Samsung Electronics has announced plans to build five new semiconductor factories south of Seoul over the next 20 years in a bid to close the gap with Taiwan’s TSMC in the integrated circuit (IC) foundry business while maintaining its leading position in memory chips.
The factories will be the core of what the South Korean government hopes will become “the world’s largest high-tech system semiconductor cluster.” Total investment in the scheme is expected to reach 300 trillion won (US$230 billion).
That might sound like a lot of money, but Samsung’s semiconductor capital spending was 47.9 trillion won last year, so the target is likely achievable.
Inspired by the Hsinchu Science Park in Taiwan, home of TSMC, Samsung’s cluster is expected to attract several chip design companies and suppliers of equipment, components, materials and related services to fill out the supply chain.
A Korean version of IMEC, the international semiconductor and nanoelectronics R&D center headquartered in Belgium, is also planned.
South Korea’s Ministry of Trade, Industry and Energy says, “The mega cluster will be the key base of our semiconductor ecosystem.” It will be supported by tax incentives, research subsidies and infrastructure provided by the government.
Samsung Electronics is the world’s largest semiconductor vendor, with sales of $65.6 billion and 10.9% of the global market in 2022, according to market research organization Gartner. America’s Intel ranked second with 9.7% and South Korea’s SK hynix third with 6.0%.
Samsung is the market leader in both DRAM and NAND flash memory chips, but it ranks a distant second in the IC foundry market with a market share of only 13% compared with 60% for TSMC as of the fourth quarter of 2022, according to Counterpoint Research.
That could change, however. The battle between Samsung and TSMC has now shifted to the newly-introduced 3 nanometer (nm) node, with 2nm and 1.4nm coming over the next five years and Intel hoping to catch up.
In the context of intensifying competition between subsidized national semiconductor industries in Asia, Europe and America, China’s claim to Taiwan and the US government’s efforts to isolate China, South Korean President Yoon Suk-yeol stated that “…the government and companies should join forces to foster high-tech industries such as semiconductors as … national security assets.”
Samsung’s announcement came only a week after the South Korean government expressed its displeasure with the “unusual” conditions attached by the Biden administration to the CHIPS Act, which offers a total of $52.7 billion in subsidies and $24 billion in tax credits to companies that invest in semiconductor production and R&D in the US.
Those conditions include supporting Biden’s social policies and handing back any “excess profits” to the US government. “We’re going to be doing our own diligence,” said US Commerce Secretary Gina Raimondo, “We’re not writing blank checks to any company that asks. We’re making companies open their books.”
In September 2021, at the height of the global chip shortage, the US government demanded that chip makers – including foreign companies – “voluntarily” hand over their inventory, orders and sales data. At that time, Raimondo said, “We have other tools in our toolbox that require them to give us data. I hope we don’t get there. But if we have to, we will.”
Now, companies receiving more than $150 million under the CHIPS Act will “be required to share with the US government a portion of any cash flows or returns that exceed the applicant’s projections by an agreed-upon threshold.” Subsidies may not be diverted into share buybacks or dividends.
On the social side, recipients must:
- provide employees with affordable childcare,
- create opportunities for minority-owned, veteran-owned, and women-owned businesses,
- use iron, steel and construction materials produced in the United States, and
- use unionized construction labor.
In addition, they must also agree not to expand capacity at any facilities they have in China for the next 10 years, nor invest in or share technology with Chinese companies. And they must commit to future investment in the US, including in R&D.
According to South Korea’s Ministry of Trade, Industry and Energy, these requirements “could deepen business uncertainties, violate companies’ management and technology rights as well as make the United States less attractive as an investment option.”
South Korean and US officials are reportedly discussing this now. Whether or not Samsung, which announced a $17 billion investment in a new factory in Texas in November 2021, will sign up for CHIPS Act subsidies remains to be seen. But it does appear that most of its investments over the next several years will be in South Korea.
Samsung’s domestic mega cluster investment is part of a larger 550 trillion won ($420 billion) investment program that the ministry is designing to promote a range of high-tech industries including semiconductors, displays, batteries, vehicles, robots and biotech. This, too, will combine private-sector investment with extensive government support.
Targeted applications for semiconductors include artificial intelligence, power management, automotive and home appliances. Fabless design, process nodes below 5nm and advanced chip packaging are singled out for special attention.
Samsung Display, Samsung SDI and Samsung Electro-Mechanics plan to invest in displays, batteries and chip packaging, respectively.
Follow this writer on Twitter: @ScottFo83517667