Companies smell "blood in the water," ready to greatly distance themselves from competition
Announcements this week by Intel and Samsung regarding their planned capital expenditures in 2012 reveal there is, and will be, wide and growing separation between these two companies and their competition. Intel, with a capex budget of $12.5 billion, and Samsung, with $12.2 billion budgeted for semiconductor capex, are each forecast to more than double the 2012 capex spending of TSMC, the next largest supplier, which has budgeted $6.0 billion in capex (Figure 1). Combined, Intel, Samsung, and TSMC are forecast to account for about half of the total semiconductor capex spending in 2012.
Since 2009, these three companies have boosted capital spending by astounding percentages. In 2010, TSMC doubled its capital spending compared to 2009. In the same year, Samsung tripled its spending! In 2011, Intel doubled its capex compared to 2010. Collectively, the planned capex spending of these three companies is forecast to be $30.7 billion in 2012, nearly 3x as much as they spent in 2009.
Samsung is significantly boosting spending for logic ICs. Approximately $6.5 billion of Samsung's 2012 capex budget is dedicated to logic ICs. Samsung currently has a lucrative business serving as Apple's foundry partner for the A4 and A5 application processors used in iPad tablet computers, iPhones, and iPod touch devices. It does not want to lose this business. Samsung is demonstrating that it has the means to provide all the process and manufacturing muscle needed when Apple considers a foundry partner to build its next-generation processors. Besides serving as a foundry partner for Apple, Samsung is aggressively ramping its in-house application processor business as demand increases for its smartphones, tablet PCs, and other mobile/media related devices. Meanwhile, the remaining $5.7 billion of Samsung's capex budget will be applied to the production of memory ICs, with a good portion of the funding likely to be used to boost capacity for NAND flash memory.
Intel's capex was $10.8 billion in 2011 and is forecast to be $12.5 billion in 2012--big numbers! However, the company said that when put against the context of how much its business has grown, the spending is justified. Intel is nearing completion of, and will soon be equipping and ramping production at, three new wafer fabs located in Chandler, AZ, Hillsboro, OR, and in Ireland. The company plans to begin 14nm production in Chandler when that fab opens in 2013. The new Hillsboro facility will focus on process development using 450mm wafers when it begins operations in 2013. Meanwhile, several fabs will begin 22nm production of x86 processors in the second half of 2012.
Additionally, Intel is making a concerted effort to expand its processor presence in the market for smartphones and media devices. Moreover, the company's Ultrabook initiative has piqued consumer interest and is likely to create additional demand for the company's processors in the second half of 2012.
It is apparent that for Samsung, Intel, and TSMC, the time has come to "put the hammer down" and position themselves as the strongest and most dominant IC suppliers in the industry. In fact, the disparity is getting so large that these three are likely to become completely dominant in their areas of specialization, if they are not already there. Smaller competitors will soon find it extremely challenging (impossible, in many cases) to remain competitive against these powerhouse companies when it comes to developing new products or competing on a cost basis. Weaker suppliers will be forced out of the business and a higher percentage of capex spending will be in the hands of the fewer remaining players.