Taiwan says 'key position' in semiconductors won't be shaken as US passes chip act
TAIPEI (Reuters) - Taiwan's "key position" in making semiconductors will not be shaken and production on the island is the most efficient way of doing things, the Economy Ministry said on Friday in response to the U.S. Congress passing a major new chips act.
The U.S. House of Representatives passed the sweeping legislation on Thursday to subsidise the domestic semiconductor industry as it competes with Chinese and other foreign manufacturers.
Taiwan is a major chip producer, home to Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the world's largest contract chipmaker, which is also investing $12 billion in a new plant in Arizona.
The Economy Ministry noted that it is "happy to see" Taiwanese firms being able to access "resources on the ground" when they operate around the world, and to establish good relations in the U.S. supply chain.
At the same time, Taiwan is an advanced global semiconductor manufacturing centre with the most resilient and competitive production model, it added.
"After 50 years of continuous innovation, investment and generations of talent, our country's semiconductor manufacturing efficiency, supply chain integrity and innovation energy have always been at the world's top, and Taiwan's key position in semiconductors will not be shaken."
Taiwan has always been a partner of the world, as shown by its efforts to alleviate auto chip supply chain problems, and the "made in Taiwan" model of manufacturing semiconductors is the most efficient and reliable way of doing things, it said.
"Whether in the past, present or future, Taiwan will continue to play the role of an indispensable partner in the global supply chain."
Taiwan has been keen to show the United States, its most important international backer at a time of rising military tensions between Taipei and Beijing, that it is a reliable friend as a global chip crunch impacts auto production and consumer electronics.
But Taiwan's government is also determined to keep the majority of advanced chip manufacturing at home.
China had lobbied against the U.S. semiconductor bill, calling it reminiscent of a "Cold War mentality" and "counter to the common aspiration of people" in both countries.
(Reporting by Taipei newsroom; Writing by Ben Blanchard; Editing by Kirsten Donovan)
U.S. says it will limit size of semiconductor chips grants
By David Shepardson
WASHINGTON (Reuters) - The U.S. Commerce Department said late on Friday it will limit the size of government subsidizes for semiconductor manufacturing and will not let firms use funding to "pad their bottom line."
On Thursday, the U.S. House of Representatives gave final approval to legislation that provides $52 billion in government funding to boost semiconductor manufacturing and research. President Joe Biden is expected to sign the legislation early next week.
The Commerce Department Friday told chips companies awards will be "no larger than is necessary to ensure the project happens here in the United States" and added it will discourage "race-to-the-bottom subsidy competitions between states and localities."
Congressional Progressive Caucus chair Pramila Jayapal said the group backed the legislation after lengthy negotiations with Commerce Secretary Gina Raimondo after the group expressed concerns chips companies would use funding for stock buybacks or pay dividends.
A caucus spokeswoman said Friday "progressives were able to vote for the bill yesterday, confident that the department would be ensuring the funding could not be used for corporate self-enrichment."
Commerce said applicants must supply detailed financial information and projections for proposed projects and capital investment plans: "The department will go over these with a fine-tooth comb and make sure that companies are not padding their models to ask for outsized incentives."
A Commerce Department spokesperson declined to comment beyond the web posting.
The department vowed to "give preference in awards to companies who commit to make future investments that grow the domestic semiconductor industry ... and not engage in stock buybacks."
The legislation does not prohibit stock buybacks by companies receiving government funding but does prohibit the use of grant funds for the buybacks.
Companies winning funding will be prohibited for 10 years "from engaging in significant transactions in China or other countries of concern involving any leading-edge semiconductor manufacturing capacity or material expansions of legacy semiconductor manufacturing capacity designed to export to the U.S. and other countries."
(Reporting by David Shepardson; Editing by Chris Reese)
COUNTING ON CHIPS FOR BAIL OUT
What Intel’s Disastrous Earnings Tell Us About the Chip Sector and Competitors
What a disaster.
We’re talking about Intel (INTC) June-quarter results. The company not only delivered a disappointing quarter but reset its 2022 guidance meaningfully lower, putting its shares under pressure Friday.
For the current quarter, the chip company now sees earnings of $0.35 per share vs. the $0.84 consensus. It is now guiding for third-quarter revenue of $15 billion-$16 billion vs. the $18.67 billion consensus. As for full-year 2022, its EPS expectation is now $2.30, down from its prior forecast of $3.60 and the $3.39 consensus. In terms of revenue for the year, Intel now expects $65 billion-$68 billion, down from $76 billion and well below the $74.4 billion consensus.
What do we make of this?
Some of it can be accounted for by the weakening PC market, which Intel said it is seeing for the consumer market even though the enterprise and high-end PC market remains strong. That matches comments we’ve collected from Microsoft (MSFT) , Logitech (LOGI) , and Samsung in recent days. Indeed, during the June quarter, there were enough data points on the PC market that a good deal of that news was already priced into chip companies, including our own Advanced Micro Devices (AMD) .
In terms of Intel’s data center business, the company now expects to grow slower than the overall data center market, which in plainer English means it will continue to experience market-share loss as AMD and Nvidia (NVDA) continue to eat its lunch. Comments on cloud and data center spending continue to be vibrant, and that suggests both AMD and Nvidia will deliver June quarters that were better than feared. AMD will report its quarterly results this coming Monday (August 1) after the market close.
Turning to Intel’s capital spending, the company is cutting its 2022 forecast to $23 billion from its $27 billion target earlier this year. Despite the reduction, Intel is still spending roughly $5 billion more than it did last year. At the same time, the CHIPS bill has passed, which should result in Intel’s capital spending remaining at elevated levels in 2023 as it adds additional foundry capacity.
During the earnings call, Intel discussed its recent win with MediaTek and commented it is talking with several other fabless chip companies. We are not surprised by this considering the supply-chain issues during the pandemic and those with China during the June quarter. How quickly companies like Qualcomm (QCOM) , Nvidia, AMD, and others will be willing to use Intel’s foundry services remains to be seen, however. We suspect they will be more inclined to use newfound domestic capacity from Taiwan Semiconductor (TSM) . That said, all this forthcoming domestic capacity is a positive for semi-cap equipment companies, including our own Applied Materials (AMAT) .
Samsung seeks to reassure markets about the competitiveness of semiconductors
Samsung Electronics reassured markets about the competitiveness of its semiconductor business, after a series of warnings from investors, analysts and employees that the Korean company is losing its technological edge.
The South Korean conglomerate is the global market leader in memory chips, harboring ambitions of bridging the gap in its main competitor, Taiwan Semiconductor Manufacturing Company, in the plumbing sector, where companies are contracted to produce chips designed by others.
To illustrate the company’s importance to the global economy, US President Joe Biden visited its semiconductor plant in Pyeongtaek during a visit to South Korea in May.
But earlier this year, the company lost its two largest plumbing customers, Qualcomm and Nvidia, to TSMC, according to analysts, who noted that the companies were disappointed by Samsung’s inability to offer fixed sizes of 4nm chips and 5 nanometers that make up the central processing units of computers.
TSMC captured 54 percent of the foundry market in the first quarter of 2022, more than triple Samsung’s market share, according to market researcher TrendForce.
Last year, Samsung announced a 171 trillion won ($151 billion) investment plan for foundry chips by 2030. But its Taiwanese rival plans to invest up to $44 billion this year compared to Samsung’s estimated $12 billion, according to SK Securities and Exchange headquartered in Seoul.
And in the D-Ram business, traditional strengths Samsung, competitors Micron Technology and SK Hynix have been quicker to unveil some of its more advanced chips. D-Ram technology enables short-term storage for graphics, mobile and server memory chips.
Problems with its flagship Galaxy S22 smartphone, which was launched in February, indicates that the South Korean conglomerate is also lagging behind Apple in hardware competitiveness, while the performance and sales of Samsung’s Exynos 2200 mobile processor chips, launched this year, It was disappointing.
Investors, including hedge funds Petra Capital Management and Dalton Investments, have raised concerns about what they describe as Samsung’s tough corporate culture under Lee Jae-yong, Samsung’s vice president and de facto leader.
They argue that the company has prioritized rapid development and cost savings over quality and innovation.
“Designing their chips required creative and engineering ingenuity, but Samsung’s risk aversion culture deepened under Lee Jae-yong’s leadership, with engineers shunning new attempts at innovation,” said Chan Lee, managing partner at Seoul-based Petra Capital Management.
In April, a junior engineer who worked on Samsung’s semiconductor technology development team wrote a letter to the company’s leadership complaining that Samsung researchers were under enormous time pressure to achieve “impossible” goals to develop new technology and products, and that this “feeling of failure” permeated the organization.
“It seems that the top decision maker is unable to understand the root cause of the problems,” the engineer added. “I’ve heard quite a few stories about the ‘crisis’ but I think this moment is more dangerous than ever.”
“Cultures in the design house and luxury division are critical to success. SemiAnalysis senior analyst Dylan Patel wrote in a recent report: He attributed Samsung’s problems to a “toxic” culture where different business units blame each other “in the face of bugs” for their weakness in the sector. Not related to memory.
Samsung’s share in the smartphone application processor market has almost halved since 2019, and it ranked fourth last year at 6.6 percent, compared to 37.7 percent by Qualcomm, MediaTek 26.3 percent, and Apple 26 percent, according to a research firm. Market Strategy Analytics.
“[Samsung’s] “Technological advantages are crumbling,” Patel wrote. “Samsung is falling behind in all aspects of technology development including the one area where they have historically crushed all competitors, D-Ram.”
Samsung Electronics reported lower-than-expected operating profit for the second quarter of 2022 as inflation dented consumer demand for electronic devices.
It is also preparing for a fall in demand in response to higher global prices following the pandemic-driven boom in the technology sector over the past two years.
But company executives argue that its memory business still has a technological advantage over its competitors, citing its faster adoption of UV lithography to produce memory chips and its dominant D-Ram market share of about 40 percent.
Kang Moon-soo, Samsung’s foundry vice president, called market concerns about losing key customers “exaggerated,” telling analysts in April that it has backlogged orders for the next five years, or eight times last year’s revenue from the business.
Analysts said TSMC’s faster transition to mass production of 4nm and 5nm chips has affected the Korean company’s ability to produce high-end chips in sufficient sizes for its high-profile customers.
But Samsung told the Financial Times that it is now able to produce fixed quantities of chips and will “maximize” supply. The company is “reorganizing” its chip design business to boost its long-term competitiveness, an executive told analysts Thursday.
Earlier this week, the company held a gala to celebrate its first shipment of 3nm chips, after beating TSMC to bring the next generation of memoryless chips to market.
“Samsung still has a chance to attract customers back if it can increase the rate of return on advanced chips,” said James Lim, an analyst at hedge fund Dalton Investments in California. “No one wants to take the risk of being completely dependent on TSMC.”
Samsung also said it was making efforts to create a “comprehensive challenge culture” through “open communication” with employees. She said she continued to talk to employees about the company’s vision and business direction.
There is optimism within the company that Lee, a scion of the company’s founding family, will receive a pardon from President Yoon Seok Yeol next month.
Lee was released from prison on parole last year, having served 60 percent of his sentence for bribing former president Park Geun-hye to secure his family’s control of Samsung Electronics.
But he is still subject to restrictions related to his job and business activities, which effectively complicate his ability to oversee the management of the sprawling Samsung conglomerate. Presidential pardons are traditionally granted before South Korean Independence Day in mid-August.
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