Samsung is a brand name
that's everywhere, in more than 100 million U.S.
households. Android phones, TVs,
refrigerators, microwaves and unconventional
displays. So the 13 inch display can
be as big as 17 inch. This is the future of
display. But there's a huge lesser
known side of Samsung that lately has made it one of
the world's most important and valuable companies. It's not just making
devices. It's making the chips that
power them. People probably don't know
that we've led memory for three decades. Samsung is the leader in
memory chips. Think long and short term
data storage. They are the titan. They have nearly 50% share
in both DRAM and NAND. And it's the world's second
biggest maker of the most advanced logic chips, the
kind in Tesla's, supercomputers, AI,
smartphones and so much more. We recently went
inside Samsung's Austin Chipmaking factory or fab,
in the first in-depth tour ever given to a U.S.
journalist. And how many chips are you
pumping out every day here? A lot. Now it's gunning to overtake
the massive advanced chip leader, Taiwan
Semiconductor Manufacturing Company. We do not settle to be
number two. It ended 2022 with $245
billion in annual revenue. For context, that's 47
billion more than Microsoft. But since then, prices for
memory chips have taken a dive and they're expected
to fall up to 23% more in Q2 2023. In April, Samsung
reported dismal earnings for the first quarter of 2023,
with profit plunging 95% to its lowest level since
2009. In response, the company
cut production of memory chips, but it doubled down
on Foundry, the side of its business that makes custom
logic chips for outside customers. It's building a
$228 Billion mega cluster of five new fabs in its home
country of South Korea, scheduled to come online in
2042. And in the U.S., where the
$52 billion Chips Act aims to reshore chip
manufacturing. Samsung's building a huge $17 billion
fab in Taylor, Texas, promising to make its first
advanced chips in the U.S. next year. What's going on is just
remarkable. It's enormous. Really want to be a bedrock
for U.S. industry. CNBC got a rare interview
with the head of Samsung's U.S. chip business, Jinman
Han, and brings you inside its Texas sites to find out
how the Korean powerhouse plans to dominate not only
devices but U.S. chip making. Samsung dates back 85 years
to 1938, when founder Lee Byung Chul started it as a
trading company for exporting fruit, vegetables
and fish in Korea. His vision for our company
to be eternal, strong and powerful. So he chose the
name Samsung, which literally means three
stars. To survive two major wars. It diversified into sugar
refining, construction, textiles, insurance,
retail. And it remains a
multifaceted business to this day. Samsung Rising
author Jeffrey Kane has been covering the company from
Korea and the U.S. for over a decade. If you had transported
yourself back into time 60, 70 or 80 years ago and
asked the average person about Samsung, they'd just
shrug their shoulders and say, I guess it's a little
grocery store in Korea that no one's really ever heard
of. Samsung Electronics, the
division it's known for most, was established in
1969. The first Samsung TV came
out in 1972, and just two years later, Lee bought
Hankook Semiconductor in a bold move toward making it
the vertically integrated consumer electronics giant
it is today. The Lee family is, you could
call it, the most powerful family in South Korea, one
of the most powerful families in tech. Samsung's first U.S. offices
opened in New Jersey in 1978, and by 1980, Samsung
Semiconductor was born with a fab in Korea. By the early '80s, it was
making 64 kilobyte DRAM memory and had a new U.S.
office in Silicon Valley. Lee's son took over after
his father's death in 1987, and its first mobile phone
came a year later. Now, Samsung is the world's
biggest smartphone provider, often neck and neck with
Apple. Just a decade after making its first memory
chip, Samsung gained international notoriety
with the world's first 64 megabit DRAM chip in 1992,
placing it squarely at first place in memory where it
remains today. Its presence is so
ubiquitous in South Korea that they call their
country the Republic of Samsung. In 1996, Samsung broke
ground on its big fab in Austin, and it opened
another one there in 2007. It got a new U.S.
headquarters building in Silicon Valley in 2015,
designed to look like a three layer stack of flash
memory chips. This is based on three
nanometer, which is the most advanced technology we
have. And this price is almost
same as mid-size car. Han has been with Samsung
for more than three decades, while its primary chip
manufacturing still happens in South Korea. It, of
course, makes them in Texas as well as China. Besides devices, the
biggest part of its revenue, some 57%, comes from
memory. But as shoppers cut back
amid rising inflation, demand has weakened
sharply, especially for memory chips. That comes in
the footsteps of a pandemic that involved peaking
demand and supply chain disruptions, eventually
culminating in a global chip shortage. It was really painful when
you look at your customers asking "more chips," but
there's no way you can provide that. It was so
painful. But the new reality is far
less demand. Smaller memory chipmakers
like SK Hynix and Micron cut production in late 2022. Samsung waited until April
2023 to do the same. We are now going through the
very worst slump in terms of semiconductor demand, and
we believe that the market will rebound possibly by
end of this year. Micron and SK Hynix started
laying off folks. They've cut their spending
on new fabs. Samsung is pushing forward,
though, and they're not cutting back on spending
despite it being unprofitable today. Instead, Samsung is shifting
focus to foundry, making computing chips designed by
fabless chip companies. A big difference between
Samsung and top foundry player TSMC is that Samsung
makes its own chip designs for its own products as
well as for thousands of others. This includes Tesla, Sony,
NXP, STMicroelectronics, Intel, Soon AMD, IBM is
also a customer, Qualcomm is, of course, their
biggest customer, but they're moving
significantly towards TSMC. Samsung stock has been
trending down since the peak of the chip shortage in
2021, although it just hit a 52-week high, despite
dismal Q1 profits. This may be a reaction to
the latest move in the geopolitical chip war
between China and the U.S.. In May, China banned
products from U.S. memory chipmaker Micron, which in
turn could boost demand for Samsung. And Morgan Stanley
recently named Samsung a top pick. In October, the U.S.
did place big restrictions on chip companies exporting
their most advanced tech to China. But for now, Samsung
and SK Hynix were given a one year waiver to operate
their existing chip fabs in China. The Department of Commerce
really crafted these rules to make sure that those
existing fabs aren't impacted, but Samsung and
SK Hynix don't build new fabs. When it comes to foundry,
Samsung is one of only three companies in the world
capable of manufacturing the world's most advanced
chips, ranking second between TSMC and Intel. And with mounting U.S. China
Taiwan tensions, the U.S. is eager to entice all three
to make more chips on American soil. Good
motivation for President Biden's visit to Samsung in
South Korea on his first presidential trip to Asia
last year. By uniting our skills and
our technological know-how that allows the production
of chips that are critical to both our countries and
our essential, essential sectors of our global
economy. The first factory that I
started working in, we did four inch wafer
fabrication. I moved on to five. I've done six. Our factory here started at
eight. Jon Taylor joined Samsung 26
years ago as part of the team at the Austin Fab that
broke ground in 1996. Now, he heads up the whole
Austin site. Everything is supposed to be
bigger and better in Texas. Since first coming to the U.S.
45 years ago, Samsung says it's invested $47 billion
here and has some 20,000 U.S. employees. Now it's
expanding to a 17,000-person Texas city about 30 miles
north of Austin. Bringing Taylor on board is
just going to increase their ability to source their
chips domestically and not have to go into areas of
the world where they may have some discomfort. Construction began here at
Taylor, Texas, less than a year ago, and Samsung says
it's on track to be operational by the end of
2024. It's a 1200 acre, $17
billion site and it's going to be bigger than Samsung's
Austin fab. It's also going to be
producing the most advanced chips that Samsung makes in
the U.S.. Samsung says this big new
growth in the U.S. comes down to customer demand, largely
due to the geopolitical risks swirling around
Taiwan, where more than 90% of advanced chips are
currently made. Chips such as the current
self-driving chip in the Tesla cars is made in their
Austin campus. But that that foundry in
Austin currently is for 14 nanometer and older
technologies. So it's not the leading
edge technologies yet. Samsung's seven nanometer,
five nanometer, three nanometer. That is all in
South Korea. Over the last 30 plus years,
the U.S. share of global chip production has plummeted
from 37% to just 12%. That's because it costs at
least 20% more to build and operate a new fab in the U.S.
than in Asia. Labor is cheaper there, the
supply chain is more accessible and government
incentives are far greater. The Chips Act aims to
change that. Setting aside 52 billion
for companies like Samsung to manufacture in the U.S.. The Chips Act is helping us
to overcome the differences in construction costs that
we get out of Asia versus the United States. And there definitely is a
difference. That's also why it's
Samsung's goal to bring more of that supply chain to the
U.S.. Of the 17 billion total
price tag for Samsung's Taylor, Texas fab, 11
billion is going to machinery and equipment
like the $200 million EUV lithography machines made
by ASML. The only devices in the
world that can etch with enough precision for the
most advanced chips and the massive machines made by
Applied Materials, the world's next biggest
microchip equipment company. Every chip in the world made
goes through our machines a few times at least. So inside this machine, you
are building billions and billions of transistors in
a small chip under 100km of wiring. Applied Materials is a key
Samsung supplier already based in the U.S. and its
growing U.S. operations at the same time as Samsung, with
the biggest semiconductor project Silicon Valley has
seen in 30 plus years. Why Santa Clara? This is where the
collaboration happens between our customers,
leading universities and our partners. But all this growth for
Samsung in the U.S. hasn't come without concerns. First, there's water. About 80% of Texas remains
in drought. In 2021, Samsung used about
38 billion gallons of water to make its chips. Where will that water come
from here, especially in periods of drought? So we have the Texas Water
Board that's working on that and legislation working on
this session to make sure that, with a growing
population in Texas, we will be able to provide for the
water needs not just of businesses, but also for
our growing population. Now, what you see here are
the cooling towers behind us. And, you know, we've
got a very aggressive goal this year in Austin, in
our Austin campus. We want to reuse over 1
billion gallons of water this year. And we take our
sustainability goals very seriously. And even on our
Taylor project, which we have starting up, our goals
there are to reclaim over 75% of our water. And then there's power. Texas has a uniquely
independent grid, largely cut off from borrowing
power across state lines. In 2021, that grid failed
during an extreme winter storm, leaving millions of
Texans without power and causing at least 57 deaths. So electricity is the
lifeblood of a semiconductor fab in a sense, right? There have been multiple
instances where electricity has gone out and companies
have had to scrap months of production. Samsung told CNBC its Taylor
fab will mark its first use of advanced chip etching
EUV machines in the U.S., but each of those machines is
rated to consume about one megawatt of electricity. That's 10% more than the
previous generation. One study showed Samsung
used more than 20% of South Korea's entire solar and
wind power capacity in 2020. Already signed 12 laws to
make the power grid more reliable, more resilient
and more secure. And so we can definitely
assure any business moving here, they will have access
to the power they need, but also at a low cost. Us expansion aside, Samsung
has also faced major scandals at home in South
Korea. Corruption charges have
kept Samsung's founding Lee family in the headlines for
decades. This is real life
succession. That is what Samsung is. It's got the whole shebang. It's got the the
shareholder battles, the generational intrigue, the
spying. The most recent member of
Samsung's founding family to lead, Jay Y. Lee, served
over a year in prison for bribery and was officially
pardoned in August. He took the helm as
executive chairman in October. Every major company out
there, Apple, they have to bend the knee to Samsung. They have to get their
chips, their displays. This is a company that
everybody has to go through at some point to get what
they need because they're so influential and they're run
by a convicted criminal. And then there's the big
seven year legal battle between Samsung and Apple. Samsung was arguing that its
phones were simply using a form factor in a design
that would be generic, this rectangle with rounded
circles. Apple said that they copied
them, so they settled, Apple got a payment from
Samsung, so Apple technically won. But when
you add up all the legal costs, all the fighting,
all those years, it was just a neutral zero on zero for
both sides. To this day, it remains a
tricky relationship. They're supplying to Apple,
but they're also competing with Apple. And on the flip
side, Apple is buying their chips, but then competing
with their smartphones. That creates a really weird
situation. At the end of the day,
controversies haven't impeded Samsung's forward
momentum. In 2022, it announced an
ambitious new roadmap that would, in theory, put it
ahead of the far bigger market leader. So it was
the ultimate goal to catch TSMC, to surpass TSMC. You know, one of the things
I love about Samsung since I joined Samsung is never
satisfied with number two as a business. As a company,
we're very aggressive. Now Samsung's goal is to
triple its capacity of leading edge manufacturing
and to make industry leading two nanometer chips by 2025
and 1.4 nanometer by 2027. I mean, if Samsung hits
their targets, they'll leapfrog ahead of TSMC, but
that's a big if. Tsmc is the only one that
the industry trusts to hit their roadmap. As geopolitical tensions
mount around China and Taiwan, customers are eager
for a second source for advanced chips beyond TSMC. Intel, the next biggest
advanced chip maker, is also adding manufacturing
outside Asia, building big new fabs in Ohio and
Europe. We can't be relied upon
hostile countries for our everyday needs. And so the
United States of America needs to make sure that we
are manufacturing everything that we need. We learned
that during the time of Covid, and we shall not
make that mistake again. But as Samsung races into
leading edge chips, will it lose focus on legacy chips,
the kind that saw the biggest shortages during
the pandemic, slowing down production of everything
from cars to game consoles? This factory that we're in
right now is a mature node factory where some people
would call that legacy. But there's no, there's no
pulling back here. It's really full steam
ahead. But now the AI boom means
entirely different. Chips, namely GPUs from
Nvidia have taken center stage. Nvidia relies
primarily on TSMC to make its chips, giving shares of
the Taiwanese giant a boost. There are more and more
people around the world who can make memory chips and
to stay ahead of the game, you've got to get into the
newer, some of the newer logic technologies. Samsung's decision to pull
back on memory and focus more on foundry, which is
all it makes in Austin now, means more custom chips for
customers, including perhaps those driving the large
language model craze. There are going to be diving
deeper into the logic chip segment. So the AI chips,
the, you know, the future applications for
semiconductor technology, I think that this would place
them more in a segment with Nvidia. But the question remains, is
this truly the future for Samsung chips and can it be
achieved in Texas, where Taylor says making three
nanometer chips in 2024 is only the start? We currently just have one
fab announced there, but plenty of room for more. And really the what next is
looking at what the market needs, what our customers
are asking for and being ready to deliver and
hopefully right out of Taylor, Texas, with more
factories and more investment there.
