Experts say Central Texas still a strong option for potential $17 B Samsung factory
Samsung is still deciding where to build a new multi-billion-dollar chip-making facility, but Central Texas remains a strong contender, industry experts say.
South Korea-based Samsung says it intends to build a 7 million square foot next-generation chip fabrication plant — valued at more than $17 billion — somewhere in the United States.
The new fabrication facility is expected to be the most advanced to date for Samsung, which is one of the world's largest makers of memory chip and smartphones. The new fab would expand Samsung's ability to compete with other chipmakers, including Taiwan Semiconductor Manufacturing Co., which makes chips for Apple's iPhones.
Austin already is home to Samsung’s largest operation outside of its South Korea headquarters, and is its only U.S. manufacturing facility.
In January, the Wall Street Journal reported that Samsung was considering multiple sites including near its current Austin facility, as well as a second Central Texas site near Taylor, and sites in Arizona and New York. In February, the company said that Central Texas is one of a number of global locations under consideration.
Samsung is also pursuing incentive deals with local government entities that could total $1 billion, according to documents filed with the state. The documents estimate the expansion could create 1,800 jobs.
Samsung also recently asked to move a road near its existing Austin facility, and Travis County deed records filed in October show the company acquired seven tracts of nearby land, which combined to 257.5 acres, according to records.
Michele Glaze, spokeswoman for Samsung Austin Semiconductor, told the American-Statesman on Thursday that no decision has been made yet.
“As part of our efforts to effectively respond to the needs of global customers and the growing demand for various applications, Samsung plans to invest $17 billion to expand our foundry capability in the U.S," Glaze said. "We are still in negotiations over the expansion of our semiconductor manufacturing facilities, taking into consideration various factors, and are looking at a number of locations within the U.S. Specific details have yet to be decided."
Samsung's plan for a $17 billion new facility comes as semiconductor companies are making unpreceded levels of investment in the United States and are working to develop new chipmaking technology.
Samsung's new facility is expected to house advanced technology manufacturing, including the production of 5-nanometer chips, which only Samsung and TSMC are currently capable of building. It’s possible the new Samsung facility could play a key role in the future production of even more advanced chips, including 2-nanometer and 3-nanometer chips, as the race for innovation continues.
“The leading edge (in semiconductors) is now a tie between TSMC and Samsung,” said Roger Kay, an analyst with Endpoint Technologies.
Ed Latson, executive director of the Austin Regional Manufacturers Association, said landing the new Samsung facility could help Central Texas remain at the forefront of semiconductor technology.
"If we don't win this, then we're going to slowly become antiquated technology in the Austin area, at least in our semiconductor industry,” Latson said. “It's really important that we get this new investment and stay at the forefront of what's happening in electronics.”
Is workforce an edge for Austin?
Samsung has had a Central Texas presence since 1997. The company previously said about 10,000 people work at its main Austin facility, of which about 3,000 are Samsung employees and the rest are contractors. It also has a research and development facility in Austin.
Industry analysts said that Central Texas remains a strong contender for expansion. The new facility could add to the number of tech manufacturing operations in the region, including fabs run by NXP Semiconductor and Infineon. About a quarter of all manufacturing output in the region comes from semiconductor companies, according to the Austin Regional Manufacturers Association.
Patrick Moorhead, a technology industry analyst and founder of Austin-based consulting firm Moor Insights and Strategy, said building out capabilities in the United States is a necessity if the South Korea-based tech giant wants to remain competitive.
“Samsung needs to build more fab capability in the U.S., or it could see itself getting cut off from U.S. government business and critical infrastructure projects and products that go in those markets,” Moorhead said.
Moorhead predicted the Texas or Arizona sites could have an edge in landing the new facility.
“I think all three regions are equivalent with a few subtle differences. Arizona and Central Texas have more land and resources, but New York tends to invest more even though it doesn’t necessarily have as much real estate. New York tends to be less business-friendly, which I think gives Arizona and Central Texas a leg up,” he said.
Matt Bryson, an industry analyst with Wedbush Securities, said that when semiconductor companies are choosing sites for fabs, they tend to look for an educated workforce and quality infrastructure, along with considering costs and regional stability. He said Austin is a logical choice, but that the other locations also could be strong contenders.
Arizona currently has more semiconductor workers than any other state and has landed several fabrication facilities in recent months. In March, Intel announced it would spend $20 billion to build two chip plants in the state, and in June TSMC said it had started construction on a $12 billion chip factory that will build 5-nanometer technology. Currently, only TSMC and Samsung are on track to manufacture these advanced chips.
New York scored a win in January when semiconductor maker GlobalFoundries moved its headquarters to the state from Silicon Valley. But GlobalFoundries decided that its latest fab would be built in Singapore, not in New York as many experts had predicted.
Kay said Texas has also created a strong semiconductor ecosystem.
“Texas has built up over time to somewhat of critical mass, and therefore it's an attractive central market for tech companies," he said.
Samsung already has a facility and significant investments in Austin, and that could play to the city's advantage, Bryson said. Building new fabs or semiconductor campuses near existing properties lets a company better share resources, scale and transition people as needed, he said.
“Having a fab, and having a history, is certainly helpful,” Bryson said.
In Austin, Samsung is pursuing incentives that could total $1 billion according to documents filed with the state. The documents made public by the Texas comptroller's office show the tech giant is seeking tax abatements from Travis County, the city of Austin and the Manor school district, and is also seeking incentives from the Texas enterprise fund.
From Travis County, Samsung is seeking a 100% tax abatement over 20 years that could be worth $718.3 million, according to documents filed with the state. From the city of Austin, it's seeking a 50% tax abatement that could be worth $87.2 million over five years, according to documents filed with the state.
The company is also considering a Chapter 313 agreement with the Manor school district. Chapter 313 refers to the section of the Texas Tax code that allows school districts to grant property tax breaks for economic development projects. Samsung's proposed agreement calls for $252.9 million in tax savings.
None of the proposed incentives agreements have been finalized or accepted by Samsung.
Samsung is proposing an initial average wage of $66,254 for employees, and the facility could have a local economic impact of $8.6 billion over its first 20 years of operation, according to the documents filed with the state.
It's unclear if a Taylor site in Williamson County remains in play, as no documents have been filed with the comptroller's office indicating an incentives agreement could be in the works there.
Latson said Austin's strong workforce gives the region an edge in the competition.
“A lot of companies select sites based on the workforce. That's a big key component to get or attract a quality workforce to their facility. Austin and Central Texas have a fantastic, advanced manufacturing workforce,” Latson said.
He said while he is confident Central Texas has strong benefits, Austin isn't a sure bet to land the Samsung facility.
“We can't take it for granted. Phoenix also has a terrific manufacturing workforce,” Latson said. “I wouldn't disregard the strength of some other regions just because we've been so successful in winning deals over the past.”
Grid stability questions
Past issues with power and water stability could also present a potential hurdle for Austin as it tries to win the Samsung facility.
Samsung was one of a number of large industrial power users in Austin that was ordered by the city to idle or shut down operations during February's freeze, as millions of Texas homes and businesses lost electricity and the state's power grid came close to a total shutdown. It's unclear how much impact the the shutdown, which led to big losses for the company's semiconductor business, could play into Samsung's decision on where to build its new fab.
Semiconductor fabs typically operate for 24 hours a day for years on end and can take 45 to 60 days to make a batch of wafers, or a thin slice of semiconductor used for the fabrication of integrated circuits. Shutting down, especially unexpectedly, can create significant production problems.
In April, Han Jinman, executive vice-president of Samsung’s memory chip business, estimated about 71,000 wafers, equivalent to $268 million to $357 million, were affected by production disruptions after its semiconductor fabrication plant was shut down and subsequently offline for a month.
Moorhead said it's important for the companies to know they have stable levels of power, water and waste disposal, no matter the location.
“In many countries, fabs have power plants and water processing plants right next door. Worst case is that Samsung Austin could build that capability,” he said. “It’s at a price, but nothing compared to the billions the equipment costs.”
In May, the South Korean government asked the U.S. government for incentives and assurances related to stable power and water for companies including Samsung.
Bryson said the problems seen in February are preventable.
“You can have the infrastructure in place to mitigate the potential for problems,” Bryson said. “It's an eminently resolvable situation, should the government decide that is the problem that needs to be solved.”
'Logical place to start'
The new facility comes at a time of unprecedented investment in the United States by chipmakers. Kay said the industry's major palyers are looking to expand the geographical area of their supply chains.
“One of the things that all semiconductor companies are doing is looking to diversify their geography because they've all been caught one way or the other by droughts or earthquakes or whatever,” Kay said.
U.S. lawmakers have been working to pass legislation that could encourage investment. In January, the Senate passed the CHIPS for America Act, a bipartisan tech and manufacturing bill designed to expand domestic technology manufacturing, and boost the country’s ability to compete with Chinese technology. Among other things, it calls for $52 billion to support domestic semiconductor manufacturing, but further legislation has to pass to allocate the funding.
Bryson said the act could play an important role in encouraging companies like Samsung to look to the U.S. for new fabs.
“Other nations have done a better job subsidizing. If you're Samsung and want more geographic diversity, well, I already have a fab in Texas. So that makes it a logical place to start, if I can get the cost right and a lot of the other concerns or desirable characteristics you're looking for are there," Bryson said. "If you add the CHIPS act and help from the government, Austin becomes a good choice.”