[Chiptalk] US Subsidies 'Poisoned Chalice'... Big Tech Takes Risks for the Bigger Picture

Samsung, TSMC, Intel Non-Memory Companies' 'Survival Competition'
SK Hynix and Other Memory Firms Likely to Join Soon
Key Battle in Next 3-5 Years... All-Out Effort on Talent, Technology, and Customers

Leading semiconductor companies receiving U.S. government subsidies share the common trait of investing several times, and in some cases dozens of times, the amount of the subsidies back into the U.S. They also similarly accept the risk of disclosing trade secrets to the U.S. government while receiving subsidies far less than their investment amounts. There are criticisms that foreign companies like Samsung Electronics have been unilaterally mobilized for building manufacturing facilities in the U.S. From the perspective of semiconductor companies, there is a sense of crisis that if they fall behind in competition over the next 3 to 5 years, they could be eliminated from the market because many customers (big tech and large IT companies) are based in the U.S. market.

[Image source=Yonhap News]

According to the semiconductor industry on the 21st, semiconductor companies that received U.S. government subsidies have invested roughly dozens of times the subsidy amount in the U.S., and most of them operate in the non-memory semiconductor sector. This principle applies equally to both U.S. and foreign companies. U.S. company Intel is investing $100 billion (approximately 138 trillion KRW) and receiving $8.5 billion (approximately 11.7 trillion KRW) in subsidies. Taiwan's TSMC is investing $65 billion (approximately 90 trillion KRW) and receiving $6.6 billion (approximately 9.1 trillion KRW). Samsung Electronics is investing $45 billion (approximately 62 trillion KRW) and receiving $6.4 billion (approximately 8.8 trillion KRW).

Memory semiconductor company Micron is also reported by foreign media to be investing $115 billion (approximately 158.7 trillion KRW) and expected to receive more than $6 billion (approximately 8.3 trillion KRW), but most subsidy recipients are non-memory semiconductor companies.

The reason why global companies, including U.S. companies and Samsung Electronics, increase investments despite financial losses is to reduce international trade risks and avoid falling behind in sales (customer acquisition). They cannot afford to give up the U.S. market to trade with companies like Nvidia, Apple, Qualcomm, AMD, Microsoft, Google, and Meta. Because they have an advantage in manufacturing compared to the U.S., no company employs a business strategy that isolates the U.S. to secure a 'manufacturing super-gap.'

Sales competition is intertwined with talent and technology competition, leading to an 'all-out war' among semiconductor companies. Even without the Biden administration's subsidy policy and U.S.-China competition and trade pressure, competition for customers, talent, and technology has always been fierce. However, there is a view that competition has overheated due to the U.S. subsidy policy aimed at securing domestic supply chains. Although global companies have consistently operated in the U.S., it is questionable whether competition would have intensified to the point where foreign companies invest hundreds of trillions of won in the U.S. at once if the Chips and Science Act had not passed. Moreover, the related law includes provisions requiring subsidy recipients to disclose trade secrets such as excess profit recovery and production and research facility information.

Kim Jeong-hoe, Vice Chairman of the Korea Semiconductor Industry Association, said, "It is reasonable to see that the U.S. authorities started the subsidy policy to capture all three: purchasing (sales), talent, and technology," adding, "While it remains to be seen how successful the U.S. Chips Act will be in technology (manufacturing), from the perspective of foreign companies like Samsung Electronics and TSMC, they could not refuse U.S. subsidies not only because of economic security concerns but also to secure customers like Nvidia and to operate normally in the U.S."

In the non-memory semiconductor industry, there are concerns that if Samsung Electronics falters over the next 3 to 5 years, it could be eliminated from the market. It is not just about losing some market share or leadership but about running faster with the readiness to be pushed out of the market. The critical period is 2025 to 2030. The year 2025 is when the three foundry companies (TSMC, Samsung Electronics, Intel) have declared they will complete 2-nanometer (Intel's 1.8-nanometer '18A') processes simultaneously. By 2027, they plan to complete the 1.4-nanometer process system. The year 2030 is expected to be when Artificial General Intelligence (AGI) becomes widespread and commercialized globally. This is the 'golden time,' and if they fail to increase major customers during this period, they may be pushed out of the market. AGI is being promoted by U.S. big tech companies, customers of non-memory semiconductor companies, such as Microsoft, Google, and Meta. Even if the subsidy amount is far less than the investment amount, the structure forces companies to stake their lives on the U.S. market.

There is a prevailing view that memory companies will also receive a 'subsidy bill.' From the U.S. government's perspective, among the 'memory big 3,' two companies other than Micron are foreign companies (Samsung Electronics and SK Hynix). This means SK Hynix, like Samsung Electronics, will have no choice but to drink the 'poisoned chalice.' Although SK Hynix is later than Samsung Electronics and Micron, it has announced post-processing investments in the U.S. and research and development (R&D) agreements with Purdue University and is expected to soon join the ranks of subsidy recipients.

Experts emphasize that neither baseless optimism nor excessive pessimism should be expressed regarding the future of Korean companies. A senior industry official said, "Design is strong in the U.S., materials, parts, and equipment are strong in Japan, and manufacturing is strong in Korea and Taiwan, but in manufacturing, the U.S., Japan, and Europe, which are implementing subsidy policies, are increasingly threatening Korea's market position, while Korea has not been able to regain leadership in design and materials and parts," adding, "The government needs to present proactive policies such as subsidies."

Kim Yang-peng, a senior researcher at the Korea Institute for Industrial Economics & Trade, said, "Since the announcement of the Chips Act, the game has changed so that foreign companies must invest astronomical amounts in the U.S. to do business there," adding, "Samsung Electronics receiving more subsidies relative to investment than competitors and SK Hynix starting U.S. investments also means there is a possibility of reducing domestic investment proportions, so the situation must be watched coldly."