Semiconductor Mecca
Samsung Electronics laid out a plan to build a semiconductor cluster in the town of Namsa in Yongin, South Korea, on March 15. The announcement of the plan shows the Korean tech giant’s objective of not losing its leadership in a global semiconductor hegemony war. It is also meaningful in that the company announced the beginning of Chairman Lee Jae-yong’s Yongin era nine years after the announcement of the Pyeongtaek campus development plan in 2014.
This time, the size of the national industrial complex for system semiconductors in Namsa is 7.1 million square meters, which is larger than the sum of the sizes of the three previously built complexes in Yongin, Hwaseong, and Pyeongtaek. Experts say that the project will cost 300 trillion won (US$228 billion), generate direct and indirect production effects of 700 trillion won (US$534 billion) and create about 1.6 million decent jobs. It will be the largest in the world, not only in Korea. The Yongin cluster will contain Samsung’s future vision of claiming the world’s number one spot in the system semiconductor and foundry sectors as well as widening its already substantial gap with other companies in the memory field where the chipmaker is already the undisputed No. 1 player.
Samsung Electronics announced that it will build five high-tech system semiconductor production lines in the new complex by 2042. It will attract up to 150 domestic and foreign materials, parts and equipment, and fabless companies. When the Yongin cluster is created, it will finally be the world’s largest semiconductor mega-cluster, linking semiconductor production complexes in Giheung, Hwaseong, Pyeongtaek, and Icheon, other nearby materials and parts and equipment companies, and Pangyo, which is home to many fabless-related companies. It is expected to become a leading model that integrates an entire value chain of semiconductors connecting memory, foundry, design, fabless, materials, parts, and equipment companies. It will also have excellent Korean and foreign human resources. Samsung Electronics believes that it will be able lead the world in the semiconductor industry ecosystem after the global memory industry by making this grand plan successful.
Recently, in a situation where other world semiconductor powerhouses, such as the United States, Taiwan, China, and Japan, are strengthening their semiconductor clusters through government support and launching an all-out war to attract semiconductor production facilities to their countries, the semiconductor cluster means that Korea’s public and private sectors have joined forces to lay the foundation for Korea to lead the world as a semiconductor powerhouse in the future, some analysts say.
“It is the designation of a national industrial complex in Korea but, from a global perspective, the Korean government made a big winning move to attract a large semiconductor production base to Korea,” an industry insider said. Bloomberg called it the most aggressive effort by the Korean government to win the global competition for technological supremacy. Moreover, Samsung Electronics will be able to narrow its gap with Taiwan’s TSMC, the world’s No. 1 foundry company at the moment.
Samsung Electronics has a long way to go in ramping up its production capacities in the foundry business even considering foundry plants in Pyeongtaek, Korea; Austin, Texas in the United States; and a foundry plant currently under construction in Taylor, Texas. As it has been quite a challenge for Samsung Electronics to narrow its market share gap with TSMC, not due to a lack of technology but of production capacity in the foundry field where economies of scale rule, Samsung Electronics can seek a turnaround with the Yongin cluster as a strong increase of momentum. In the fourth quarter of last year, the market share gap between first-place TSMC and second-place Samsung Electronics in the foundry market stood at 42.7 percentage points, widening from the previous quarter of 40.6 percentage points.
Samsung Electronics announced that the Hwaseong and Giheung belt will be the center of memory semiconductor foundries and R&D, and Pyeongtaek and Yongin will become core bases for high-tech memory semiconductor foundries.
As the Korean government decided to create the world’s largest high-tech system semiconductor cluster in the Seoul metropolitan area, attention is also focusing on semiconductor cluster cases in other countries. Creating a semiconductor cluster is advantageous in terms of building and operating ecosystems by strengthening cooperation between the upstream and downstream industries. When the upstream and downstream industries are concentrated on a cluster basis, overlapping investments in related infrastructure can be minimized, making talent pooling easier.
Accordingly, semiconductor ecosystems are moving and growing centered on semiconductor clusters in the United States, Taiwan, and China.
The United States has a land area 98 times that of Korea, but semiconductor manufacturing factories, or fabs, are concentrated in three regions -- Arizona, New York, and Texas. The United States designated clusters as one of the five conditions for giving government support under its CHIPS Act. To that extent, the idea of a semiconductor cluster is mentioned as a prerequisite for winning the competition for semiconductor supremacy.
In Taiwan, Hsinchu Science Industrial Park is the center of the nation’s semiconductor industry. Hundreds of Taiwanese IT companies have moved there, including foundry manufacturing facilities represented by TSMC and UMC and semiconductor design companies such as MediaTek. The complex offers favorable conditions for investment in various fields such as land, tax, capital, human resources, and factory leasing.
In China, the Xian Gao New Development Zone, a key base for science and technology development in the western region, is a world-class semiconductor cluster. Xian is home to about 250 semiconductor companies, including 120 semiconductor design companies, eight wafer manufacturers, and 23 packaging and testing companies. Including those at more than 30 government and university research institutes, the region has 60,000 workers in the semiconductor sector.
The creation of this semiconductor cluster will be able to slash uncertainties about Samsung’s additional investment in its Chinese factories triggered by a semiconductor conflict between the United States and China in the future, some analysts say. The United States passed the CHIPS Act, which includes a guardrail clause that restricts investments in China by foreign semiconductor companies receiving subsidies from the United States. The U.S. government is planning to release the details of the guardrail clause in March. When the Yongin cluster is created, it will be able to reduce concerns about production disruptions at Samsung Electronics’ overseas factories due to conflicts between major countries to that extent.
In addition, Samsung Electronics has been asked to build semiconductor factories by major countries such as the U.S. and the European Union (EU). They have even put pressure on the Korean chipmaker in this regard. Under these circumstances, Yongin was chosen as a next-generation semiconductor base after Pyeongtaek due to semiconductor factories’ importance to Korea’s national economy and security. In 2020, the Korean semiconductor industry was responsible for 5.6 percent of Korea’s GDP, 24.2 percent of Korea’s total facility investment, and 19.4 percent of Korea’s total exports.
If Samsung Electronics’ next-generation factories move to the United States or the EU, it will significantly lower Korea’s status as a global semiconductor powerhouse. On top of that, Korea will not be able to enjoy big economic effects from hosting global materials, parts and equipment companies and fabless companies.
“From a global perspective, the Korean government has placed a huge bet on attracting large-scale semiconductor production bases by easing regulations in the Seoul metropolitan area,” said a semiconductor industry official.