Samsung Electronics, South Korea’s leading chipmaker, is struggling to keep up with Taiwan’s TSMC, the world’s largest semiconductor contract manufacturing (foundry) company, in the global chip foundry market.
TSMC continues to widen its lead over Samsung Electronics, with the market share gap between the two chipmakers reaching 50.8 percentage points in the second quarter of 2024, according to market research firm TrendForce. The gap was 32.7 percentage points in the second quarter of 2020.
Samsung faces fierce competition as more Chinese companies, backed by substantial government subsidies and a vast domestic market, aggressively expand into the foundry market. Semiconductor Manufacturing International Corporation (SMIC), a partially state-owned Chinese foundry company, rose to third place in market share last year, closing in on Samsung.
“Samsung must accelerate the transition to advanced node processes,” said Lin Hong-wen (林宏文), the author of “Chip Island: How TSMC and Taiwan Triumph.” Lin, a seasoned Taiwanese journalist and an advisor to the Taiwanese weekly magazine Business Today (今周刊), has covered TSMC for over 30 years.
He argued that Samsung needs to reduce its reliance on legacy process nodes, which have become oversaturated amid growing competition from China. Ultimately, Samsung’s focus should be on differentiation and irreplaceability—core principles that echo the “super gap” strategy advocated by the late Samsung Chairman Lee Kun-hee.
Lin, well-known as a “TSMC expert” in Taiwan, has also authored books on Samsung and the Korean semiconductor market. In an email interview with ChosunBiz, he discussed TSMC’s success, Samsung’s challenges, and the potential paths forward.
How did TSMC dominate the global foundry market?
“TSMC has a unique business model, which focuses solely on foundry. Since the company was founded in 1987, TSMC has concentrated exclusively on contract manufacturing and has refrained from making its own products. Over the past four decades, as the global semiconductor industry shifted from vertical integration to vertical specialization, TSMC capitalized on this opportunity. Combining this focus with a customer-first approach, TSMC secured its position as the world’s top foundry company.”
Did you expect TSMC to become the global leader?
“Not at all. TSMC faced numerous challenges during its growth. Before 2000, it was under intense pressure from Taiwan’s second-largest foundry, UMC. Around 2014, Samsung added to the pressure by taking Apple’s business away from TSMC. But TSMC did not back down. In 2002, it developed the 0.13-micron process technology, overtaking UMC. Later, TSMC reclaimed Apple’s orders from Samsung by launching a special team called the “Night Hawk Squad,” a night-shift task force.”
Why haven’t other countries produced a company like TSMC?
“The semiconductor industries in Korea, Japan, and China are structurally different from Taiwan’s. These countries adopt a vertically integrated model, handling everything from branding and technology to manufacturing and components internally. This approach inevitably leads to direct competition with major U.S. and European players. Taiwan, of course, also initially ventured into the DRAM and display market but failed against Korea and China. Instead, Taiwan focused on high-value-added manufacturing and differentiated OEM services, responding to the needs of U.S. companies. This strategy helped TSMC and other Taiwanese firms gain a competitive edge in the semiconductor sector.”
Nikkei reported that 17 of TSMC’s 28 executives at the vice president level or higher hold PhDs, and 14 earned doctorates in the U.S. How critical is this to TSMC’s success?
“While executives who hold PhDs from the U.S. and other countries are one of TSMC’s strengths, they are not the sole reason for its success. Many senior TSMC executives who earned PhDs in the U.S. and worked at multinational corporations have played a significant role in understanding and meeting the needs of American clients, and fostering close relationships with them. This connection is crucial, given that over 60% of TSMC’s customers are American companies.”
Will TSMC maintain its leadership position in the market?
“TSMC’s competitiveness in advanced processes gives the company an edge, and ongoing investments will likely ensure its lead in the future. On the other hand, legacy processes have become highly competitive due to China’s entry. If Samsung and Intel do not transition to advanced processes swiftly, they risk further losses in market share.”
What is your assessment of China’s growing presence in the semiconductor industry?
“China’s semiconductor strategy prioritizes market share over profitability, ramping up production despite losses. This approach disrupts the existing market structure. While U.S. export restrictions on advanced technologies and equipment limit China’s ability to compete in cutting-edge markets, it is making an all-out push in legacy processes. Taiwan has learned from past experiences that industries involving China often turn into so-called “red oceans.” This is why Taiwan focuses on differentiation and developing irreplaceable technologies. Korea should take note of this lesson.”
In your opinion, what are the reasons behind Samsung Electronics' recent crisis?
“Several factors are at play. First, Samsung faces fierce competition from Chinese firms in smartphones, displays, and memory chips. Second, the rapid development of artificial intelligence (AI) has reshaped the semiconductor market. TSMC leveraged its advanced packaging technology, CoWoS, to integrate Nvidia’s GPUs and SK Hynix’s high-bandwidth memory (HBM). Samsung was excluded from this process.
Third, Japan’s export restrictions on certain chemicals to Korea in 2019 affected Samsung’s yield rates and delayed its processes. Lastly, after the late Samsung Group Chairman Lee Kun-hee’s passing in 2020, Lee Jae-yong took over leadership during a turbulent period marked by the U.S.-China trade war, COVID-19, and supply chain disruptions. His various legal battles further delayed key decisions, disrupting Samsung’s overall strategy."
What should Samsung do to overcome this crisis?
“The most valuable resource for any company is the CEO’s time. Samsung operates extensive product lines and manages most aspects internally. However, in an era of specialized division of labor, this vast business scope spreads the CEO’s time thin and slows decision-making, complicating management. Samsung must also address internal conflicts among its diverse business divisions. These divisions have distinct strengths, but integrating them often leads to compromises that weaken overall competitiveness. Samsung’s leadership needs to examine its internal structures and make necessary changes.”
What can Samsung learn from TSMC?
“Samsung can draw lessons from TSMC’s dedication to its customers, its philosophy of mutual growth, and its culture of encouraging entrepreneurial spirit among employees. Regaining customer trust is the most urgent task for Samsung right now.”
