Samsung, TSMC up ante in US foundry competition

The world’s two largest foundry chipmakers, Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung Electronics Co., are upping the ante in their quest for global leadership by aggressively expanding facilities in the US.

In its latest offensive against its bigger rival, Samsung announced over the weekend a much-touted $17 billion investment plan to build a foundry factory in the US.

The investment, which comes in response to the Biden administration’s request that the company increase its presence in the US, also aims at countering TSMC, the world’s top foundry player, which last year disclosed plans for a $12 billion chip plant in Arizona expected to come online in 2024.

Samsung’s plan, announced by its Vice Chairman Kim Ki-nam, during South Korean President Moon Jae-in’s US visit, marks the company’s official acknowledgment of its expansion plans in one of the toughest foundry markets.

The Korean tech giant has been scouting sites for its new semiconductor factory in the US as it aims to close ranks with TSMC.

Samsung already has a semiconductor plant in Austin that makes 14-nanometer, 28 nm and 32 nm products for its US clients including Tesla Inc., Qualcomm Technologies Inc. and Nvidia Corp.

The new plant will likely be built close to its existing factory in Austin, Texas, as Samsung has publicly sought tax breaks of $805.5 million from the state government of Texas in return for the factory. But the company is keeping the US government hanging, saying it is also looking at alternative sites in the US, including Arizona and New York.

RIVALRY IN ADVANCED MACHINES

Samsung’s second plant is widely expected to house extreme ultraviolet (EUV) lithography machines to manufacture chips below the 5-nanometer process. Some industry watchers say the new plant may have the ultra-micro lithography technology of the 3-nanometer process.

Samsung’s plan comes amid reports that TSMC is considering building an advanced 3 nm plant in Arizona next to its first one. The Taiwanese company was initially looking at sites in Europe to build the advanced factory, estimated to cost as much as $25 billion.

Currently, Samsung is the world’s second-largest foundry player with its 2021 market share projected at 18%, lagging behind TSMC’s estimated 54%.

Analysts said the fierce competition between the two players to expand facilities in the US will be costly and could lead to heavy losses if they fail to secure enough clients.

“Building foundry facilities is a very expensive process that takes three to 10 years. If their new plants run at a low operating rate, the chipmakers could incur huge losses,” said an industry official.

While TSMC’s $37 billion US investment, including the latest reported one, accounts for four-fifths of its 2020 revenue of $45.4 billion, Samsung’s $17 billion investment plan is above its estimated annual foundry revenue of about 15 trillion won ($13.3 billion).

TSMC counts Apple Inc. and Advanced Micro Devices Inc. (AMD) among its major customers.

INTEL’S FOUNDRY ENTRY TO COMPLICATE MATTERS

The rivalry between TSMC and Samsung comes as the US has been trying to boost its domestic chip production to counter China’s rising influence.

As part of such efforts, Intel Corp. in March announced a $20 billion investment plan to build two new chip manufacturing factories and jump into the foundry business.

Earlier this year, the US Congress passed the CHIPS for America Act, aimed at providing billions of dollars in incentives for semiconductor R&D and production in the US, as Washington takes other key steps to bolster its chip manufacturing and supply chains.

Steve Mollenkopf, chief executive of Qualcomm, said last week the company wants to expand its foundry business partnership with Samsung.

Last year, Samsung clinched a deal to manufacture Qualcomm’s mobile application processor (AP) chips, known as the Snapdragon 888, as part of a series of high-profile deals for its foundry business.

Under Samsung’s Vision 2030 announced in April 2019, the company plans to invest a total of 133 trillion won ($118 billion) to become the world’s top foundry player by then. The company is known to be spending 10 trillion won a year to develop chip foundry technology and purchase the necessary equipment to close in on bigger rival TSMC.

Write to Jeong-Soo Hwang at hjs@hankyung.com
In-Soo Nam edited this article.