Samsung VS TSMC...Advancement in Leading-Edge Processes Despite Disadvantageous Conditions Like Taxes and Labor Costs (Comprehensive)

[Asia Economy Reporters Sunmi Park and Pyeonghwa Kim] An analysis has revealed that Samsung Electronics is at a disadvantage compared to its foundry (semiconductor contract manufacturing) competitor, Taiwan's TSMC, in various areas such as taxation, investment incentives, and labor costs. However, despite these unfavorable conditions, Samsung Electronics holds a larger market share and leads in technology in advanced process nodes compared to TSMC.

Samsung Bears Greater Burdens in Corporate Tax and Labor Costs than TSMC

According to the Korea Economic Research Institute on the 10th, TSMC, the number one player in the foundry market, enjoys a more favorable business environment than Samsung Electronics, the second largest, in various areas including ▲taxation ▲investment incentives ▲labor costs.

The highest corporate tax rate in South Korea is 25%, which is 5 percentage points higher than Taiwan's 20%. Although the government recently proposed a tax reform plan to lower the corporate tax rate to 22%, it remains higher than Taiwan's rate.

Unlike Taiwan, which cultivates 10,000 semiconductor professionals annually through semiconductor-related academic programs, South Korea produces only about 1,400 per year, which is another disadvantage. The Korean government announced semiconductor workforce development measures in July to improve this situation. The goal is to nurture 150,000 talents over 10 years, but the Korea Economic Research Institute forecasts that Samsung Electronics will continue to face difficulties in workforce supply for the time being.

Samsung Electronics’ average wage last year was 144 million KRW, which is 49 million KRW higher than TSMC’s 95 million KRW, indicating a significantly higher labor cost burden. Although domestic electricity rates are lower at 110.5 KRW per kWh compared to Taiwan’s 134.2 KRW, water rates are 223 KRW higher per ton, showing partial infrastructural challenges.

Recent enactments and policies supporting research and development (R&D) and facility investments in the domestic semiconductor industry are positive factors. The National Assembly passed the National Advanced Strategic Industry Special Act for semiconductor support in January, raising tax credit rates for R&D and facility investment costs to a maximum of 40% and 6%, respectively. In July, the government announced a strategy to achieve semiconductor superpower status, further increasing the tax credit rate for equipment investment in national strategic technologies by 2 percentage points. TSMC receives a 15% tax credit on R&D investments and 40% support for packaging process costs.

The Korea Economic Research Institute emphasized that since the semiconductor industry is a core sector determining national competitiveness, the government must actively foster the industry. As countries worldwide compete fiercely to secure leadership in the semiconductor industry through production facilities, R&D, and human resource development, a bold strategy to secure industrial leadership is necessary.

Lee Gyuseok, a senior researcher at the Korea Economic Research Institute, stated, "To respond to the semiconductor technology hegemony competition, domestic companies need at least the level of infrastructure support provided to advanced overseas firms. For this, urgent measures include lowering corporate taxes, improving tax credit rates for R&D and facility investments, workforce development support, and deregulation."

Samsung’s Advanced Process Node Focus Strategy Pays Off

Although the market share gap between global foundry leader TSMC and second-ranked Samsung Electronics is widening, their fundamentals are completely different.

According to market research firm Counterpoint Research, Samsung Electronics’ chipsets manufactured using 4nm and 5nm processes accounted for 60% of the market share in the first quarter of this year, surpassing TSMC’s 40%. Just a year ago, Samsung’s market share was only 8.6%, far behind TSMC’s 91.4%, but the rankings quickly reversed.

A significant synergy effect has occurred as many of Samsung Electronics’ mid-to-high-end smartphones use chips made with the 5nm process, and Samsung began 4nm production at the end of last year, resulting in Qualcomm Snapdragon 8 Gen 1 chips being manufactured using Samsung’s 4nm process.

Samsung’s technological edge is further demonstrated by its earlier start of 3nm mass production compared to TSMC. In June, Samsung became the world’s first to begin mass production of 3nm foundry processes applying Gate-All-Around (GAA) technology, having already secured multiple major clients and currently discussing orders with many customers. Samsung is also developing the second-generation 3nm GAA process, targeting mass production in 2024.

In contrast, TSMC’s 3nm mass production plans have encountered setbacks. According to major foreign media, Intel, a customer, canceled a large portion of its 3nm orders with TSMC due to issues with new CPU product design and process verification, causing delays in TSMC’s 3nm production schedule. This is expected to significantly reduce TSMC’s planned capital expenditures next year.

Of course, when considering the entire foundry market, Samsung Electronics lags far behind TSMC. Based on Counterpoint Research data for the first quarter of this year, TSMC holds an overwhelming 54% market share, followed by Samsung (15%), UMC (7%), GlobalFoundries (6%), and SMIC (6%). TSMC, with nearly 40 years of foundry experience, has secured a large share in less technology-intensive processes compared to Samsung, which officially started its foundry business in 2017, resulting in a much higher overall market share. Moreover, TSMC’s scale in revenue and workforce is three times that of Samsung Electronics.

Industry experts believe that considering Samsung’s foundry scale, workforce, and experience, competing with TSMC in overall market share is difficult, but Samsung has a good chance when focusing solely on advanced process nodes supported by cutting-edge technology. Market research firm Omdia predicts that foundry revenue from 3nm processes will begin this year, surpass 5nm process revenue in 2024, and grow at an average annual rate of 85% through 2025. The forecasted foundry revenue by process node in 2025 is $25.405 billion for 3nm and below, $19.207 billion for 5nm, $15.454 billion for 7nm, and $100 million for 10nm.

Since foundry demand is expected to remain robust centered on advanced process nodes, and profitability is more favorable than legacy (older) processes, Samsung’s strategy to focus on advanced nodes is considered well-aligned. A semiconductor industry insider said, "Samsung is making unprecedented investments in line with the intensifying competition among global fabless companies to secure advanced process production capacity. Samsung’s technological superiority in advanced processes compared to TSMC poses a significant threat to TSMC, which has long dominated market share."

This content was produced with the assistance of AI translation services.