Samsung Deal to Make Chips for Xilinx Shows Progress

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Samsung Electronics on Tuesday announced a deal to produce advanced logic chips for U.S. chip designer Xilinx, which could spell trouble for Taiwan's foundry chip makers.

The South Korean giant will manufacture Xilinx chips using complex 45-nanometer manufacturing technology at factories in South Korea, Samsung said in a news release.

The deal is a coup for Samsung, said Kenneth Lee, chip industry analyst at Primasia Securities in Taipei.

"This is the first time Samsung has won chip orders from Xilinx," he said. "Previously, Xilinx had a long term partnership with [Taiwan's United Microelectronics], but this deal will affect that relationship."

Signing on Xilinx as a customer also bodes well for Samsung's advance into the foundry chip manufacturing business, which is currently dominated by UMC and rival Taiwan Semiconductor Manufacturing (TSMC).

When Samsung announced its entry into the contract chip making business a few years ago, it met with little success because of concerns the company competed against its customers, Lee said. For example, Samsung makes a variety of its own chips, including communications chips. A company that wanted communications chips manufactured might, therefore, hesitate to work with Samsung.

But Xilinx chips do not compete with any Samsung offerings.

The deal also shows Samsung has made strides in adopting new manufacturing technology since its entry into an alliance led by IBM. Samsung has moved swiftly to offer 45-nanometer contract manufacturing technology to clients.

Xilinx chips are field programmable, which means that they can be programmed with software to perform a variety of functions in different devices. The chips are popular in markets including aerospace, automotive and communications, as well as industrial and consumer devices.

Samsung Electronics is the world's largest memory chip maker as well as a major producer of mobile phones, LCD panels and other products.

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