Amid Chip Shortages, Samsung to Open $17B Chip Factory in the U.S.

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Amid the global chip shortage, the world’s premier hardware maker is inching closer to approving a new chip factory in Texas. Samsung is among several major chip manufacturers who are investing billions in the United States to meet the rising demand for semiconductors.

The construction of Samsung’s shiny new semiconductor manufacturing facility in Texas is well on its way to being approved and finalized, according to three people familiar with the developments who spoke to Reuters. The $17 billion factory is a strategic move by Samsung, producing a bulk of its semiconductors in Asia.

Samsung’s selection of the U.S. as the location for its next chip manufacturing facility may have something to do with growing concerns within the government over chip security. The commissioning of the new facility to manufacture logic semiconductor chips also comes amidst a global chip shortage which can potentially cause losses of at least, or in excess of $210 billion for, just for the automobile industry.

Samsung’s plans for the factory have been in the works since May this year after President Joe Biden proposed $52 billionOpens a new window to galvanize investment in the semiconductor industry. The proposal, announced in April 2021 with bipartisan support, had major geopolitical connotations aimed at balancing rather than countering China’s rise in the space.

“Both sides of the aisle are strongly supportive of what we’re proposing, and I—and where I think we can really get things done for the American people,” Biden said at a virtual summit. “In fact, today I received a letter from 23 Senators, bipartisanly, and 42 House Members, Republican and Democrats, supporting the CHIPS for America program.”

He added, “Now, let me quote from the letter. It says, ‘the Chinese Communist Party has — aggressively plans to reorient and dominate the semiconductor supply chain…’ And it goes into how much money they’re pouring in to being able to be able to do that. But I’ve just — I’ve been saying for some time now: China and the rest of the world is not waiting, and there’s no reason why Americans should wait.”

For instance, Taiwan Semiconductor Manufacturing Company (TSMC), which is responsible for almost 53% of all semiconductors producedOpens a new window in Q2 2021, is based in Taiwan, a country ever threatened by a CCP-ordered military takeover akin to Hong Kong in 2020. 80% of TSMC’s output came from Taiwan. Samsung sits at the second spot with a 17.3% market share, with the remaining 29.8% shared by over 10 other suppliers.

But geopolitics aside, the global chip shortage has paralyzed the supply chain of numerous dependent industries. And in the modern world, it is hard to imagine anything that doesn’t run on semiconductors. Chips are at the core of almost everything, right from smartphones, video game consoles, computers, cars, medical equipment, airplanes, industrial machines, cloud data centers, and so much more.

See Also: Global Chip Shortage to Cost Auto Industry $210B: Report

The virtual summit was attended by CEOs of General Motors, Ford, Google, and representatives of Intel, TSMC, Dell, HP, Cummins, Medtronic, Northrop Grumman, Micron Technology, AT&T, and Samsung.

Of course, Samsung, which operates a chip manufacturing unit in Austin, TX, just 40 miles south from its upcoming foundry in Williamson County, may have different reasons to invest. The location of the new plant was contested between Williamson County in Texas, Genesee County in New York, and somewhere in Arizona.

Going by information received by Reuters from the three sources, Williamson County has emerged as the favorite, primarily because it is a suburb of Austin where it already has a factory. That eases procurement, given supply lines are already established.

Additionally, Williamson County and the adjacent Taylor City Council have been luring Samsung to the area. Earlier this month, the two civic bodies unanimously announced different incentives for Samsung in the form of tax rebates. As such, Williamson County’s incentive packageOpens a new window includes a 90% ad valorem tax rebate for the company for the first decade, with an 85% rebate for another 10 years as a potential extension.

Taylor City Council, on the other hand, saidOpens a new window it would grant Samsung rebates on property tax, 92.5% for the first 10 years, 90% for the next decade, and 85% for the third. If Samsung does finalize on either, the company will get tax rebates to the tune of multi-hundreds of millions of dollars.

Clearly, the project is invaluable to the local bodies and residents. The economic impact of Samsung’s operations in the area amounted to $4.5 billion in 2019, according to the Williamson County website. It supported nearly 10,000 jobs and paid over $445 million in salaries.

This new foundry is expected to be six million square feet in size, spread across 1000+ acres and will create approximately 1,800 full-time jobs. Of the $17 billion investment, $6 billion will be used for buildings and other real property improvements, while the remaining $11 billion for machinery and equipment.

Which Other Semiconductor Players Are Setting Up Chip Manufacturing Plants?

It is noteworthy that the global chip shortage was spurred on account of a lack of vision on the part of automakers, and not the much feared takeover of Taiwan. Nevertheless, the discomfort of governments worldwide in a country that is possibly on the verge of becoming a hotspot of conflict is becoming apparent.

That, and relieving supply bottlenecks in a market wherein the demand will surge even further due to the advent of electric vehicles, 5G, increased cloud spending, IoT and other digital transformation efforts,  is becoming a priority.

To that end, TSMC itself announced last year plans for a $12 billion factory in Arizona. TSMC also announced in April 2021 that it plans to spend $100 billion through the next three years to increase existing capacity.

Intel, which has been lagging for a while now, confirmed $20 billion and $3.5 billion investments for the Arizona Ocotillo campus and another New Mexico facility, respectively. The company is also adhering to aggressive innovation plans to reclaim its top spot among the fabless suppliers.

GlobalFoundries, which is the third largest chip producer in the world, in March said it aims to double its output from factories in the U.S., Singapore, and Germany. The company is investing $1.4 billion to achieve this target.

Finally, Samsung’s $17 billion facility is possibly a part of its $116 billion ventureOpens a new window to overtake TSMC as the premier chipmaker. Both Samsung’s (if finalized soon) and TSMC’s factories will be completed by 2024.

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