As Chip Sales Slump, Inflation Makes The Price Of Samsung's Texas Fab Blow Out

Semiconductor foundry operators including TSMC, Samsung, and Intel have collectively announced well in excess of a $100 billion in new factory projects across the US, but chipmakers could end up paying far more than due to rising inflation.

Reuters, citing multiple unamed sources, reports that Samsung's Texan foundry in the town of Taylor could end up costing more than $25 billion, a full $8 billion more than when the project was announced in 2021.

The sources pointed to higher material and labor costs driven primarily by inflation — roughly 80 percent of the increases — for the facility's rapidly ballooning price tag. And it may not end there, the sources also warned that the prices could rise even further if the chip plant is delayed again.

The news won't come as a surprise to anyone who's been following US fab builds over the past year. Intel was among the first to admit that building fabs in the US would be much more expensive than originally thought. Last summer the x86 giant said it partnered with a private equity firm to offset the extreme cost of its two new Arizona chipmaking plants.

Announced in early 2021 by newly instated CEO Pat Gelsinger, Intel had originally cited the cost at $10 billion apiece. However by late 2022, that figure had increased by a factor of 50 percent.

"As in many sectors, we are seeing costs rise significantly. As we continue to refine our estimates, we currently believe the investment could be up to $30 billion, accounting for the impacts of inflation, ongoing supply chain challenges and increased equipment costs," an Intel spokesperson told The Register last August.

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However, it isn't just Intel. By December, TSMC announced it would spend $40 billion to build not one but two foundries at its site in Arizona. When TSMC first announced the facility in 2020, it estimated the cost of one fab at $12 billion. However due to a "range of construction costs and project uncertainty in Phoenix makes building the same advanced logic wafer fab in Taiwan considerably less capital intensive," executives said at the time.

By February 2023, TSMC had added another $3.5 billion to the project's price tag.

A global issue

Economic headwinds aren't just hitting foundry operators in the USA. Earlier this month, we reported that Intel was trying to get another €4-5 billion out of the German government to pay for its Magdeburg mega fab.

Announced in early 2022, Intel secured €6.8 billion ($7.2 billion) of German taxpayer funds — roughly 40 percent of the facility's €17 billion ($18 billion) cost. Intel now expects the facility will cost more than €20 billion ($21 billion) to complete, due in part to rising energy and materials' costs.

Meanwhile, Samsung, one of the largest manufacturers of DRAM and flash memory modules has seen its profits plummet, as demand for both products has dropped.

However, as we've seen with the Taylor plant, Samsung's reaction has been to prioritize high-end, high-margin parts including newer DDR5 modules for next-gen PCs and servers and HBM modules used in HPC and AI environments. However in order to keep its foundry expansion on track, the company was forced to borrow $16 billion from its display business.

Help on the way?

Many chipmakers are eagerly awaiting the disbursement of CHIPS funds — approved by the US last year and currently under review by the EU parliament — to offset the increased cost of building fabs.

However, according to US Commerce Department docs released last month, CHIPS funds, which total 39 billion, will only cover between five to 15 percent of foundry operator’s capital expenditures.

In a best case scenario, Intel and TSMC would receive $7.5 billion and $6 billion respectively. Meanwhile Samsung’s $25 billion facility would be eligible for up to $3.7 billion in taxpayer funds.

However, those funds come with strict conditions, among them that companies taking US CHIPS funds must agree not expand their operations in China for a decade.

This has proven to be a significant concern for South Korean chipmakers, like Samsung and SK-Hynix, which have made large investments in Chinese manufacturing in recent years. ®