The Texas based Austin American Statesman reported yesterday that Samsung is considering the construction of upwards of 11 new semiconductor fabrication production facilities in the Austin, Texas area over the next two decades. This report indicates that move would reportedly amount to a nearly $200 billion investment, according to documents filed with the State of Texas.
If consummated, this longer-term investment would be unprecedented from a geo-political supply network dimension. Such a large scale investment would be in addition to a prior announced $17 billion, five million square foot semiconductor chip facility to be located in Tyler, Texas that was announced in November of 2021. Samsung already has a presence in the area in what is described as the largest fab facility outside of the company’s South Korea corporate headquarters.
The Austin based newspaper report indicates that the potential plans are described in 11 different applications that Samsung has filed with local school districts seeking respective tax incentives for respective facilities. Reportedly, none of the applications have received final approval and Samsung has made no guarantees it will build these facilities.
The report further indicates that the earliest new fab would be expected to be operational in 2034 while two other proposed facilities are indicated in the applications to be operational in 2042. An American-Statesman conducted analysis of the applications indicates that potential state level tax incentives could amount to upwards of $4.8 billion if all applications come to pass.
A spokesperson for Samsung reportedly indicated to the Statesman that filing of such applications is part of this global producer’s long-term planning to evaluate the viability of potentially building additional semiconductor production facilities in the United States.
Supply Chain Matters Perspectives
In our prior commentaries related to supply network strategic sourcing, we, along with many others, have noted that the ongoing global-wide shortage of semiconductor devices needed for automotive, high-tech electronics and other industries have been elevated to strategic geo-political policy dimensions. Increased tensions among China and the U.S., the implications of the ongoing Ukraine conflict for national defense considerations, have prompted the U.S. and Europe to actively consider tax incentives and other policy measures that would lead to more domestic sourcing of semiconductor production.
U.S. Secretary of Commerce, Gina Raimondo, indicated last month that South Korea, Japan and members of the European Union are each considering hefty subsidies to ensure stable supplies of semiconductor devices and that the U.S. has to do so as well. Specifically noted: “We are really at the tipping point right now in the semiconductor supply chain.” Such policy moves not only aim to target strategic supply of semiconductor devices but also the supply network proximity to be able to consider more high-tech manufacturing within a particular nation.
The U.S. Senate will soon be considering legislation noted as the CHIPS Act, which would grant a reported $52 billion in tax breaks, incentives along with research and development, for semiconductor companies to invest in new U.S. based facilities.
In June, Taiwan based GlobalWafers Co. indicated interest in building a new $5 billion wafer chip production facility in Texas, the first such plant in more than 20 years. However, the deal reportedly hinges on passage of the CHIPS Act. Five other semiconductor producers including Intel, with its announced investment in a new Ohio based production campus, are reportedly awaiting passage of this legislation.
Thus, supply management leaders should be paying close attention to these dynamics related to strategic strategy. Samsung’s acknowledgement that their current effort in evaluating a broader Texas or other U.S. state presence is thus part of long-term strategic planning fact gathering effort. The added fact the specific Texas School District incentives might terminate by the end of 2022 is a likely other consideration.
Shorter Term Considerations
Amid these geo-political policy and industry dimensions, the ongoing tactical planning needs in acquiring adequate semiconductor devices to support ongoing production needs are not going to be affected in the short-term.
Richard Barnett, Chief Marketing Officer at Supplyframe has indicated to Supply Chain Matters: “The CHIPS Act is unlikely to move the needle in chip availability, at least for the next few years – since it will take significant time to ramp up complex chip fabrication operations, and chip companies will focus new fabs only on the highest margin products. So, there will still be constraints, especially for products that are not as sexy in the automotive, industrial automation and medical arenas. Meanwhile, semiconductor demand from the automotive industry, data centers and other areas remains extremely healthy and is leaving companies in many downstream industries scrambling to find the electronic components they need to move forward and positioning to grab as much supply as early as possible.”
Indeed, we could not agree more. That does not, however, mean that supply chain leaders should not factor these policy dynamics into their strategic sourcing decisions for the next five years or more. If Samsung or other influential semiconductor producers, including industry leader TSMC, where to augment their U.S. and European domestic production capabilities, then it’s a new ball game for high tech, automotive and other strategic industries in terms of sourcing networks and industry supply dynamics.
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