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Samsung expands Texas chip plant in investment race with TSMC

South Korean company angles for top spot amid US-China tech war

Samsung seeks to win chip manufacturing orders from big U.S. tech companies. (Photo courtesy of Samsung)

SEOUL -- Samsung Electronics will expand its semiconductor factory in Texas to make room for next-generation manufacturing equipment as it seeks to wrestle the title of the world's biggest contract chipmaker away from Taiwan Semiconductor Manufacturing Co.

TSMC has already announced a plan to build a new plant in the state of Arizona. As the U.S. and China vie for high-tech supremacy, the two Asian giants are stepping up spending to carve out a bigger slice of the American market, which is home to such leading tech companies like Google, Facebook and Amazon that design their own chips but use contractors for production,

Samsung views its Austin, Texas plant playing a vital role in wooing orders from American tech companies. City officials recently began reviewing Samsung's request to rezone a newly acquired 440,000 sq. meter plot -- about 40% of its existing campus in there -- for industrial use. Samsung has said the expansion is part of its preparations for the future, though it has not yet decided how much capacity it will add there and when.

"In order to become the world leader, Samsung needs to attract orders from Apple, Intel and others" who currently work with TSMC, said Lee Seung-woo, chief analyst at Eugene Investment & Securities. 

Samsung's Austin factory began mass-producing memory chips in 1997. It entered into contract manufacturing in 2010, with a client list that at one point included Apple.

Despite Samsung pouring $17 billion into the facility over its lifetime, equipment there has become outdated. The factory is believed to only be capable of producing chips with 14-nanometer process nodes -- cutting edge about five years ago, but three generations behind the 5nm process now pioneering the industry. The company could end up investing close to $10 billion on advanced equipment required for new, large-scale orders. 

Samsung sees expanding the Austin plant as an important step in its goal of becoming the world's biggest foundry. (Photo courtesy of Samsung Electronics)

Contract chipmakers often do not acquire new equipment until after they sign long-term supply deals with their clients. But Samsung is expected to update its facility while it seeks out new orders, and is also hiring chip-related engineers largely around Silicon Valley.

Samsung has announced plans to invest 133 trillion won ($121 billion) toward its goal of becoming the world leader in memory semiconductors and logic chips by 2030. It is boosting output capacity at its South Korean factory in Pyeongtaek, and could take advanced chipmaking technologies developed at home to the Austin plant as well.

TSMC is currently in the lead technologically. The company was months ahead of Samsung in mass-producing 5nm chips, which it supplies to Apple. TSMC also "has a significant technological edge over Samsung in terms of yield," according to a chipmaking equipment manufacturer.

TSMC held a 54% market share in foundry services in the July-September quarter, compared with Samsung's 19%, according to Taiwanese research company TrendForce. TSMC also leads in terms of market capitalization, despite having only a sixth of Samsung's overall revenue.

The Taiwanese company announced in May that it would build a new chip facility in Arizona for $12 billion, which will break ground next year and is slated to come online in 2024. But it is unclear whether the project, which has secured generous subsidies from the Trump administration, will continue as planned under President-elect Joe Biden.

Samsung could be holding off on making specific plans regarding the Austin expansion until it has a better idea of Biden's policies regarding the semiconductor industry. Although the U.S. possesses advanced know-how in designing chips, Taiwan and South Korea are now the dominant players in production technology. The U.S. wants to see Samsung expand output capacity within its borders, in response to China's state-backed campaign to boost domestic chip production.

Meanwhile, Samsung is also investing in its chip factory in Xi'an, China. With tensions between Beijing and Washington showing no signs of subsiding, the world's semiconductor companies face increasing pressure to find the right balance between the two superpowers.

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