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South Korea and Taiwan elbow out China in chip investment

Samsung and TSMC seen responsible for 43% of semiconductor capital spending

Samsung Electronics' Pyeongtaek plant on the outskirts of Seoul. Investments by Samsung alone has dwarfed those of all Chinese chipmakers over 2017-2020. (Photo courtesy of the company)

TOKYO -- U.S. tech titan Intel has announced plans to spend $20 billion by 2024 to build two new chipmaking facilities in Arizona, but even if it manages to fend off China's growing influence on the global supply chain, it still faces the might of South Korea's Samsung Electronics and Taiwan Semiconductor Manufacturing Co.

A research report by IC Insights on the industry published in March suggests that that Intel figure is nowhere near enough to take on these Asian giants. "Governments would need to spend at least $30 billion per year for a minimum of five years to have any reasonable chance of success," the report said, referring to the minimum expenditure needed by the U.S., China and the EU to develop chipmakers that are comparable to Samsung and TSMC in terms of production technology and capacity.

Yet, chipmakers other than Samsung and TSMC have remained cautious about capital investment due to soaring costs of building factories.

According to IC Insights, Samsung has remained the world's biggest spender since 2010. Intel is barely catching up with second-ranked TSMC. Together, Samsung and TSMC are expected to be responsible for 43% of the global total capital expenditure this year.

Samsung and TSMC have dominated the global chipmaking industry over the last two decades. The recent automotive chip crunch is one of the negative effects of an oligopoly. While Intel's big investment is prompted by U.S.-China rivalry, its strategy must also be to close the gap with the top two companies.

Even for China, IC Insights' estimation of "$30 billion per year for a minimum of five years" is an ambitious goal. China's public and private sectors have made concerted efforts to beef up the country's chipmaking industry since 2014, but domestic chipmakers' capital expenditure between 2017 and 2020 only amounted to $44.7 billion. Over the same period, Samsung alone has invested nearly twice that amount.

"It's economically unrealistic for all the countries to build additional chip production capacity," TSMC Chairman Mark Liu said on Tuesday.

Funding is not the only hurdle. "To bring a full supply chain back and try to be fully self-reliant is totally not efficient. ... At the end of the day, that additional capacity could become nonprofitable capacity," Liu said, ringing alarm bells.

The IC Insights report said: "For China, even if the money were available, they (chipmakers) would certainly be hindered by trade issues prohibiting some of the most critical pieces of process equipment from being sold into the country." For the EU, the report does not even reveal any path to gaining any competitive edge in the chip foundry business.

The report also does not mention Japan, as IC Insights probably does not see the country as a major player. The Ministry of Economy, Trade and Industry has vowed to attract overseas chipmakers' factories to make advanced semiconductors in the country, but such efforts are unlikely to yield results.

TSMC plans to invest around 20 billion yen ($189 million) to set up a facility for research and development in Tsukuba, Ibaraki Prefecture, northeast of Tokyo, but that is a small amount for the company.

It is unlikely that the leading chipmakers of the U.S., China, South Korea and Taiwan will take the trouble of building big factories in Japan amid growing geopolitical risks. Japan should concentrate on chipmaking equipment and materials, an area in which it still has a competitive edge.

Additional reporting by Cheng Ting-fang in Taipei.

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