Did Samsung Just Gain an Edge on Taiwan Semiconductor Mfg. Co. Ltd.?

By Markets Fool.com

I must admit to a degree of skepticism with respect to Samsung 's 14-nanometer foundry efforts. After all, the story over the last several years has been that Taiwan Semiconductor Manufacturing Corporation (TSMC)seemed to release new technology generations ahead of Samsung, which led to the former raking in most of the profit dollars available to the semiconductor logic foundry industry.

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To put this into perspective, TSMC has generated approximately $8.62 billion in operating income over the last 12 months, while Samsung's foundry division is reportedly on track to lose just under $800 million this year.

That said, an analyst report quoted in Barron's suggests that TSMC may be set to lose ground to Samsung.

What does the report claim?
According to Maybank's Warren Lau, "Apple is likely to switch its chipset for its next generation iPhone to Samsung on 14nm." He also notes that mobile chip giantQualcommwill use both Samsung's 14-nanometer and Taiwan Semiconductor's 16-nanometer, which is a change from using TSMC "exclusively on the high-end [applications processor] in the previous generation of process node."

The report also asserts that Samsung's Exynos 7420 applications processor, claimed to be built on Samsung's 14-nanometer process, has yielded in the range of 60% to 70% during the fourth quarter and is "expected to reach 80%+ in 1Q15." While I remain skeptical that the yields on the 14-nanometer Exynos part were that high in that time frame given other data points, the report seems positive for Samsung.

Another potential edge for Samsung's 14-nanometer process
The thing about Samsung's 14-nanometer process is that it actually does seem to have a key advantage over Taiwan Semiconductor's 16-nanometer process: density. The two key metrics that semiconductor foundries like to use to talk about logic density are gate pitch and metal pitch. Intelclaims that using gate pitch multiplied by minimum metal pitch is a good way to compare densities of processes.

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TSMC's 16-nanometer gate pitch comes in at 90-nanometers and its minimum metal is at 64-nanometers. Samsung's 14-nanometer, on the other hand, reportedly features a 78-nanometer gate pitch and a 64-nanometer metal pitch. This implies that the Samsung process has an approximately 13% density edge by this metric on the TSMC process. This isn't huge nor is it insignificant.

Of course there's more to a process than the theoretical density (performance, power, and yield matter a lot), but if Apple has -- as the report states -- switched to Samsung 14-nanometer for the A9, then that could be rather telling about the overall competitiveness of Samsung's technology.

Pay attention to Taiwan Semiconductor's earnings conference call
TSMC is slated to report earnings and host a conference call on Jan. 15. I have no doubt that the analysts covering the foundry space will have some very tough questions for TSMC's management to answer regarding its competitive positioning vis-a-vis Samsung. The answers that TSMC ultimately give might not only solve the mystery of where Apple is ultimately building its A9 chip but could also shed light on what the future holds for the chip manufacturing giant.

The article Did Samsung Just Gain an Edge on Taiwan Semiconductor Mfg. Co. Ltd.? originally appeared on Fool.com.

Ashraf Eassa owns shares of Intel and Qualcomm. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple, Intel, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.