Samsung expected to build $17B chip factory in Texas

Samsung is planning to build a $17 billion semiconductor factory outside of Austin, Texas, amid a global shortage of chips used in phones, cars and other electronic devices.

Texas Gov. Greg Abbott has scheduled a press conference Tuesday to make an economic announcement; he is expected to unveil the Samsung investment at that time, according to a person familiar with the plan who wasn’t authorized to speak about it publicly ahead of the official announcement. News of the Samsung announcement was reported earlier by the South Korean news agency Yonhap.

The chip shortage has emerged as both a business obstacle and a serious national-security concern. Short supplies of semiconductors kicked off by COVID-era shutdowns have hampered production of new vehicles and electronic devices for more than a year. New questions of economic and national security are also at stake, since many U.S. companies are dependent on chips produced overseas, particularly in Taiwan.

“It’s a concentration risk, a geopolitical risk” to be so reliant on Taiwan for much of the world’s chip production, said Nina Turner, an analyst at IDC. She said the current shortages will likely subside but there will be a long-term demand for chips as more and more everyday products rely on them.

Neither Samsung, a South Korean electronics giant, nor Abbott’s office returned requests for comment about the project this week.

Many chipmakers are spreading out their manufacturing operations, now concentrated in Asia, in response to the shortages, which have taken a toll on sectors from automakers to the video game industry.

“It makes sense for the supply chain to be a bit more diversified geographically,” said Angelo Zino, an analyst at CFRA. “You’re clearly seeing some new foundry capacity plans being announced in the U.S. as well as Europe.”

Zino said another factor is the expectation that Congress will approve federal subsidies for the semiconductor industry to build its factories in the U.S., in the hopes it will bring jobs, lessen future supply concerns and give the U.S. more leverage over economic rivals like China that have subsidized production.

Samsung had previously indicated it was exploring sites in Texas, Arizona and New York for a possible new U.S. chip plant. It has had a chip fabrication plant in Austin, Texas, since the late 1990s. But most of its manufacturing centers are in Asia.

The U.S. share of the worldwide chip manufacturing market has declined from 37% in 1990 to 12% today, according to the Semiconductor Industry Association, a trade group. President Joe Biden’s administration has been pushing for Congress to pass the $52 billion CHIPS Act to increase computer chip manufacturing and research. Separate legislation also under consideration would create a new tax credit for investment in semiconductor manufacturing facilities.

Several chipmakers have signaled an interest in expanding their American operations if the U.S. government is able to make it easier to build chip plants. Micron Technology, based in Boise, Idaho, said it will invest $150 billion globally over the next decade in developing its line of memory chips, with a potential U.S. manufacturing expansion if tax credits can help make up for the higher costs of American manufacturing. Pat Gelsinger, the CEO of California-based chipmaker Intel, has urged the U.S. to focus its semiconductor subsidies on American companies.

Intel made waves earlier this year by announcing plans to invest $20 billion in two new factories in Arizona. Even more significant, Intel said it is starting a new division that will enter into contracts to make chips tailored for other firms in addition to its own processors. That’s a major departure for Intel, aligning it more closely with a model popularized by Taiwan Semiconductor Manufacturing Co., or TSMC, which already had been building its own plant in Arizona.

Samsung is the dominant player in the market for the memory chips that are key to smartphones and other gadgetry, but Zino said it’s also expanding its role on the “foundry side” — the making of chips tailored for other firms.

“My expectation is it’s going to be foundry-based in nature,” he said of the Texas plant. “It’s in line with their intent to triple their foundry capacity.”

Other countries have made similar pushes to get chips made closer to where they are used. The European Commission earlier in November said it could approve aid to fund production of semiconductors in the 27-nation bloc amid a global chip shortage and intense worldwide competition to fill the need.

Officials in Williamson County have been working for several months on a package of incentives that would bring a Samsung Electronics plant to a rural tract between the cities of Taylor and Hutto that would employ about 1,800 workers.

“Now it is mostly agricultural row crop and grazing,” said Russ Boles, the county commissioner whose precinct encompasses the site. “The place where they are looking at has great infrastructure. It has big electricity, it has big water and it has a good road system. Those nuts-and-bolts things are important to Samsung and to the project.”

The school board in Taylor had a meeting on Nov. 15 to approve an arrangement that would enable Samsung to save on taxes if it built a facility within the school district’s boundaries. That followed an earlier approval of tax incentives and infrastructure improvements from government officials in Williamson County, where Taylor is located. The site is about a 40-minute drive northeast of Austin.

The company “plans to invest $17 billion in 6 million square feet of facilities adding $135 million in ad valorem taxes to Williamson County over a 30-year period,” according to a September resolution from county commissioners. The document said it could also bring up to 10,000 construction jobs during the building phase.