Samsung Electronics and Taiwan Semiconductor Manufacturing Co. (TSMC) are building the most cutting-edge semiconductor plants only on their home turfs, even when they rush to expand investments in the U.S., Japan and elsewhere, because setting up advanced facilities abroad costs more and poses more political uncertainties, according to industry officials, Tuesday.

Samsung, one of the largest chipmakers in the world, plans to invest a total of 500 trillion won ($376 billion) by 2047 for a semiconductor megacluster project south of Seoul, which is expected to focus on cutting-edge products including chips with a 2 nm process, as announced by the Korean government in mid-January.

The move is mirrored by TSMC, Samsung’s largest rival in the chip foundry sector, which also revealed its local expansion for 2 nm tech development this month. Both companies are aiming to start mass production for the process technology in 2025.

A few days later after the announcement of the Korean blueprint, Mark Liu, chairman of TSMC, said at an earnings call that it is under plans to build fabs of 2 nm technologies in both Hsinchu and Kaohsiung science parks in Taiwan, and is working to get government approval to build another 2 nm-capable fab in Taichung.

The trend has come as Samsung and TSMC have been grappling with various challenges for their aggressive plans to build production bases in the U.S. in recent years, amid the country’s drive to boost its chip manufacturing and undermine China’s chip self-sufficiency drive.

Both Samsung and TSMC are likely candidates to receive billions of dollars of subsidies in the coming weeks under the U.S. CHIPS and Science Act, which was announced in 2022 and earmarked nearly $53 billion in semiconductor manufacturing incentives, according to a Wall Street Journal report last week.

TMSC currently has two fabs under construction in Arizona, which are expected to start mass-producing 4 nm products this year and 3 nm products by 2026. Samsung, meanwhile, has been building a $17 billion chip fab in Texas since 2021, with the initial line set to produce 4 nm chips.

But both companies have delayed their production schedules. Samsung postponed the start of mass production from the second half of this year to 2025, reportedly following the delay in disbursement of U.S. subsidies. TSMC also pushed back production plans to 2025 as it struggled to recruit skilled workers locally and faced pushback from unions to bring in workers from Taiwan.

For more advanced 2 nm chips, while other regions including Europe and Japan also tried to entice the chipmakers with their own subsidy plans, they are turning back to supply chains at home to avoid the situation in the U.S.

The primary reason for TSMC and Samsung to “establish production bases for the most advanced chips domestically, not overseas, is cost-related,” according to Eddie Han, research director of Taiwan-based Isaiah Research.

“For instance, TSMC's production costs in the U.S. are estimated to be at least 40 percent higher than in Taiwan, exceeding even those in Japan,” Han said. “Constructing and operating factories in Taiwan is significantly more cost-effective than abroad.”

As a result, their home markets, which have also been pushing ahead with plans to invest in the local chip sector amid geopolitical uncertainties, have become a choice for cost-efficiency and a stable source of labor.

The Korean government is aiming to build up the largest chip industry cluster in the world.

The project, which includes 13 new chip plants and three research facilities spanning cities across southern Gyeonggi Province, is expected to achieve a production capacity of 7.7 million wafers monthly by 2030. The initiative is also joined by SK hynix, the second-largest chipmaker in Korea, which decided to inject 122 trillion won.

"Over the next 20 years, we expect it to newly create at least 3 million quality jobs," President Yoon Suk Yeol said earlier this month, adding that 158 trillion won will be invested over the next five years, creating 950,000 jobs.

Despite the advantages for chipmakers, Han noted that the trend to expand home production bases is also likely to add more pressure to global supply chains by raising the end prices of electronics.

“Even though TSMC could maintain profit margins through strong bargaining power, the average costs for the supply chain may rise. These increases would ultimately be reflected in the prices of electronics for end consumers,” he said.

By: DocMemory
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