Samsung Becoming Threat To Intel Corporation’s Chip Business

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Intel supplies processors for 99% of the world’s servers and 95% of laptops, making it the biggest chip maker worldwide. As a surprise, Samsung now follows in second place after taking control of the faster-growing memory chip business that Intel more or less abandoned in 1985. Samsung’s semiconductor operation has been looking at Intel’s for 40 years, but now, both are trying to attract each others’ customers, says a report from Bloomberg.

Intel goes back to memory chips

Last year, Intel announced plans to spend as much as $5.5 billion on a plant in the Chinese city of Dalian to propel back into production of modern memory chips.

On a November call with investors, Chief Executive Officer Brian Krzanich said, “This is probably one of the first memory investments we’ve made in our Intel factories in quite a few years.”

Kelvin Low, Samsung’s senior director of foundry marketing, in an interview, signaled their intention to compete with the chip maker. Low said that his company is gearing up to produce two big sets of server chips using the most advanced techniques.

“We are proactively entering that space” and “the reasons are obvious,” Low said.

Samsung matching Intel’s scale

During the computer era, the Intel’s strengths complemented one other, but now in this mobile age, manufacturing expenses have grown so large that setting up a product line is risky. Researchers at IHS estimate that a chip plant with the latest production equipment costs almost $10 billion. Most of the cash goes to buy machinery, which depreciates over the years and has to be replaced to remain competitive. Also device makers want fewer suppliers to provide them with more pieces of the final product.

Samsung, by striking deals to produce chips designed by Apple and Qualcomm, has turned the problems to its advantage, says Bloomberg.

Len Jelinek, an IHS analyst, says, “Historically, Intel has had a huge R&D budget that couldn’t be challenged by anybody,” but Samsung’s Budget represent the first real “competitive effort.”

Intel and Samsung are spending $12 billion a year on research and development as they try to devise more efficient chips. On one hand, where Intel’s plan is to introduce its latest mobile chips and modems in time, Samsung’s goal is to take on Intel in the chip market.

“It’s difficult to say when we’ll achieve our goal,” says Samsung’s head of logic chips – Kim Ki Nam. “We still have a big gap. They’re a good company.”

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