: Synaptics, Goodix, Qualcomm, Egis Technology, Samsung System LSI, FPC, VkanSee, CrucialTec, BeyondEyes, and FocalTech.

“We are working hard on development. But it is up to Samsung Mobile [to] decide which vendors to choose,” the president said. According to company insiders, Samsung Mobile rejected System LSI’s sensors last year.

There are rumours that Samsung was developing its own graphic processing unit (GPU) but Kang declined to comment on the matter.

The flagship of the company is its mobile application processors (AP), branded Exynos. Samsung is ranked behind Qualcomm, Apple, and MediaTek in APs. The majority of them are used by Samsung’s own mobile business. Another client is Meizu Technology in China, though the company was “always in active discussion with Chinese vendors”.

But the AP market, or to be more exact, the one-chip set market, is a complicated situation –the elephant in the room is Qualcomm. And that is ripe for change when 5G arrives.
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