MobilityMonday: Sweeping Samsung layoffs follow Intel and Infineon as semiconductor market trends toward specialization
Volume 6
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Samsung, Intel, and Infineon layoffs indicative of a shift away from vertical integration in semiconductor production
Last week, it was reported that Samsung Electronics is planning to initiate layoffs that could ultimately affect a double-digit percentage of its global 267,800-person workforce. Although the South Korean chaebol has dozens of product divisions — from TVs to kitchen appliances to cell phones, among others — all fingers point to its dwindling semiconductor business as being a main causal factor for the job cuts.
As a silicon foundry (the specialized manufacturing facility that produces integrated circuits), Samsung once accounted for nearly 17% of the global market share in 2019 but has since seen its share cut by nearly a third to 12%. Revenues from its semiconductor products declined by almost 40% from $63.8B in 2022 to $39.9B in 2023.
Samsung’s job cuts come a month after Intel announced that it would cut 10% of its global workforce (over 15,000 workers). These layoffs are arguably even more seismic given Intel’s legacy as the global pioneer in semiconductors. (Side note: Here in Israel, Intel’s operations and foundries account for 2% of the country’s GDP.)
Unlike Samsung, which manufactures semiconductors for other companies, Intel has historically only manufactured chips it designs in-house. However, that changed earlier this year when it announced in February plans to offer its foundry services to third-party chip companies, with a goal of becoming the second-largest foundry in the world by the end of the decade.
Infineon, a smaller European foundry — still with €16B in annual revenue — also announced last month that it would lay off or relocate nearly 3,000 employees as part of cost-cutting measures.
All the while, Taiwan Semiconductor Manufacturing Company (TSMC) continues to cannibalize market share, in large part due to the rise of NVIDIA and, more specifically, its advanced GPUs powering the AI boom. At 11% of revenues, NVIDIA is TSMC’s second-largest customer (after Apple, another former Samsung foundry customer). Unlike Samsung, Intel, and Infineon, “TSMC [has] had only a single value proposition—effective manufacturing—its leadership focused relentlessly on fabricating ever-more-advanced semiconductors”. Additionally, TSMC is the only foundry in the world capable of producing the most advanced 2- and 3-nanometer chipsets.
So what does all this mean?
The cross-industry layoffs here indicate that the semiconductor market has passed the point of no return when it comes to dismantling vertical integration. Instead, the industry is increasingly opting for and rewarding specialization at each step in the value chain. Fabless designers (i.e. companies who only design the semiconductors) can leverage their demand to work with the best manufacturing providers.
Integrated device manufacturers (IDMs) like Samsung, Intel, and Infineon once took pride in their full vertical integration in the design and production of semiconductors. Going forward, it seems more likely that designers will design the best chips, equipment manufacturers will produce the best equipment, and foundries will be the best chip manufacturers. Competitive advantage will win out and dipping one’s toes into too many ponds will come at a high price.
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