South Korea's Samsung is caught in the middle of the US-China tech war. Image: AFP

SEOUL – Samsung Electronics on Wednesday (November 24) announced the site of its new US$17 billion semiconductor fab in Texas, confirming details of a long-planned investment.

Given the vast scale and immense value of the plant, the announcement had been long signaled and even featured as a talking point in the presidential summit held between Joe Biden and Moon Jae-in in Washington in May.

The new facility will make advanced logic chips, rather than memory chips, using advanced process technologies for application in areas such as mobile, 5G, high-performance computing and artificial intelligence, Samsung said in a statement posted on its website.

“With greater manufacturing capacity, we will be able to better serve the needs of our customers and contribute to the stability of the global semiconductor supply chain,” Kim Ki-nam, the CEO of Samsung Electronics Device Solutions Division, said in the statement.

“We are also proud to be bringing more jobs and supporting the training and talent development for local communities, as Samsung celebrates 25 years of semiconductor manufacturing in the US,” Kim added.

Groundbreaking will take place in the first half of next year, with an aim of commencing operations in the second half of 2024. The Taylor, Texas, site will cover more than 5 million square meters and will “serve as a key location for Samsung’s global semiconductor manufacturing capacity along with its latest new production line in Pyeongtaek, South Korea,” the company said.

In the highly capital-intensive, high-technology, skills-focused semiconductor manufacturing business, infrastructure and ecosystems are key to fab placement. The two top global hubs for leading-edge chip-making are in the Seoul-Pyeongtaek corridor, the leading area for memory chip production, and Hsinchu, in northeast Taiwan, where the main operations of the leading non-memory maker, TSMC, are based.

However, Texas is a rising hub in the US for chip manufacturing and home to fabs owned by firms including Samsung, NPX Semiconductor and Texas Instruments.  

A Samsung NC10 motherboard. Photo: WikiCommons

Samsung’s decision to build in Taylor was based on factors that include its local semiconductor ecosystem and Taylor’s proximity to Samsung’s current manufacturing site in Austin, about 25 kilometers southwest of Taylor, allowing the two locations to share the necessary infrastructure and resources, Samsung said.

“Samsung’s new semiconductor manufacturing facility in Taylor will bring countless opportunities for hardworking Central Texans and their families and will play a major role in our state’s continued exceptionalism in the semiconductor industry,” said Texas Governor Greg Abbott.

Last October, Abbott announced the creation of a semiconductor task force aimed at luring related businesses to his state, which boasts a 29,000-strong workforce in the sector.

But while Samsung also cited “infrastructure stability” in its reasons for investing in Texas, there had been rumors in the industry that Samsung might consider other locations.

In February, its Austin semiconductor plant was closed for more than one month – an event unprecedented in Samsung’s chipmaking history – after heavy snow knocked out the local power supply. South Korean media estimated the losses suffered by the firm at $353 million.

Semiconductors have become the key industrial component of the era, dubbed “the new oil” due to their strategic value in the global economy.

Former US President Donald Trump leveraged the chip sector – in which the US holds key patents in technologies, capital goods and design software – as a weapon in his trade dispute with China, cutting off the supply of advanced chips to Chinese tech flagship Huawei and other firms.

Moreover, the massive demand for chips during the work-at-home, play-at-home Covid-19 era, and related disruptions to global supply chains, have led to a global shortage of certain kinds of chips, notably those required by the auto sector.

Amid these trends, political, strategic and corporate minds in Northeast Asia, Western Europe and the United States have refocused their attention on the sector and related risk.

South Korean conglomerates have been setting up offshore operations for reasons of economics and efficiencies since the late 1970s. Indeed, in Samsung’s case, the company’s latest move brings its total investments in the US to $47 billion since 1978.

But the issue is no longer simply about economic diversification – it is also about risk diversification.

Questions have been raised among US pundits about the potential vulnerability of the two cornerstone suppliers of cutting-edge chips, Samsung and TSMC, to the geopolitical perils represented by, respectively, North Korea and China.

In this electrically charged climate, Asian firms in the sector have been announcing prominent investments in the United States.

“Samsung is building a fab in the US in Texas and we just had TSMC in Taiwan say they are going to build a big one in Arizona,” said Orville Schell, the Arthur Ross Director of the Center on US-China Relations, during a webinar for the Asia Society last week.

“TSMC and Samsung, which are the two biggest manufacturers of microchips in the world, both realize there might be a certain geopolitical and not just trade advantages to doing that.”

But regardless of the warm and fuzzy feelings these Asian investments might generate in US political circles, Washington has been playing hardball in the sector.

Samsung is a key player in the US versus China tech war. Photo: AFP / Jung Yeon-je

According to the East Asia Forum, there was “considerable pressure” from the White House to get Samsung and TSMC to commit to the new US fabs.  

The pressure has not relented. In recent months, the United States has made strong requests of its partners around the world to supply it with information about their operations and inventory, raising concerns in South Korea about information confidentiality.

And in South Korea, it is applying political leverage to prevent SK hynix, the number-two memory chip supplier, from upgrading its China plant with highly advanced equipment from Dutch capital goods maker ASML.

US officials claim that the gear could make its way into the hands of the Chinese military.

Given the extreme sensitivity of the issues, there is near-total radio silence from both SK hynix and South Korean officials.

But the US demand is a severe strategic constraint on the company, which is engaged in a sector in which large-scale, high-technology capital investments are essential to retaining competitiveness.