Complex Factors
Samsung Electronics is expected to spend approximately 10 trillion won more on the construction of a foundry plant in Taylor, Texas, in the U.S. than initially expected, drawing attention to the Korean semiconductor giant’s investment strategy on facilities over a sluggish period in the world semiconductor industry.
According to a Reuters report on March 15 (local time), the semiconductor fab that Samsung Electronics is building in Taylor, Texas, is expected to cost more than US$25 billion (about 32.8 trillion won).
This is an increase of more than US$8 billion from the US$17 billion (about 22.3 trillion won) that Samsung announced when it broke ground for the semiconductor fab. Taking into account the appreciation of exchange rates, the cost increased by 13 trillion won (US$10 billion) compared to the original plan. The main reason for the cost increase is a rise in raw material prices due to global inflation.
Samsung’s Taylor Foundry Fab will occupy land of approximately five million square meters as an advanced semiconductor production base that will go into operation in the second half of 2024. Samsung’s current investment in the Taylor Foundry Fab is reportedly half of its initially announced investment (US$17 billion). This means that the Korean chipmaker has invested more than 11 trillion won.
Samsung Electronics mulling over whether or not to apply for subsidies from the U.S. government due to some poisonous clauses in the U.S. Semiconductor Support Act such as sharing excess profits and not being able to increase chip production in China.
“The Korean government is discussing the CHIPS Act with the U.S. government to help Korean chipmakers,” an industry insider said. “But even if Samsung Electronics receives the U.S. subsidies, it will be difficult for the Korean chipmaker to cover the increased construction costs. This will deepen Samsung Electronics’ concerns.”
This will inevitably expand burdens on Samsung Electronics, which is in the midst of a downturn in the world semiconductor industry. The company said that this year’s facility investment will be at a level similar to that of the previous year. In 2022, it invested a record 53.1 trillion won (US$47.9 billion) in facilities, 90 percent of which went to the semiconductor domain.
However, Samsung Electronics’ investment strategy is drawing much attention as the Korean chipmaker is expected to post a loss in the first quarter of 2023. “We will run our business flexibly in terms of capital investment in light of market volatility,” said Samsung Electronics President Lee Jung-bae at the company’s annual general meeting held this week. “But we will continue to invest in securing clean rooms and responding to changes in the future.”
In the case of the foundry sector, generally, many experts have a view that the company will continue to take a long breath as it needs to secure additional production bases. Samsung Electronics has announced a plan to build 11 fabs in near Taylor, Texas and is preparing an additional foundry production base at its Pyeongtaek Campus in Korea. The day before the announcement, it said that it will continue to make a major investment in setting up a mammoth new system semiconductor cluster in Yongin, Gyeonggi Province, Korea. The company added that it will continue to invest a similar amount of investment in facilities in the slowing memory semiconductor sector.
However, some analysts forecast that Samsung may reduce the size of its memory investment by slowing down the pace. Wee Min-bok, a researcher at Daeshin Securities, estimated Samsung’s memory investment at KRW 32 trillion (US$25 billion) last year. “Last year, Samsung Electronics announced that its memory CAPEX will stay at a level similar to that of the previous year,” Wi said. “But given the fact that a slump has been deteriorating in the semiconductor industry since that time, we estimate that the company’s CAPEX in the memory sector will slide to 30 trillion won or less.” Wi believes that Samsung Electronics is ramping up the proportion of R&D in its memory facility investment, repairing production lines, and adjusting its pace.
In addition, Intel and TSMC have both decided to invest in factory construction as well, which has led to a significant increase in related costs. In particular, TSMC announced last year that it will more than triple its investment in a factory in the state of Arizona in the United States to US$40 billion (about KRW 52.6 trillion). However, local media outlets predict that TSMC will run the plant behind its original schedule due to delays in the construction and introduction of equipment and rising construction costs. “It will not be easy for TSMC to mass-produce 3, 4, and 5 nm semiconductors at the new Arizona plant while enjoying a stable profit,” said Taiwan’s DigiTimes. “It will be difficult for the Taiwanese foundry giant to pass on part of the huge construction costs to customers.”
Meanwhile, the United States has set aside US$39 billion in funding to build semiconductor factories and is accepting applications from companies. But Samsung and others are finding it difficult to decide whether or not to go for the United States’ package to attract chipmakers. This is because the United States has imposed difficult conditions on its subsidies including the return of key information such as internal technology and excess profits.
In response, Korea, Taiwan, and the European Union (EU) have conveyed their stance that the U.S. subsidy conditions are too excessive to accept, but the U.S. government is standing firm.
“The Korean government has been in talks over the CHIPS Act with the United States,” said an industry insider. “But Samsung Electronics believes that it will cover the increased construction costs even with U.S. subsidies. This has been adding to Samsung Electronics’ woes.”
However, experts believe that Samsung Electronics’ semiconductor investment plans are unlikely to change a great deal in the long run. The company has been able to secure production capacities by maintaining the scale of its investment even during a recession in the semiconductor market, so the chipmaker is expected to stick to this strategy down the road.