Why might Samsung invest $200 billion in semiconductor manufacturing plants in the US?

Korean giant Samsung intends to invest up to $192 billion over 20 years in two sites in Texas to build at least 11 semiconductor manufacturing plants – “factories”. Investments that would allow the United States to return to the race for domestic production

One hundred and ninety-two billion dollars: This is the 20-year investment plan that Samsung unveiled late last week. Thus, at a rate of almost $10 billion a year over twenty years, Samsung could build up to 11 semiconductor manufacturing plants in Texas. This would make it one of the most important foreign investments in the territory.

Why would a South Korean company that weighs a quarter of its country of origin’s GDP be interested in investing such sums in a foreign country? Why does the United States, which drives certain companies (especially Chinese) out of their country, a priori open its arms to the Asian group without restrictions? What are the rates of such an investment not only for the United States and Samsung, but also for the world of semiconductors? Here are some elements of the analysis.

A project, not a promise (but the plant is already under construction)

Taking advantage of the impending end of a ten-year local tax exemption for companies established in Texas, Samsung has unveiled a project that, in its most optimistic form, could be 11 chip factories (“factories”) worth $192 billion. Which isn’t crazy, since the smallest factory using the latest generation of “extreme ultraviolet” (EUV) engraving machines costs at least $10 billion.

In the documents submitted by Samsung to the American administration, nothing obliges the Korean to build anything at the moment. What backs up Samsung’s offer is that it already has two factories in Texas (including the one that makes the SSD controllers we told you about) and that it’s currently building a third for a whopping $17 billion. . So Samsung already has a foothold and, unlike TSMC, doesn’t need to build a supply chain from scratch. For a decade without taxes, if Samsung is already established in the US and plans to spend such sums, it is for good reason: there are many potential customers.

Risks of total dependence on TSMC (and the shadow of China)

Apple, AMD, Texas Instrument, IBM, Qualcomm, Nvidia, Micro, Google, Broadcom, Lattice, Marvell, Cirrus Logic, Ampere… Well, that’s it! The list of US companies developing their own chips and in need of manufacturing capacity is perhaps the largest in the world. And for the production of their chips, all these companies turn to two players: Samsung and TSMC. However, the latter clearly has the advantage at the moment, whether in terms of neutrality (Samsung makes smartphones, Apple tries to avoid its services) and in terms of performance and profitability. But as strong as TSMC is, this actor poses a big risk: putting all your eggs in one basket. Asian companies are also recognizing this dependence on one player: MediaTek has just announced a partnership with Intel’s IFS service to manufacture its chips.

In addition to this risk of concentration of power presented by the TSMC case, its geographic location poses a problem. One element of the success of the world’s number one semiconductor manufacturing company is its well-established supply chain with very close manufacturing sites located in Taiwan. From a geological and climatic point of view, Taiwan suffers from chronic typhoons and earthquakes, and is experiencing increasing drought (water is an essential element for the production of chips). But most of all it suffers from the Chinese shadow. If the country is sovereign, then Xi Jinping’s China nevertheless seeks to “repatriate” the island. With weapons if necessary. An entire section of the military doctrine and teachings of the People’s Liberation Army (the name of the Chinese army) revolves around the task of “healing” the island. And much of his force’s training comes in the form of operations against a “separatist island and powerful ally.” It doesn’t take a visionary to recognize Taiwan and its protector, the United States.

The range of various Chinese missiles relative to the island of Taiwan.

The Taiwanese government is aware of this, and part of its defense doctrine is based on silicon shield, that is, the belief that its importance in the semiconductor industry will guarantee it American protection. Even if the Americans provide Taiwan with increasingly fierce support, it is not certain that Uncle Sam’s country is ready to return to open war with China on the Asian front. Having state-of-the-art factories on its territory is a guarantee that in the event of a conflict, the American champions can continue to produce chips. For both consumer goods and military applications, TSMC especially engraves chips for the F35.

Intel (yet) does not know how to work with others

He’s one of those American champions who also knows how to make chips: Intel. And not only the number 1 world in the sector, investing tens of billions at any cost – even in Europe and especially in France – but it also launched its foundry service, Intel Foundry Services, last year. Producing only for its own needs, Chip Titanium, influenced by its CEO Pat Gelsinger, decided to compete with TSMC and Samsung.

If the first letters of intent — with Qualcomm and MediaTek — are signed, it will take several years for Intel to continue progressing technically and also learn how to work with others. It is this ability to serve their customers that is one of the strengths of TSMC and Samsung (who engrave Nvidia’s GeForce, for example). However, it takes time to develop these human, technical and organizational skills. And materialize in projects for several years.

If Intel can become a major third-party foundry to tease TSMC, Samsung, UMC or GlobalFoundries, then it will take time. Samsung’s position is very strong here, because the Korean in this area, as in the EUV engraving, is several lengths ahead of the American.

Faced with China, Americans want to regain leadership

With just 12% of total chip production, down from 37% in 1990, the United States is losing momentum in an area that is nonetheless increasingly strategic. On the one hand, for players in the technology industry, be it Apple, AMD or Nvidia, and on the other, for the increasingly electronic sectors. The semiconductor shortage that has plagued us for two years now has brought the automotive industry to its knees in that washington post qualified for “worst crisis in 50 years”. Forcing manufacturers to remove features, remove components, or leave cars to rot in warehouses while waiting for precious chips to arrive… from Asia, for the vast majority.

It was to tip that balance and limit its reliance on Asian players, especially China, that President Biden’s government initiated the CHIP Act, a $52 billion relief plan for the sector. An operation that, like many political projects in the US at the moment, is being delayed. Thus, the appearance on the table of a huge long-term investment plan is a godsend for the US authorities. Because Samsung’s plans don’t mention the Chip Act, but simply rely on the help of Texas.

Will Samsung’s plan come true? If so, to what extent: half of the project? The promised almost 200 billion? Impossible to say. There is no doubt that such investments will further strengthen the ties between the two countries (with 23,000 US troops stationed on its territory, South Korea is the thirde the largest American “base” after Japan and Germany), which, together with Taiwan and Japan, form an “anti-Chinese” axis both in the field of semiconductors and in terms of defense.

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