Samsung picks Texas for $17 billion chip-making factory

Samsung said the factory would be its largest U.S. investment and produce high-end chips that are used in smartphones and other devices, as well as for artificial-intelligence applications.

Construction is scheduled to begin next year, with chip-production slated to commence in the second half of 2024, the South Korean manufacturer said, confirming a Wall Street Journal report on Monday.

“With greater manufacturing capacity, we will be able to better serve the needs of our customers and contribute to the stability of the global semiconductor supply chain," said Kim Ki-nam, vice chairman and chief executive of the Samsung Electronics Device Solutions Division.

Demand for chips has skyrocketed, driven by factors such as the accelerated adoption of digital tools during the pandemic, the rollout of 5G communications networks and the deployment of the internet-connected devices that 5G enables.

Demand in some areas has outpaced supply for over a year, and wait times for some chips have become longer.

Samsung, the world’s largest semiconductor maker by revenue, is adding to its footprint in Central Texas, where it has long operated a plant in Austin, about 30 miles away from Taylor.

The move comes as the Biden administration pushes for an expansion of U.S. semiconductor production.

The Texas investment also shows why scaling up chip production is hard. Factories are expensive, using advanced tools that can cost more than $150 million apiece, and take years to build.

The Taylor facility is expected to start producing semiconductors in the second half of 2024, Samsung said.

This month Texas Instruments Inc. said it was planning to invest as much as roughly $30 billion in chip-making-related facilities in Sherman, Texas. Construction, the company said, is slated to begin next year with production not starting until around 2025.

Intel Corp. Chief Executive Pat Gelsinger has said shortages could persist into 2023.

Samsung’s choice of Taylor took into account factors such as incentive programs, infrastructure readiness and access to talent, Mr. Kim said.

To woo Samsung, local governments and the state offered financial incentives. The city of Taylor and Williamson County offered property tax breaks of more than 90% for the first 10 years, with those gradually declining over the next several decades. The local school district also provided a tax break and the state of Texas offered $27 million in incentives.

Williamson County Judge Bill Gravell, an elected executive akin to a mayor, said the county was aggressive in its incentive packages because of the importance of manufacturing chips. “We beat out every location in the world...because we wanted it," he said.

The facility itself is expected to create over 2,000 high-tech jobs, Samsung said.

In addition to the direct investment, officials and industry observers said the project would draw auxiliary businesses. “It’s going to support a network of companies and suppliers to make it a success," said Ed Latson, CEO of the Austin Regional Manufacturers Association.

Before settling on Taylor, a town of about 16,000 people, Samsung had scouted locations in Arizona, New York and Florida, according to people familiar with the process. The company had also considered Austin, Texas, where Samsung has operated its sole U.S.-based chip-making plant for decades, the people said.

The state’s experience during a February freeze that crippled the Texas electric grid for about a week and affected Samsung contributed to Taylor being more attractive than Austin, according to people with knowledge of the industry and process. Taylor falls within the footprint of a larger utility that had the capability to do rolling blackouts and provide idle power to some facilities, while three plants in Austin had a complete loss of power, leading to hundreds of millions of dollars in equipment damage, they said.

Mr. Gravell, the county’s executive, said he arranged for a meeting in which an executive of the utility told Samsung leaders it hadn’t fully shut off electricity to any major manufacturing plant during the freeze.

Samsung’s announcement adds to a historic wave of plans to expand chip making. Samsung plans to invest more than $205 billion over the next three years, with chip-making a priority. Taiwan Semiconductor Manufacturing Co. has earmarked more than $100 billion over the next three years to build new chip factories. Intel also has laid out plans for more than $100 billion worth of semiconductor-factory investments in the U.S. and Europe over the coming decade.

Those efforts come as political momentum in the U.S. has been increasing to strengthen domestic chip-building capacity, in part for fear a dependence on foreign vendors poses national security risks. The pandemic and global chip shortage has amplified those worries as car makers such as Ford Motor Co. and General Motors Co. had to throttle back on production because of a lack of semiconductors that also has driven them to explore getting into the chip business themselves.

The U.S. has fallen behind in semiconductor manufacturing, accounting for 12% of world-wide production capacity in 2020—down from 37% in 1990, according to the Semiconductor Industry Association. The Biden administration and Congress have set in motion legislation to provide funding to stimulate investment in the U.S. In June, the Senate approved $52 billion in direct industry subsidies for new semiconductor-making factories, though the House has yet to take action.

U.S. Sen. John Cornyn, a Texas Republican, called the Samsung deal a victory in the effort to increase American semiconductor production and reduce reliance on suppliers in Asia. Supply-chain disruptions due to Covid-19 “woke a lot of us up," he said. Mr. Cornyn has co-sponsored federal legislation to provide grant funding for semiconductors.

“We’re focused not just on the economics, but on the national security implications," Mr. Cornyn said.

The Taylor factory is expected to serve as an advanced chip-making facility for Samsung’s contract-manufacturing operation that produces semiconductors designed by other firms. Samsung faces increasing competition in the business of making chips for others. TSMC dominates the so-called foundry business with a 53% market share, with Samsung a distant No. 2 at 17%, according to second-quarter data from TrendForce, a market researcher. Intel’s Mr. Gelsinger has laid out ambitious plans to become a more formidable player, too.

This story has been published from a wire agency feed without modifications to the text