Morgan Stanley: Samsung's 7nm capabilities cannot compete with TSMC

The biggest industry news recently was a report by South Korean media that graphics chip giant NVIDIA has confirmed that it will outsource its latest generation of 7nm graphics chips to South Korea's Samsung for production using a 7nm process that includes extreme ultraviolet (EUV) technology. This is tantamount to breaking up with its long-time partner TSMC, and TSMC's stock price was hit hard by the negative news on the 3rd. The stock price fell by NT$6.5 to NT$242.5 per share, a drop of 2.61%.

However, Morgan Stanley (Morgan Stanley) disagrees with the South Korean media report in its latest report, believing that the South Korean media report is too exaggerated and that NVIDIA's 7-nanometer process new generation graphics chips will still be produced by TSMC. Morgan Stanley pointed out that the competition between Samsung and TSMC in high-end processes is well known and is no longer a new thing. According to the supply chain, Samsung should be striving for NVIDIA's 8-nanometer and 10-nanometer process graphics chip orders, and 7-nanometer graphics chip orders should still be produced by TSMC.

Morgan Stanley's latest report shows that Samsung's 7nm process started later than TSMC, and the part of TSMC's orders that Samsung has a greater advantage in grabbing should be 8nm and 10nm process products. South Korean media reported that Samsung won a large order for NVIDIA's 7nm graphics chips, and Morgan Stanley believes that NVIDIA is more likely to place it with TSMC.

At the same time, Morgan Stanley said that NVIDIA and TSMC have a close partnership, so if they really place an order with Samsung, TSMC will be the main supplier, and Samsung will play the role of the second supplier. In addition, Morgan Stanley also pointed out with recent market estimates that the number of chips manufactured by TSMC for NVIDIA in 2018 accounted for 80% of all NVIDIA chips. In this case, Morgan Stanley strongly supports TSMC and believes that the report that NVIDIA will place an order with Samsung is exaggerated.

Nvidia, a major customer of TSMC (2330), the world's leading graphics chip manufacturer and a major customer of the leading wafer foundry, confirmed that the next-generation 7nm graphics processing unit (GPU) chips will be transferred to South Korea's Samsung, which attracted the attention of the industry and caused TSMC's stock price to fall 2.6% yesterday; however, research institutions and legal persons believe that TSMC's 7nm process is ahead of Samsung and has a stable yield rate, and it is still the first choice for major global customers.

Liu Meijun, an analyst at the Industrial Technology Research Institute's International Strategy Development Institute, said that the rise of innovative applications of 5G, artificial intelligence (AI) and high-performance computing (HPC) has driven processors to move towards high-speed computing, smaller size and low power consumption as the mainstream development. The latest products of global chip manufacturers including Qualcomm, NVIDIA, HiSilicon, AMD, etc. are all mass-produced with the most advanced process technology, triggering a surge in demand for 7-nanometer process, and TSMC still holds a leading position in 7-nanometer process.

Liu Meijun pointed out that due to the different speeds of various major manufacturers in advancing the 7nm process, the global foundry business landscape may be reorganized this year. Intel has announced that it will abandon its foundry business and focus on its core business to maintain its dominance in processors. Last year, Samsung adopted the 10nm process, an enhanced version of the 8nm LPP process, to temporarily replace the 7nm process due to poor 7nm yields. It will only start mass production of products with the 7nm process in the second half of this year. TSMC was the first in the world to start the 7nm process, and its yield performance is stable, making it the first choice for major design companies to introduce.

TSMC's 7nm process is currently operating at full capacity. It is estimated that 7nm and the enhanced 7nm extreme ultraviolet (EUV) lithography equipment will account for more than 25% of TSMC's full-year revenue this year, and will also be the main driving force for the growth of operations in the second half of the year compared to the first half.

Legal persons believe that TSMC has superior production and manufacturing technology and does not compete with customers like Samsung. Qualcomm previously outsourced its 10nm process to Samsung, and its 7nm process returned to TSMC for production. Nvidia should only give a portion of its orders to Samsung, with the majority of its production still based on TSMC.