A New Smartphone Manufacturing Base

Samsung Electronics’ semiconductor plant in Xian, China

Samsung Electronics is investing aggressively in India. The Korean tech giant has decided to produce its next-generation foldable smartphones in India to make it a key smartphone production base.

Samsung Electronics has produced mid- and low-priced smartphones in India. As India emerges as the center of the global smartphone market, it is turning to a local production system to occupy the world's no. 1 smartphone market.

As U.S. export restrictions on China are rapidly disrupting the Chinese semiconductor industry, some analysts are raising the possibility of Samsung Electronics relocating its semiconductor production facilities. In 2022 alone, 5,746 Chinese semiconductor companies canceled their business registrations. In China, the number of semiconductor companies that went out of business totaled 1,397 in 2020, but it soared to 3,420 in 2021.

Another problem is uncertainties due to U.S. restrictions on exports of cutting-edge semiconductor manufacturing equipment to China. Samsung Electronics makes about 40 percent of the company's total NAND flash supply at its NAND flash factory in Xian, China.

As the world's top five semiconductor equipment makers -- Applied Materials (AMAT), Lam Research and KLA of the United States, ASML of the Netherlands, and Tokyo Electron of Japan, joined a US government-led ban on exports of semiconductor equipment to China, production of advanced semiconductors in China is virtually impossible without permission from the United States.

The current CHIPS and Science Act of the United States has a clause that guarantees financial support and an up to 25 percent tax credit for semiconductor manufacturing investments in the United States only when there is no additional investment in semiconductors and no construction of semiconductor facilities in China or other countries of concerns designated by the United States for ten years.

In particular, the U.S. Department of Commerce is expected to announce detailed guidelines on the CHIPS and Science Act as early as this month. Industry insiders expect that the detailed guidelines will include information related to exceptions, such as existing facilities that manufacture “legacy semiconductors” or investments that materially expand manufacturing capabilities, mainly for foreign markets.

The problem of semiconductor technology thefts in China is also exacerbating day by day. ASML, a global lithography equipment company, suffered a leak of technical information related to its exclusive technology in China. ASML announced the leak case through its annual report. Concerns are growing that major Korean semiconductor makers such as Samsung Electronics and SK Hynix may also fell victim to technology theft in China.

On the other hand, although India does not currently have a large semiconductor market, it is highly evaluated for its big future growth potential. This is because they recently joined hands with the United States in the defense and high-tech fields and promised to strengthen cooperation to hold China in check in earnest. The United States and Japan recently inked the initiative on Critical and Emerging Technology (iCET) to strengthen cooperation in high-tech technologies such as semiconductors, artificial intelligence (AI) and 5G wireless communications.

In the future, demand for high-tech IT products loaded with semiconductors, such as products for 5G mobile communications is also expected to surge. The Indian government is actively asking Samsung Electronics to consider building a semiconductor plant in India.

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