Samsung's Upcoming US Chip Plant Cost Said to Rise to More Than $25 Billion: All Details

Most government grants will only cover up to 15 percent of the cost of new plants, US Commerce Department officials said early this month.

By Reuters | Updated: 16 March 2023 12:31 IST

Photo Credit: Reuters

Chipmakers are applying for billions in grants from the Biden administration through the CHIPS Act

Highlights

The total increase in cost of chip plant amounts to more than $8 billion
Inflation is said to be primarily reason for increase in cost
TSMC also announced it is tripling its investment for new Arizona plant

A chip plant that South Korea's Samsung Electronics Co Ltd is building in Taylor, Texas, will cost the world's biggest memory chipmaker over $25 billion (roughly Rs. 2,06,660 crore), up more than $8 billion (roughly Rs. 66,130 crore) from initial forecasts, according to two people familiar with the matter.

The increase in cost is primarily due to inflation, the people said, declining to be named because the information was not public.

"The higher construction cost is about 80 percent of the cost increase," one of the sources said. "The materials have gotten more expensive," the source added.

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Samsung did not immediately respond to a request for comment.

Chipmakers are applying for billions in grants from the Biden administration thanks to the CHIPS Act, aimed at ramping up chip production in the US. But increasing costs raise questions about how far those dollars will go. The bill was proposed in 2020, before a historic run-up in inflation that US officials are still working to tame.

US Commerce Department officials said early this month that most government grants will only cover up to 15 percent of the cost of new plants. Meanwhile, in the three years since lawmakers first floated the $52 billion (roughly Rs. 4,29,860 crore) figure for CHIPS Act grants, of which only $39 billion (roughly Rs. 3,22,400 crore) is now earmarked for direct investment in plant construction, the cost of labor has risen sharply, along with the price of construction materials like steel.

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That could push up the cost of what are already huge spending plans. Last year, Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chip manufacturer, announced it was more than tripling a planned investment in a new plant in Arizona to $40 billion (roughly Rs. 3,30,670 crore).

Meanwhile, Intel announced a $20 billion (roughly Rs. 1,65,335 crore) chip factory in Ohio that it could expand to cost up to $100 billion (roughly Rs. 8,26,715 crore). Also last year, chipmaker Micron said it planned to invest up to $100 billion over the next 20-plus years to build a computer chip factory complex in upstate New York.

Samsung, the world's No.2 contract chip manufacturer, announced its Taylor, Texas, plant in 2021. It aims to make advanced chips for functions such as artificial intelligence, 5G, and mobile phones, and promises to create 2,000 high-tech jobs. Unlike some of its rivals, Samsung has already broken ground.

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One of the sources told Reuters the company is rushing to finish the plant by 2024 so that it is producing chips by 2025, which would put the company ahead of a 2026 deadline to secure investment tax credits on tools for the factory.

Both sources said Samsung had already spent as much as half of the $17 billion (roughly Rs. 1,40,540 crore) initially projected for the Taylor site and noted that the company might eventually opt to build additional factories.

Samsung's Galaxy S23 series of smartphones was launched earlier this week and the South Korean firm's high-end handsets have seen a few upgrades across all three models. What about the increase in pricing? We discuss this and more on Orbital, the Gadgets 360 podcast. Orbital is available on Spotify, Gaana, JioSaavn, Google Podcasts, Apple Podcasts, Amazon Music and wherever you get your podcasts.

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