In November, Samsung announced the building of a US$17 billion chip plant in the city of Taylor, Texas. According to Governor Greg Abbott, Samsung’s move marked the “largest foreign direct investment in the state of Texas”. While the factory will change the dynamics in Taylor, it also has significant implications for the global semiconductor supply chain as a whole.
Semiconductor supply chains factor in a different elements. Production revolves around the three segments of semiconductor design, front-end fabrication and manufacturing, concluding with back-end assembly, testing and packaging (ATP).
Different countries have developed varying strengths in each segment, with the United States traditionally dominating research and design while possessing strong capabilities across all three aspects of the supply chain. However, its lead in semiconductor manufacturing has shifted in recent years, with 75 per cent of the world’s semiconductor manufacturing processes concentrated in East Asia.
Taiwan has a large lead in advanced manufacturing and ATP. South Korea is prominent in manufacturing, and China is among the strongest in ATP.
With the demand for semiconductors being so high because of their wide applications, Samsung’s move to establish its chip plant in Texas potentially shifts favour of global semiconductor manufacturing back to the US. While not slated to reach operational status until 2024, the plant suggests that the US government’s efforts to be more competitive in chip manufacturing through the use of incentives and subsidies are working.
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There’s a global semiconductor shortage and this is why it matters
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China has historically been strong in ATP, but it has also advanced its ability to design and manufacture semiconductors. The Chinese government is investing more than US$150 billion through 2030 to this effect.
Partially state-owned Chinese chip maker Semiconductor Manufacturing International Corporation’s growth in prominence in terms of chipmaking design and manufacturing highlights this phenomenon. In March, CNBC called the firm “China’s best bet at creating a rival” to Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea’s Samsung through its continued production of semiconductors based on older technology.
Therefore, while China accounted for 25 per cent of global electronics assembly value in 2020, Samsung’s US-based factory potentially shifts the balance of the semiconductor supply chain back to the US.
Aside from the removal of South Korean chips from a Chinese ecosystem, Samsung’s move aims to tap US electronics manufacturing expertise. Through this approach, Samsung’s factory would help it lessen supply chain costs through reduced warehousing and transport needs while simultaneously giving a boost to US semiconductor manufacturing capabilities.
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US and Taiwanese officials discuss chip supply and ‘economic coercion’
US and Taiwanese officials discuss chip supply and ‘economic coercion’
The status of TSMC is also worth noting. In May 2020, it stopped taking new orders from Huawei to comply with US export controls. However, just one year later, TSMC announced plans to expand its semiconductor plant in Nanjing, following this news with a June announcement of a US$12 billion TSMC chip plant in Phoenix, Arizona.
Samsung’s Texas move, which reduces production capabilities in Asia and will affect many emerging Asia-based follow-up manufacturing for products needing newer chips, leaves TSMC as the region’s sole leading-edge semiconductor R&D and manufacturing powerhouse.
Samsung’s new chip factory also bodes well for the economic growth and development of other opportunities focused around emerging technologies throughout the US. For example, technology solutions such as Samsung’s lead in 5G development can be better enabled through an American-based chip factory.
A case in point is the October 2020 announcement of a Samsung-based 5G test bed for augmented and virtual reality capabilities at Joint Base Lewis-McChord in Washington state. US-made chips also bode well for further applications requiring Berry Amendment compliance, enhancing opportunities for Samsung and other emerging technologists within the US.
While neither the US, China nor Taiwan will achieve semiconductor self-sufficiency in the near future, the development of Samsung’s new chip factory in Texas returns the advantage to US-based semiconductor R&D, manufacturing and ATP.
Despite global supply chains having shifted towards Asia in recent decades, the move to have South Korean semiconductors be made in the US implies a resurgence of American manufacturing efforts that go beyond semiconductors. This potentially sets the stage for a revamped American manufacturing presence while showcasing US efforts to harness other emerging technologies.
Hugh Harsono writes regularly for multiple publications about cyberspace, economics, foreign affairs and technology
