The news came out a few days ago that Samsung and Globalfoundries
had initiated a collaboration that would make Globalfoundries users of Samsung developed
production technology for the latest generation of 14 nanometer chips. This is
interesting news because such production technologies are important sources of
competitive advantage in chip production, and there is little indication that Globalfoundries
were failing in their efforts to generate their own 14 nanometer technology. They still decided to abandon it and use Samsung's technology.
The motivation is actually different. With both companies
using the same technology, they can make identical chips. That can be
convenient for customers who want multiple sources of their chips and who order
many enough chips that they have some ability to negotiate. Apple would an
example. So, the alliance is helping their customers by giving better service.
But, the service improvement in this case is actually that Samsung and Globalfoundries are giving away
power by making it easier for the customer to set up competition between them.
What exactly would be the benefit of that? Well, the answer is simple. Neither
Samsung nor Globalfoundries is the largest chip producer (foundry) in the world – Taiwan Semiconductor
Manufacturing Co (TSMC) is bigger. Apple is known to have increased interest in
TSMC because they see the irony of fighting Samsung in the smartphone market
and courtrooms while depending on their chips. And, the competition does not
stop there. Intel also can make 14 nanometer chips, and is known as a pretty competitive
firm.
So, to understand this alliance it is necessary to see the
entire market, and to see how it is a way for two firms to gain some advantage
over the competition. In many ways Samsung and Globalfoundries are not ideal
alliance partners – if you follow the analytical methods of our Network Advantage book you would find problems with the match between them especially
related to whether they really will have shared interests and goals in the long
term. But, in the short term TSMC, and Apple, is a big enough problem for them
that they are willing to collaborate. This will be an interesting alliance to
watch, especially in the long term.
Clark, Don. 2014. Samsung, Globalfoundries Agree to Adopt
Same Production Process. Wall Street Journal, April 17 2014.
