Samsung rumored to have cut off supply of 7nm and below

November 11, according to Taiwan media ‘Economic Daily News’ reported that, following TSMC sent a letter to the Chinese mainland AI chip companies to suspend the 7nm and below advanced process foundry services, the latest rumors show that Samsung foundry business unit has also issued a similar notice to mainland customers.

In this regard, Samsung's official response said that it does not comment on market rumors.

It is worth noting that, according to the Chosun Ilbo earlier this month, citing people familiar with the matter, Samsung has closed more than 30% of the production line in Pyeongtaek line 2 (P2) and line 3 (P3) to reduce the capacity of the foundry, and plans to expand the scope of the closure to 50% by the end of the year, which includes the 4nm, 5nm and 7nm foundry production lines. Samsung plans to gradually stop operations while monitoring customer orders.

Although the outside world agreed that Samsung Electronics semiconductor sector temporarily closed part of the foundry production line, mainly to reduce costs. Because Samsung foundry business third quarter loss may be as high as 1 trillion won (about $724 million), which prompted the Samsung must take cost-cutting measures to deactivate part of the production line.

However, Samsung may also be in the last month due to the TSMC ‘violation’ foundry events and received the wind, the need to suspend for some customers in mainland China 7nm and below the supply of advanced processes, and thus is expected to be the end of the year will be 7nm and below the scope of the closure of the foundry production line of the advanced process to expand to 50 per cent.

It is important to know that the original Samsung orders from China's fabless chip design companies accounted for a large part of Samsung's 4nm, 5nm, 7nm production capacity, and Samsung's current first-generation 3nm process (yield of about 60 per cent) of the only major customer on a cryptocurrency ASIC chip maker in China. But the U.S. imposed trade restrictions on China's semiconductor industry, which also led to Samsung lost some Chinese customers.

And with TSMC under pressure from the U.S. government, sent a letter to the Chinese mainland AI chip companies to suspend 7nm and the following advanced process foundry services, there are indeed some manufacturers began to contact Samsung, hoping that Samsung can provide relevant services, thereby replacing the TSMC has been suspended supply.

After all, there are currently only three overseas foundries, TSMC, Samsung and Intel, with 7nm and below advanced process foundry capabilities. And Intel's due to the U.S. manufacturers, by the U.S. regulations more restrictions, which also makes it can not be an alternative choice.

However, from the latest rumors, although the U.S. has not yet formally introduced the relevant restrictions on the rules, but Samsung also seems to have received a notice from the U.S. Department of Commerce, as did TSMC. Even if the U.S. Department of Commerce did not send a letter to Samsung, Samsung out of ‘risk aversion’ considerations will follow TSMC's relevant initiatives.

According to Reuters and other foreign media reports, confirmed that the U.S. Department of Commerce has sent a letter to TSMC, requesting it to ship some of the Chinese mainland 7nm process advanced AI chips, the implementation of export controls.

Market research organization TrendForce also said that TSMC has re-examined the certified customer identity (KYC) process, and plans to raise the audit standards for negotiating with customers and pitching chips, and expand the scope of product review. In addition to the arithmetic and transistor density specifications for HPC chips in the U.S., it may also add new chip size and HBM restrictions.

TrendForce said that TSMC's recent implementation of the new restrictions on the norms of the possibility of very high, but the specific impact of the magnitude of the U.S. Department of Commerce need to look at the U.S. Department of Commerce's new export control rules, as well as whether or not it will be added related to the Chinese mainland manufacturers to the list of entities.

Observe the first three quarters of this year TSMC process revenue distribution, advanced process accounted for about 67%, the main source of revenue. Among them, 7nm, 6nm, 5nm, 4nm and 3nm main customers are European, American and Taiwanese manufacturers, even if the review has become more stringent, may lose some of the Chinese customers, but due to the market for AI chip demand is strong, other overseas customers may soon make up for the empty capacity of mainland China manufacturers, the impact of TSMC's advanced process capacity utilization rate is limited.

From the point of view of TSMC's regional revenue share, TSMC's revenue from mainland China for the whole year of 2023 and the first three quarters of 2024 mainly accounted for 11% to 13%. If the 7nm and below advanced process review is expanded or a mainland China customer is included in the entity list by the United States, it is expected to affect TSMC's overall quarterly revenue of about 5%~8%.

        In addition to the relevant Chinese mainland AI chip design companies will be TSMC ‘cut off’ 7nm and the following advanced process direct impact, the relevant EDA tools vendors, semiconductor IP vendors, as well as third-party design services vendors performance will be negatively impacted. After all, if the design of 7nm and the following more advanced process chip if can not be manufactured, there is no need to continue to purchase related EDA tools, semiconductor IP and third-party design services.

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