Unlike in the past, in recent years, no one has been able to firmly hold the global "number one" throne in the semiconductor industry.

In 2017, Samsung's chip business overtook Intel for the first time, becoming the world's largest chip manufacturer and taking the top spot. However, after just two years, Intel once again surpassed Samsung. By 2021, Samsung made a strong comeback, overtaking Intel to regain the number one position.

Originally, in the love-hate rivalry for the "number one" spot, there were only two contenders: Intel and Samsung. However, the situation in 2023 was unexpected: last year, Intel pushed Samsung down to become the global chip sales leader, NVIDIA quickly climbed to second place, and Samsung fell to third.

Now, there are three contenders who have the qualifications to vie for the "number one" position: Intel, NVIDIA, and Samsung.

01

Contenders for the "Number One" Throne

Contenders Pushed by the AI Trend

Last year, the semiconductor market, marked by a decline in memory storage, was in a period of overall growth decline. Amidst such a year, a groundbreaking event occurred: NVIDIA's sales volume topped the rankings of semiconductor manufacturers.According to data released by TechInsights, NVIDIA's semiconductor sales in Q4 of 2023 increased by 23%, reaching $9.8 billion. In this quarter's revenue, TSMC was at $19.6 billion, Samsung was at $16.4 billion, and Intel was at $14.6 billion. NVIDIA has become the world's largest semiconductor supplier.

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Let's take a look at NVIDIA's revenue visualized by product line over the five years from 2019 to 2024.

From the above chart, it can be seen that NVIDIA's main source of income has changed. Historically, the majority of the share was the main business line of GPUs, but under the wave of generative AI, data center processors for analysis and artificial intelligence have become its largest source of income.

The high cost of these data center processors is evident to all. Despite the high price, to maintain the high computational power required by large models, technology companies have no choice but to pay up readily.

NVIDIA's second-largest source of income is computer GPUs, accounting for 17.1%. These two product lines combined can account for 95.1% of NVIDIA's revenue.

The chart above shows a comparison of the market value of the top 10 semiconductor sales companies (as of April 9, 2024), and it can be seen that NVIDIA's market value stands out, exceeding one trillion dollars, while Intel's market value is around $160 billion.Additionally, NVIDIA's profits have been hitting historical highs. In the third quarter of last year, the gross margin was at 74%, and by the fourth quarter, the gross margin continued to rise to 76%. From this perspective, upstream contract manufacturers such as TSMC have not shared in NVIDIA's AI feast, which has been monopolized by NVIDIA.

Intel: The "First" in Traditional Semiconductors

Intel's position as the leader in the semiconductor field is unquestionable.

In 1978, Intel produced the famous 16-bit 8086 processor. It was the first x86 processor in history and later became the standard platform for personal computers, which was of great significance.

In 1980, Intel led and propelled the global PC market. By 1992, Intel had become the world's largest semiconductor supplier. For the following 25 years, Intel held the top position and never fell. Until 2017, Samsung replaced it.

Looking at last year's statistics, Intel's revenue reached $54.228 billion. Intel's main sources of income are client business and data center and AI business. These two major businesses are the company's largest sources of income, accounting for more than 80% combined.

Breaking it down, last year the PC market warmed up from the bottom, and Intel's PC client business also changed, with revenue at $29.3 billion, especially in the fourth quarter when the business revenue increased by 33% year-on-year. Although the PC business has a trend of recovery, the data center business is declining. The annual revenue of the Data Center and Artificial Intelligence Group (DCAI) was $15.5 billion, a year-on-year decline of 20%.

The data center market is booming, but Intel is struggling to see growth, which is enough to show that the competitors Intel faces are still strong.

Samsung: Representative of South Korean Industry

The contraction of the storage market last year did affect Samsung. In 2023, Samsung Electronics' semiconductor division's sales were $44.374 billion, a decrease of 33.8% compared to 2022. Such a significant revenue decline caused Samsung to fall from first to third.Samsung's DS division, which produces DRAM (memory) and NAND Flash (flash memory) storage chips, has long contributed over 60% of the company's revenue, making it the largest revenue-generating department. Consequently, the significant drop in memory chip prices that began in 2022 directly impacted the company's performance.

Looking at the financial reports, Samsung was dragged down by a historic loss of nearly 15 trillion won in its memory chip business, leading to a 14% decrease in the group's annual revenue and a more than 80% reduction in operating profit. This is the first time in 15 years since the 2008 global financial crisis that it has fallen below 10 trillion won.

Kyung Kye-hyun, CEO of Samsung's semiconductor division and head of the Device Solutions (DS) division, stated at the annual shareholders' meeting: "We will regain our position as the global number one within the next two to three years."

02

Who has a better chance in the race for "number one"?

In fact, our focus on "number one" is not just about a company becoming the leader, but more about the future direction of the semiconductor industry.

In 2023, the semiconductor industry as a whole was on a downward trend. Data shows that the industry size was $544.8 billion last year, a decrease of 8.8% compared to 2022. Except for NVIDIA, both Intel and Samsung experienced a decline in turnover.

For 2024, there is still a turning point. In the race for "number one," who has a better chance of winning?

The upward trend in memory chip prices is already set.Samsung's ability to repeatedly overtake Intel is not unrelated to its development in memory storage. Currently, the storage market prices are consistently on the rise. Data indicates that the bulk transaction prices for solid-state drives (SSDs) in the first quarter of this year were 10% higher than in the fourth quarter of the previous year, and have shown an upward trend for two consecutive quarters. In addition, NAND flash memory prices have been increasing for five consecutive months, with the fixed transaction price for USB universal NAND flash memory cards (128Gb 16G×8 MLC) in January 2024 being $4.72, a month-on-month increase of 8.87%, and continuing to rise by 3.82% to $4.9 in February.

Looking at the financial situation in the first quarter of this year, Samsung is on an upward trajectory. Benefiting from the rebound in memory prices, Samsung Electronics' operating profit in the first quarter of this year surged by 931% year-on-year.

On April 5th, Samsung stated in its preliminary financial report that the operating profit for the first quarter of this year was 6.6 trillion won (approximately $4.9 billion), higher than the 640 billion won in the same period last year. This also set a record for Samsung's highest operating profit since the third quarter of 2022. Revenue for the first quarter is expected to grow by 11% year-on-year to 71 trillion won.

Furthermore, we can also see that the emergence of High Bandwidth Memory (HBM) has similarly pulled SK Hynix back from the path of plummeting profits.

Currently, looking at Samsung's latest progress in HBM, by the end of 2023, Samsung has completed HBM3 qualification with three major GPU customers and has entered the mass production phase. Sample testing for HBM3E 12-Hi is underway, with wafer bonding expected to start in the second quarter of 2024, and a significant increase in production is planned to begin in the third quarter.

With the support of memory storage, regardless of whether it can return to the top position, Samsung's performance growth is foreseeable.

In the foundry business, although both Intel and Samsung's foundry operations are making a big splash, they are indeed far behind the leader in foundry services—TSMC.

On Intel's side, in the documents submitted by Intel to the U.S. Securities and Exchange Commission (SEC), the financial status of its chip manufacturing business (commonly referred to as the foundry business) has been disclosed.The current financial situation is not very optimistic. According to disclosures, Intel's foundry business incurred an operating loss of $7 billion in 2023, with sales of $18.9 billion. However, in the previous year, the loss for Intel's foundry business was $5.2 billion, with sales of $27.5 billion.

This indicates that Intel's highly anticipated foundry business has not only seen a decrease in sales over the past two years but also an expansion in losses.

Starting from the early 2000s, Samsung began offering wafer foundry services and was once the world's leading chip foundry, before being overtaken by TSMC. Samsung has been vocal about competing with TSMC, but its market share in 2023 has slipped to around 12%, further widening the gap with the latter.

However, both companies have recently received significant foundry orders. Intel has secured a foundry order worth $15 billion, with Microsoft becoming the latest customer; Samsung, on the other hand, is reported to have won a 2.5D packaging order from NVIDIA.

How long will the good times last?

NVIDIA's rise to the top was indeed unexpected. In the data center market, NVIDIA has firmly established itself as the dominant player. However, GPUs are not one-time products, and many of NVIDIA's major customers are stockpiling GPUs. When Microsoft and Amazon reach the desired production capacity, they will not continue to purchase GPUs in the future. Unless, of course, NVIDIA launches a new GPU that can achieve an astonishing performance.

In the stock market, there was once a company that was also favored by investors, but when hope turned into disappointment, the stock price began to plummet. That was Tesla. In 2017, investors believed that electric vehicles would sweep the world. However, reality is ultimately cruel, and now Tesla's stock price has fallen by more than 50% from its peak in 2021.

NVIDIA's current high market value is not unrelated to investors' enthusiasm for artificial intelligence. We are not denying the disruptive power of AI, but one can still imagine whether it is really possible that "in the next 10 years, artificial intelligence will be applied to many fields, and you will need large systems that can run chips only provided by NVIDIA."

Recently, Intel released the Gaudi 3 AI chip, which uses TSMC's 5nm process. In terms of AI model computing power, compared to NVIDIA's H100 GPU, the Gaudi 3 AI chip has increased the model training speed and inference speed by 40% and 50%, respectively, with an average performance improvement of 50% and an average energy efficiency improvement of 40%, while the cost is only a fraction of the H100. This makes the competition in the data center business even more intense.

Above, we have analyzed the market situation of the main sources of income for the three companies. The last part left is Intel's PC business. The PC business has always been called a "sunset" business, but there is a variable this year, which is the AI PC that Intel strongly promotes.From the current market perspective, both upstream chip manufacturers and terminal manufacturers maintain an optimistic attitude towards AI PCs. Moreover, according to data from most market research institutions, the penetration rate of AI PCs is expected to increase in the coming years, further driving the replacement of market PCs. Under these conditions, Intel's PC business also has a strong possibility of experiencing a resurgence.

In summary, this year's semiconductor market has significantly improved compared to last year. PCs, storage, and data centers are all heading in an optimistic direction. However, to determine who can take the "first" position, it's not just about analyzing the market to make inferences; more importantly, it depends on the performance of the products and technologies of these three companies in 2024.

The unknown "first" fills the semiconductor industry with anticipation, after all, "a single flower does not make spring, but a hundred flowers in full bloom bring spring to the garden."