Korea's IC design houses are on the verge of debacles, as they lack in manpower and scale. Much of what they suffered is blamed on Samsung Electronics' insular policy of ‘’doing everything in-house”. 

The world's 4th largest foundry chip maker, Samsung Foundry has been a linchpin of the country's foundry, or contract chip-making ecosystem, having promised to cooperate with a number of Korean IC chip design houses on n mutual interest basis to expand its foundry ecosystem called as SAFE or Samsung Advanced Foundry Ecosystem.

Reneging on the promise, however, Samsung Foundry has been recently threatening to displace its two major ecosystem partner IC chip design houses with a newcomer, blaming them for lacking in scale and technology prowess.

Yet, the lack isn’t of their own making, but is blamed on Samsung’s lack of support and coherence in its ecosystem policy, according to some analysts. They don’t think of Samsun Foundry’s ecosystem policy as ‘win-win strategy, but rather deride it as ”winners-take-it all’ strategy, under which Samsung is trying to monopolize chip design manpower and market opportunities.

Winner-take-it-all

The creation of the foundry ecosystem is indeed a sort of a win-win strategy for foundry chip makers and IC design houses as well as other fabless chip makers alike, as it enables all the players in the ecosystem to cooperate and share rewards with each other.

For example, pure IC chip design houses are very dedicated to designing and developing custom made chips of third party fabless chipmakers or IDMs (integrated device manufacturers) and system vendors.

Not only they work together with their customers, but also are entitled to outsource the fabrication of their customers’ chips to foundry chip makers like Samsung upon the customers ‘approval, serving as bridge between foundry chip makers and system vendors or fabless chip makers.

On the other hands, foundry chip makers are a sort of contract chip makers that fabricate no chips of their own design, but simply churn out chips of others’ design using their chip fabrication capacities.

Such nature of the foundry business are calling for foundry chip makers to rally IC chip design houses and fabless chip makers behind their ecosystem, because that’s the surest way to win foundry orders.

On the way toward that goal, foundry chip makers are often investing, or jointly embarking on a joint-development with IC chip design houses to develop core IPs and share them with each other.

TSMC's win-win strategy 

The win-win symbiotic relationship is especially becoming important, as SoC, or system on chip design are getting more and more complex, calling for the complex implementation of various chip elements or blocks with different chip circuitry process technologies from 10nm to standard 25 nm circuitry technology.

The cooperation of mutual interests is also very instrumental in creating a well-established chip making ecosystem under which serves as a breeding ground for IC design houses and fabless chipmakers to grow.

True enough, that’s the way how TSMC of Taiwan, the world’s largest foundry chip maker, has played a pioneering role in the spectacular growth of the Taiwanese chip making industry.

TSMC has been investing in or encouraging Taiwanese IC chip design houses and fabless chip makers to jointly develop IC design IPs to use and implement them in its foundry chip business rewarding its ecosystem partners’ efforts with licensing fees or investment in what’s called as a virtuous cycle.

The results are the mushrooming growth of world-class Taiwanese IC design houses and fabless chip makers such as MediaTek and M-Star. In a stark contrast with TSMC’s partners-friendly ecosystem, however, Samsung’s SAFE is not a safe haven for Koran IC chip design houses.

Samsung’s foundry business unit is rather known in Korea as a predator of the Korean chip making and design ecosystem, as it has been massively pooling engineering resources and market opportunities limitedly available in Korea with its scale and size.

The excessive concentration of engineering manpower and market opportunities around its foundry chip business has left Korean IC design houses and fabless chip makers with little room for growth.

A case in the point: A new IC chip design house of Korean nationality called as SNST was established in mid-December in Vietnam, newly recruiting about 100 chip design engineers from Korea. Founded by former executives of Hana Tech, one of Samsung Foundry’s dedicated IC chip design houses, SNST is known to work with Samsung Foundry as one of its ecosystem partners.

Rumors have it that Samsung Foundry has pulled a string behind the establishments of SNST disguising itself as an independent IC chip design house to put the company at the forefront of its marketing efforts to seize foundry orders.

True enough, the creation of SNST comes as a big threat for Samsung Foundry’s in two major ecosystem partners – Alpha Holdings and HANATEC Co., Ltd, as these two IC chip design houses have to compete with SNST to win chip design orders from system vendors or fabless chip makers.

Especially, if the rumor proves true, SNST will have Samsung Foundry’s big backing in its negotiation with system vendors and fabless chip makers to win orders, standing a chance to outbid these two chip design houses.

Vertical Integration ; Everything done in-house  

Samsung Foundry is a foundry or contract chip making arm of Samsung Electronics, a crown jewel of Samsung Group, which operates many business divisions to produce a wide range of IT devices from PCs to mobile phones to TVs. Samsung Electronics has also many IT-centric affiliates like Samsung SDI, and Samsung Electro-Mechanics.

These captive markets can serve as total addressable market or TAM for newly established SNST, as they can outsource the design of their custom-made chips for TVs and mobile phone to the Vietnam-based chip design house.

This scenario helps partly explain the reason why SNST was built in Vietnam, even if Vietnam is a barren territory for IC chip design business with no infra build-ups.

Vietnam is rapidly emerging as a production hub for a variety of IT products, and especially becoming a huge concentration of Samsung Electronics’ manufacturing capacities, a mammoth manufacturing cluster for its mobile phone divisions and other affiliates as well as subcontractors.

If this scenario proves true, SNST is a sort of ecosystem partner in disguise, which is at the vanguard of Samsung’s pursuit of “everything to done in house policy”.

Under the scenario, Samsung’s role model may be MCU chip maker Renasas Electronics of Japan that is operating its own chip design house Renasas Design Vietnam.

The “everything in-house policy” has a root in Samsung Electronics’ vertically integrated manufacturing operation, under which the company has been doing everything on its own from chips to electronics parts and components to displays to systems like mobile phones and TVs. The vertical integration used to be Samsung’s competency, because it enables the company to control everything to cut costs and speed up production lead time. But, Samsung bears the brunt of the blame for sterilizing the breeding ground for small and medium sized electronics parts and components makers. It was also blamed for discouraging innovation among young entrepreneurs

 

 

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