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Semiconductors

Samsung orders US chips, with a side of geopolitics

Samsung’s $17 billion Texas investment will buy it goodwill with US politicians, but rising tensions over advanced-chip supply chains will remain a headache for the company.

The Wall Street Journal Nov 24, 2021 (Gmt+09:00)

Samsung orders US chips, with a side of geopolitics

Every country wants a cutting-edge semiconductor plant. Samsung Electronics’ plan to build one in the U.S. is taking advantage of that. But the company will have to learn to negotiate the ever tighter relationship between geopolitics and advanced chip making. Occupying the commanding technological heights of the world’s most important industry in the world’s largest economy is an enviable place to be, but not necessarily a comfortable one.

The South Korean technology giant plans to build a $17 billion plant in Taylor, Texas, to make advanced chips for its contract-manufacturing, or foundry, business. That is another step toward the Biden administration’s goal of boosting chip making at home. Samsung rival Taiwan Semiconductor Manufacturing has started construction on its $12 billion Arizona plant that will go into mass production in 2024. Intel said in March that it would invest $20 billion in two new fabrication plants in Arizona.

In part, these big sums just represent the ever larger spending needed to make ever smaller chips. TSMC plans to spend more than $100 billion in the next three years on chip plants. Samsung says it will invest $143 billion in logic chips, though that is over a longer time frame—2019 to 2030 —and much of that will go into research and development.

But geopolitics is the crucial backdrop. Chip manufacturing is concentrated in Asia. And for the most advanced nodes, TSMC and Samsung are the only players. TSMC, which serves customers including Apple and Nvidia, had more than half the market for foundry business in the second quarter, according to TrendForce. Samsung was a distant second with around 17%, but it also makes chips for its own use.

Increasing rivalry between China and the U.S. means that basing so many advanced chip-making plants in China’s neighborhood is becoming more risky. The pandemic has further highlighted vulnerabilities stemming from geographically concentrated supply chains. China is also investing billions of dollars to build its own chip-making plants. The Huawei saga stiffened its resolve by exposing its reliance on foreign semiconductor technology.

The upside for chip makers is that governments eager for their technology are prepared to offer generous incentives. But that could invite more scrutiny. TSMC, for example, lost Huawei as its customer due to the Trump administration’s export controls. Western politicians asking their constituents to help fund new chip plants—especially foreign-owned ones—may eventually try to impose more regulation as well.

Samsung and TSMC have mastered making chips. Now they have to learn a different form of three-dimensional chess: the increasingly fraught geopolitics of high-technology supply chains.

by Jacky Wong

jacky.wong@wsj.com

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