Samsung may have won billions in US chip subsidies, but the real challenge lies ahead

Posted on : 2024-04-17 17:18 KST Modified on : 2024-04-17 17:18 KST
It remains unclear whether Samsung Electronics stands to gain enough in profitability to match its US investments

Markets are responding tepidly to Samsung Electronics’ success in nabbing subsidies worth US$6.4 billion from the US.

Some are voicing worries over whether the company’s gains in terms of profitability will match the amount invested. Analysts said that with the US having completed its allocation of subsidies to major companies, the key question going forward will be who emerges victorious as the foundry race heats up in the US.

Samsung Electronics share prices finished trading Tuesday at 80,000 won on the securities market, down by 2.68% from the day before.

With institutional investors driving the selloff trend, the decline was sharper than on the KOSPI (2.28%). At one point during the morning, the price dropped as low as 79,400 won — the first time since March 28 that it fell below the 80,000-won mark during trading. It also lost much of the gains achieved in the wake of Nvidia’s hints that it may adopt Samsung’s high-bandwidth memory chips last month.

Observers concluded that even the US subsidy announcement was not enough to offset the bad news from overseas that hit overnight.

On Monday, the US Department of Commerce announced that it would be offering Samsung Electronics up to US$6.4 billion in subsidies. In exchange, the company plans to create a comprehensive semiconductor ecosystem with over US$40 billion in investments in the US.

While the value of the subsidies was somewhat higher than the US$6 billion figure that had previously been discussed, fears associated with tensions in the Middle East and the continued high interest rates in the US appear to have outweighed the announcement’s effects.

Indeed, investors on the market appeared to be reserving judgment.

One of the biggest potential benefits cited in Samsung Electronics’ US investments is the acquisition of customers in North America. The prediction is that since the US is home to so many of the big tech companies that are key purchasers of advanced semiconductors, the situation would put the company at an advantage in terms of orders.

From the client companies’ standpoint, the importance of managing supply chains has been underscored in the wake of the COVID-19 pandemic, and there has been growing political pressure to use domestically produced semiconductors. The US’ status as a major force in semiconductor intellectual property has raised hopes for local R&D collaboration.

The problem is that the competition in the US is heating up. It remains unclear whether Samsung Electronics stands to gain enough in profitability to match its US investments.

Intel, which is to receive up to US$8.5 billion in subsidies from the US government, is staking its fortunes on success in its foundry business. The company has declared plans to surpass Samsung Electronics to become the world’s second-ranked foundry company by 2030. Meanwhile, top-ranked TSMC recently announced plans to increase the number of fabs it is building in Arizona from two to three.

Commenting on the market’s reservation of judgment, Ryu Young-ho, an analyst with NH Investment and Securities, said, “The fact that nothing final has been announced in terms of orders by major North American client companies appears to have had an impact.”

“Also, the fact that the scale of subsidies is similar to what TSMC is receiving [US$6.6 billion] has not really raised expectations,” he added.

Another key factor concerns the risks associated with operating state-of-the-art fabs in the US.

After beginning mass production of 2 nm semiconductors domestically next year, Samsung Electronics plans to introduce them in the US as quickly as 2026. This would be the first time the company has produced advanced semiconductors overseas.

In addition to coping with various management risks and high costs, its success is also dependent on its ability to secure enough of a workforce capable of dealing with the most advanced technology.

The Wall Street Journal recently noted that the semiconductor manufacturing workforce in the US shrank from 287,000 in 2000 to 181,000 in 2017. It also predicted that semiconductor production in the US would remain costly for the time being.

By Lee Jae-yeon, staff reporter

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