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Samsung to build U.S. chip plant amid global supply crunch

South Korean tech giant's board to host meeting to approve $17bn deal

Samsung Electronics is betting big on cutting-edge chip technology, but experts say it will have trouble catching up with Taiwanese rival TSMC. (Source photos by Reuters and courtesy of Samsung) 

SEOUL -- Samsung Electronics will invest $17 billion to build a new foundry chip factory in the U.S. state of Texas, as the Biden administration pushes to bring more semiconductor manufacturing onshore.

The South Korean chipmaker will establish new production lines for foundry chips in Taylor, northeast of Austin, as Samsung already runs a foundry chip factory in Austin, a person familiar with the matter told Nikkei Asia, following earlier U.S. media reports on the plan. Samsung is the world's second-largest foundry chipmaker, making customized semiconductors for other companies.

"Samsung will host a board meeting soon to approve the deal as it is a huge investment," said the source, asking not to be named. "The company will file a disclosure [with the stock market operator] after the meeting."

Samsung says that nothing has been decided yet, although it said last month that it may build a new foundry chip factory in the U.S., without elaborating.

The development comes just days after Samsung Vice Chairman Lee Jae-yong made a weeklong visit to the U.S., meeting high-ranking White House officials, lawmakers and business leaders, including Microsoft CEO Satya Nadella. It was Lee's first overseas trip since he was paroled in August after serving more than half of his 30-month jail term on corruption charges.

While Lee was in the U.S., Katherine Tai, U.S. trade representative, visited Seoul last week, meeting executives from Samsung and other South Korean companies. She emphasized supply chain resilience in a meeting with South Korean Trade Minister Yeo Han-koo on Friday and strongly urged the country to join U.S.-led global supply chain networks.

Analysts say that even though Samsung is undoubtedly betting big on cutting-edge chip production technologies, it will not be easy for the company to significantly narrow the gap with Taiwan Semiconductor Manufacturing Co., the leader in the global foundry market. TSMC commands a 52.9% market share, followed by Samsung with 17.3%, according to Statista.

"Samsung still needs to catch up on production yield, as well as production scale and customer portfolios," said Eric Tseng, CEO and chief analyst at Isaiah Research. Production yield refers to the percentage of nondefective units as a share of the total produced. "Samsung's production scale is also much smaller because it does not have a massive customer portfolio like TSMC."

Tseng said that Samsung's yield may be about 30% to 40% in initial production of cutting-edge chip technologies, while TSMC could generate a yield of 60% to 70%. When it comes to mass production of cutting-edge chips, Samsung's yield could also be lower than that of TSMC, he said.

Samsung said last month that it plans to triple its foundry capacity by 2026, amid a global chip shortage that has disrupted production in key industries from autos to smartphones, as it reported strong third quarter earnings.

The chipmaker said it will expand production lines in Pyeongtaek, south of Seoul, to meet rising demand for made-to-order chips for corporate customers. The South Korean tech giant is working to raise its game in the foundry business and hopes to make the components more cost-effective.

TSMC, meanwhile, aims to start producing chips in Japan by 2024 in a joint venture with Sony, after the two companies signed a deal for a $7 billion plant earlier this month. The new company, Japan Advanced Semiconductor Manufacturing, will be set up with Sony Group to operate the plant, with mass production scheduled to begin by the end of 2024.

Intel of the U.S. announced in March that it plans to become a major provider of U.S.- and Europe-based foundry capacity to meet surging global demand for semiconductors.

Additional reporting by Cheng Ting-Fang in Taipei

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