21-03-2021 | | By Robin Mitchell
Recently, Samsung has been reported as sending an “ultimatum-like” deal to the state of Texas for its next semiconductor production facility. What challenges has the semiconductor industry faced, what has Samsung asked of Texas, and should Texas take the deal?
It is no surprise that major COVID lockdowns worldwide have affected many businesses, but the semiconductor industry has been affected in a rather unusual way. During lockdowns, those who could work remotely did so, and working from home requires tech including laptops, computers, and networking resources. As such, the semiconductor industry saw a boom in the purchasing of electronics equipment.
At the same time, car manufacture massively declined, and this lead automotive manufacturers to suspend purchasing of automotive-grade semiconductors. Therefore, it made logical sense for semiconductor manufacturers to focus on commercial products instead of automotive components.
Now that the lockdowns are over, automotive manufactures want automotive-grade parts again, but creating such components takes months. As such, there has been a global shortage of such components. Many foundries have looked to outside help from other manufacturers to produce automotive parts, but even then the long time needed to produce such parts puts a 6-month minimum wait on auto-makers.
If this wasn’t enough of a problem, Texas's recent winter storms have further affected the semiconductor market. Severe snowstorms caused power and water to fail, and as such multiple semiconductor plants had to shut down operations.
Samsung was one company, in particular, that was affected by the loss of services, but at the time the market damage as a result of their shutdown was not realised. New data has recently come out showing just how bad a few days of downtime in a Samsung facility can be; global smartphone production will fall by 5%, and 5G phones will fall by 30% in the second quarter of 2021.
Samsung has wanted to expand its semiconductor industry for the better part of a year with investments into universities, and the desire to create a new semiconductor foundry. While there was speculation about where this facility will be, recent information shows that Samsung has its eye firmly set on Texas.
Growth in the semiconductor industry has already been felt globally, and many big players have started a hiring spree. For example, Samsung typically has less than 100 new positions at any one time, but now there are many hundreds. SK Hynix is also the same, and job opportunities in the sector including foundry work, R&D, and developers.
However, instead of committing to the state, Samsung has been reported to have sent a letter of demands from the state of Texas. The first request is that Samsung is given $900 million in tax relief over the next 20 years, and the second request is that the state of Texas reduces utility tax, reduces property tax, and offers non-cash benefits.
While California is home to many big names, many companies are leaving the state due to its social progressive policies (such as $15 minimum wage), and large amounts of red tape. Texas has always been a major player in the semiconductor manufacturing business. Still, Samsung's move demonstrates that Texas as a real opportunity for growth that could outpace states like California.
In a single word, yes, Texas should absolutely take the deal. According to the report, Samsung would provide Texas with $8.6 billion of wealth (not clear if this is over 20 years or each year), and the creation of such a foundry would provide over 1,800 jobs.
The addition of a Samsung production facility in Austin would also make the area more desirable for other companies looking for a new home. After the financial disaster of COVID and the following snowstorms, any additional economic growth that Texas can achieve will massively benefit the state. Furthermore, as more manufacturing sites relocate to Texas, there is a major incentive to better prepare infrastructure to ensure a steady supply of key services such as water, electricity, and gas.
However, if Texas is not careful, it could fall into the same trap as California did. One of the major reasons for the strict California rules on business stems from the voting population who often vote in progressive policies. If residence from such areas decide to escape to Texas for lower price housing and better job prospects but bring their politics with them, it could see the state of Texas switch from a traditionally red state to a blue state, and as such begin to bring in the very same policies that are driving business away from California.