Samsung Must Improve AI Chip Yield Amid Nvidia’s Increasing Demands

Samsung Electronics is facing significant pressure to improve its foundry manufacturing yield for artificial intelligence (AI) processors, a need underscored by Nvidia CEO Jensen Huang’s recent statements. During a Goldman Sachs technology conference, Huang hinted at the possibility of Nvidia switching from its primary supplier, Taiwan’s TSMC, to other potential foundries including Samsung, primarily driven by rising demand for Nvidia’s chipsets and geopolitical risks in Taiwan. However, he also cautioned that shifting suppliers could result in lower-quality products, emphasizing the critical importance of yield and quality in the semiconductor industry. The current landscape presents Samsung with both a significant challenge and an opportunity, given its ongoing yield struggles and the broader competitive dynamics in the semiconductor market.

Samsung’s Foundry Yield Challenges

Samsung Electronics is under immense pressure to significantly improve its manufacturing yield for AI processors to better align with Nvidia’s increasing demands. Nvidia, one of Samsung’s most prominent customers, has indicated the potential to shift orders from Taiwan’s TSMC if necessary, due to the strong continuous demand for its high-performance chipsets and concerns related to Taiwan’s geopolitical climate. At the Goldman Sachs event, Jensen Huang praised TSMC’s efficiency and capabilities but acknowledged that Nvidia might need to consider alternative suppliers, although he stressed that yield and product quality are paramount in any such decision.

Yield issues have been a persistent obstacle for Samsung, particularly concerning advanced process technologies. Despite securing orders for Nvidia’s 8-nanometer-based chips like the Tegra for automobiles and the RTX-3000 GPUs in 2020, Samsung has struggled to win orders for more advanced AI processors such as Nvidia’s H series or Blackwell, which necessitate cutting-edge manufacturing capabilities. The primary concern remains the quality and yield of Samsung’s production, inhibiting its ability to meet the rigorous demands of Nvidia and other high-profile clients.

Historical Context and Current Yield Issues

Samsung’s historical yield issues are well-documented and continue to pose significant challenges. In 2020, Samsung successfully secured orders for Nvidia’s Tegra and RTX-3000 GPUs, marking a considerable achievement. However, securing orders for more advanced AI processors, critical for forward-looking applications, has proven difficult. The core issue revolves around manufacturing yield, specifically the ratio of functional units to the total units produced, which has been a consistent bottleneck. The yield of Samsung’s 3-nanometer process was in the single digits until early 2024. Although there have been improvements, with yields approaching 20 percent in the second quarter, this rate remains far below the industry-required 60 percent for viable mass production.

The delay in achieving high yields has severely impacted Samsung’s ability to supply engineering samples, including key products like the Exynos 2500 chipsets. This ongoing bottleneck not only hinders production timelines but also affects Samsung’s capability to secure new contracts and maintain essential relationships with critical clients such as Nvidia. Improving these yield rates is not just about immediate financial gains but also about securing a long-term position in the high-stakes semiconductor market.

Strategic Adjustments and Industry Reactions

In response to these formidable yield challenges, Samsung has initiated strategic adjustments to better align its operations with market demands. The company has revised its equipment installation schedule at its newest fabrication plant, P4 in Pyeongtaek, to prioritize the production of advanced DRAM memory over NAND and other foundry products. This shift is driven by the dual factors of sluggish foundry orders and a steady demand for high-bandwidth memory (HBM) chips, which are essential for AI server applications. This strategic pivot illustrates Samsung’s adaptive response to the evolving semiconductor landscape.

Simultaneously, questions have arisen regarding Samsung’s ambitious investment in its Taylor, Texas plant, originally planned to commence mass production of 4-nanometer chips by the following year. This plan has now been postponed until 2026 due to continued yield issues. Industry speculation suggests that Samsung may pivot its focus toward 2-nanometer chips instead of 4-nanometer ones to enhance its competitiveness. Nonetheless, the company continues to face ongoing challenges in improving yields for both 2-nanometer and 3-nanometer processes. These strategic adjustments highlight Samsung’s attempts to navigate the intricate and competitive market dynamics.

Financial Impact and Market Position

The financial repercussions of Samsung’s yield issues are substantial, manifesting in its recent performance metrics. Market analysts estimate that Samsung’s foundry business incurred operating losses of approximately 1.5 trillion won (about $1.12 billion) in the first half of 2024. Even though Samsung has made notable achievements in the high-bandwidth memory (HBM) market, the overarching performance of its semiconductor operations has been adversely affected. Observers predict a decline in Samsung’s overall semiconductor operating profit to 5.5 trillion won for the third quarter.

These financial strains underscore the urgent need for Samsung to tackle its manufacturing yield problems head-on. High yields are crucial not only for satisfying customer demands and securing lucrative contracts but also for maintaining profitability in an intensely competitive market. Samsung’s failure to achieve the necessary yield improvements could jeopardize its standing in the semiconductor industry, where technological prowess and manufacturing efficiency are critical determinants of market position and financial health.

Competitive Landscape and Future Prospects

The semiconductor industry is fiercely competitive, with Taiwan’s TSMC currently holding a prominent position due to its advanced manufacturing capabilities and consistent yield performance. Nvidia’s potential shift away from TSMC presents a significant opportunity for Samsung. However, it also places a significant spotlight on the crucial importance of achieving high yields in advanced process technologies. Samsung’s ongoing yield challenges and the strategic decisions it must make to overcome these hurdles are emblematic of the broader complexities and high stakes in the semiconductor foundry business.

Achieving high yields is not merely a technical challenge for Samsung but a critical factor in securing and maintaining market share in the advanced chip manufacturing sector. The company’s ability to improve its yield rates will play a pivotal role in determining its future positioning and success in an increasingly demanding and dynamic market. As the industry evolves, Samsung’s capacity to address these pressing yield issues will be vital to its continued competitiveness and growth in the global semiconductor market. The path forward for Samsung will require both innovation and strategic acumen to navigate the challenges ahead effectively.

Explore more

Robotic Process Automation Software – Review

In an era of digital transformation, businesses are constantly striving to enhance operational efficiency. A staggering amount of time is spent on repetitive tasks that can often distract employees from more strategic work. Enter Robotic Process Automation (RPA), a technology that has revolutionized the way companies handle mundane activities. RPA software automates routine processes, freeing human workers to focus on

RPA Revolutionizes Banking With Efficiency and Cost Reductions

In today’s fast-paced financial world, how can banks maintain both precision and velocity without succumbing to human error? A striking statistic reveals manual errors cost the financial sector billions each year. Daily banking operations—from processing transactions to compliance checks—are riddled with risks of inaccuracies. It is within this context that banks are looking toward a solution that promises not just

Europe’s 5G Deployment: Regional Disparities and Policy Impacts

The landscape of 5G deployment in Europe is marked by notable regional disparities, with Northern and Southern parts of the continent surging ahead while Western and Eastern regions struggle to keep pace. Northern countries like Denmark and Sweden, along with Southern nations such as Greece, are at the forefront, boasting some of the highest 5G coverage percentages. In contrast, Western

Leadership Mindset for Sustainable DevOps Cost Optimization

Introducing Dominic Jainy, a notable expert in IT with a comprehensive background in artificial intelligence, machine learning, and blockchain technologies. Jainy is dedicated to optimizing the utilization of these groundbreaking technologies across various industries, focusing particularly on sustainable DevOps cost optimization and leadership in technology management. In this insightful discussion, Jainy delves into the pivotal leadership strategies and mindset shifts

AI in DevOps – Review

In the fast-paced world of technology, the convergence of artificial intelligence (AI) and DevOps marks a pivotal shift in how software development and IT operations are managed. As enterprises increasingly seek efficiency and agility, AI is emerging as a crucial component in DevOps practices, offering automation and predictive capabilities that drastically alter traditional workflows. This review delves into the transformative