Thought – Why Shouldn’t Samsung Have Launched the Galaxy?

SemiconSam Original Report

In January 2015, TSMC’s founder, Morris Chang, made a startling remark at an earnings presentation:

“We are lagging behind Samsung.”

This comment referred to the fact that Samsung had initiated the 14-nanometer process ahead of TSMC. Chang’s admission that TSMC had been overtaken by its competitor sent shockwaves not only through the semiconductor industry but also among investors. Following this, investment banks began lowering TSMC’s target share price and issued sell recommendations. Notably, even Credit Suisse, which had long held a positive view of TSMC, presented a pessimistic outlook for the first time.

Perhaps that was the first and last time when Samsung’s cutting-edge process was ahead of TSMC’s—after all, TSMC later outperformed Samsung with the 7nm, 5nm, and 3nm processes in succession.

Let’s turn the clock back to the early 2000s. At that time, Steve Jobs proposed to Intel’s then-CEO, Otellini, the opportunity to supply semiconductors for the iPhone. Intel possessed ARM-based chips because, after a fierce legal battle, it had acquired a mobile System-on-a-Chip (SoC) called “StrongARM” developed by Digital Equipment Corporation (DEC).

DEC had filed a lawsuit against Intel, claiming that Intel copied its Alpha chips to produce the Pentium CPU. In 1997, both parties dropped the lawsuit and reached a settlement, with DEC selling its StrongARM division to Intel. Intel then rebranded StrongARM as “XScale” and marketed it as chips for personal digital assistants (PDAs).

However, Intel rejected Jobs’ proposal to supply semiconductors for the iPhone. Otellini later revealed in a 2013 interview with The Atlantic that Apple’s proposed price was below cost, which made it unacceptable. With a thriving CPU business generating ample profits, Intel saw no reason to supply mobile chips at a low price.

This decision eventually became the catalyst for Apple to shift towards in-house semiconductor development. Dan Donner, who had once led chip design at DEC, founded PA Semi after Intel’s acquisition of StrongARM. PA Semi specialized in developing low-power mobile chips, and the company was later acquired by Apple. Building on that foundation, Apple focused intensively on semiconductor design, thereby enhancing the performance of chips in the iPhone and iPad.

Ultimately, the opportunity that Intel rejected returned like a boomerang with the rise of ARM-based chips. Intel’s alternative, the Atom chip, underperformed, and the XScale division was sold in 2006 for 600 million dollars—resulting in a decisive missed opportunity to supply the iPhone’s application processors.

So, which company seized the opportunity that Intel had turned down? As we all know, it was Samsung.

When Jobs first introduced the iPhone, he declared, “Today, Apple is reinventing the phone.” Yet within just a few years, Apple found itself facing a formidable competitor in Samsung. At that time, Samsung rebounded quickly from the failure of its early smartphone, the Omnia, and experienced rapid growth with the Galaxy series. In particular, the Galaxy S3 sold 20 million units within just 100 days of its launch, signaling Samsung’s meteoric rise, and marking the beginning of intense competition between Apple and Samsung.

Meanwhile, Apple was still dependent on application processors designed by Samsung. Initially, Apple had offered Intel the chance to supply chips, but after Intel rejected it, Apple ended up receiving its AP supply from Samsung through a NAND flash memory deal. From the very first iPhone through the iPhone 3GS, Apple used APs designed and manufactured by Samsung in its products.

The rapid ascent of the Galaxy S plunged Apple into a state of crisis merely 3–4 years after the iPhone’s debut, and as the two companies engaged in patent disputes, their relationship deteriorated rapidly.

Eventually, Apple decided to break away from Samsung for its core components and entrusted them to TSMC.

Though history does not offer “ifs,” one can’t help but wonder: what if Samsung had focused on supplying semiconductors and displays for Apple instead of pursuing the smartphone business—remaining as the exclusive supplier all along? Of course, there would have been no guarantee that Samsung would have maintained the position of Apple’s sole supplier. Nevertheless, the conflict between Samsung and Apple certainly turned out to be a blessing in disguise for Morris Chang, the founder of TSMC. TSMC’s soaring stock price and market valuation make it clear why this turn of events was so fortunate.

In 2007, when Samsung supplied the first chips for the iPhone, TSMC’s market capitalization was around 50 billion dollars, while Samsung’s was in the range of 70 billion dollars. In 2014, when TSMC supplied chips for the iPhone 6, its market capitalization was about 100 billion dollars. Then, in 2016, when TSMC became the sole chip supplier for the iPhone, its market cap surpassed 120 billion dollars, and it continued its upward trajectory.|

Notably, the launch of the iPhone X in 2017—marking the 10th anniversary of the iPhone—and the dramatic enhancement in the performance of Apple’s silicon coincided almost exactly with the rise in TSMC’s stock price. After the release of the iPhone X in 2018, TSMC’s market capitalization surpassed 200 billion dollars. With the COVID-19 crisis highlighting semiconductor supply shortages and propelling TSMC’s prominence, its stock price soared, reaching a peak market cap of 729 billion dollars in 2022.

In 2017, when TSMC’s market cap reached around 200 billion dollars—surpassing Intel’s—Samsung Electronics’ market cap was approximately 300 billion dollars, a gap of about 50%.

The current situation is the exact opposite. As of November 11, 2024, TSMC’s market capitalization stands at 1 trillion 43 billion dollars, while Samsung’s is 271.2 billion dollars. TSMC even reached the pinnacle of semiconductor industry market capitalization in early 2021, before NVIDIA experienced its explosive surge in AI semiconductors.

This makes the situation all the more lamentable. Currently, Samsung’s annual operating profit from its Galaxy business (based on the MX division’s figures) is about 10 trillion won, whereas TSMC posts nearly 14 trillion won in operating profit each quarter…