Why Samsung, TSMC are keeping cutting-edge chip production at home despite overseas incentives

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Why Samsung, TSMC are keeping cutting-edge chip production at home despite overseas incentives

South China Morning Post02-02

This article was first published by The Korea Times in a partnership with the South China Morning Post. Samsung Electronics and Taiwan Semiconductor Manufacturing Company (TSMC) are keeping their most...

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·02-02
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The facility is expected to focus on advanced products including chips made using the 2-nanometre process.Days after the Korean announcement, TSMC chairman Mark Liu said at an earnings call that the company was planning to build fabs that make 2-nm chips in science parks in Taiwan's Hsinchu and Kaohsiung cities. 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The facility is expected to focus on advanced products including chips made using the 2-nanometre process.\nDo you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.\nDays after the Korean announcement, TSMC chairman Mark Liu said at an earnings call that the company was planning to build fabs that make 2-nm chips in science parks in Taiwan's Hsinchu and Kaohsiung cities. He also revealed that the firm was working to get government approval to build another 2-nm fab in Taichung.\nBoth companies aim to begin mass production using 2-nm process technology in 2025.\nSamsung and TSMC are doubling down on domestic investments as they grapple with various challenges in building production bases in the US amid Washington's drive to boost local chip manufacturing and undermine China's goal of achieving chip self-sufficiency.\nBoth companies are likely candidates to receive billions of dollars of subsidies in the coming weeks under the US Chips and Science Act, according to a Wall Street Journal report last week, although problems remain. The law earmarked nearly US$53 billion in semiconductor manufacturing incentives to encourage local chip production.\nTSMC currently has two fabs under construction in Arizona, which were initially expected to start mass-producing 4-nm products this year and 3-nm products by 2026. Samsung has been building a US$17 billion fab in Texas since 2021, which was set to start out making 4-nm chips.\nHowever, both companies have delayed their production schedules.\nSamsung has postponed the start of mass production at its Texas fab from the second half of this year to 2025, reportedly following a delay in the disbursement of US subsidies.\nTSMC has pushed back production plans in Arizona to 2025, as it struggled to recruit skilled workers locally and faced resistance from local unions to bring in employees from Taiwan.\n\nThe Samsung chip plant in Taylor, Texas, seen last month. Photo: EPA-EFE alt=The Samsung chip plant in Taylor, Texas, seen last month. Photo: EPA-EFE>\nWhile other regions including Europe and Japan have also tried to entice chip makers to set up local production of advanced chips by dangling subsidies, Samsung and TSMC have so far refrained from bringing their most cutting-edge manufacturing overseas.\nThe primary reason is \"cost-related\", said Eddie Han, research director of Taiwan-based Isaiah Research.\n\"For instance, TSMC's production costs in the US are estimated to be at least 40 per cent higher than in Taiwan and exceed even the level in Japan,\" he said. \"Constructing and operating factories in Taiwan is significantly more cost-effective than going abroad.\"\nTo take advantage of better cost-efficiency and a stable labour supply, TSMC and Samsung have both committed to more production at home, where governments have also been boosting investments in the local chip sector amid geopolitical uncertainties.\n\nA TSMC building at the Hsinchu Science Park in Taiwan. Photo: Bloomberg alt=A TSMC building at the Hsinchu Science Park in Taiwan. Photo: Bloomberg>\nSouth Korea aims to build the world's largest chip industry cluster, which includes 13 new chip plants and three research facilities spanning several cities in northwestern Gyeonggi province.\nThe project - which is set to receive a pledged investment of 122 trillion won by SK Hynix, the second-largest chip maker in South Korea - is expected to achieve a monthly production capacity of 7.7 million wafers by 2030.\n\"Over the next 20 years, we expect it to create at least 3 million quality jobs,\" South Korean President Yoon Suk-yeol said last month, adding that 158 trillion won would be invested over the next five years, creating 950,000 jobs.\nBut the move to concentrate more production at home could add pressure to global supply chains, according to Isaiah Research's Han.\n\"Even though TSMC could maintain profit margins through strong bargaining power, the average costs for the supply chain may rise,\" he said. \"These increases would ultimately be reflected in the prices of electronics for end consumers.\"\nThis article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved. \nCopyright (c) 2024. South China Morning Post Publishers Ltd. 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