U.S., Others Need To Spend At Least $150 Billion To Catch Up To TSMC, Samsung Believes Research Firm

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Chipmakers Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung Electronics are on their way to allocte historical levels of capital expenditure in their processes. TSMC, which is aggressively ramping up production of chips on the leading-edge 5nm process node and Samsung, which is currently the company's biggest rival in the contract manufacturing space will spend a combined $55 billion on facilities and equipment to print semiconductors reveals a new report by Arizona-based research firm IC Insights.

To keep up with the chip behemoths, national governments such as those in the U.S., EU and China need to spend $150 billion spread out over the next five years if they have any hope of developing an indigenous industry capable of matching the Asian giants' manufacturing prowess.

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Samsung Projected To Spend $28 Billion In Chip Manufacturing Capital Expenditure This Year

Currently, the leading spender in the chip manufacturing space is the South Korean chaebol Samsung Electronics. The group manufactures semiconductors on high-end processing nodes through its foundry arm Samsung Foundry. Samsung spent $28.1 billion in foundry capital expenditure last year, and the company will maintain this spending level in 2021 believes IC Insight.

Following TSMC's revelation earlier this year that it will spend in between $25 billion - $28 billion in capital expenditure, total spending by the top two players in the contract chip manufacturing space is expected to reach at least $53 billion - a figure slightly lower than IC's estimate of $55 billion which assumes a $27 billion capital expenditure by TSMC.

For comparison, Intel Corporation spent $14.3 billion in 2020 -  a figure that is not directly comparable to Samsung's since it does not include expenditure for NAND memory manufacturing.

Intel also noted in its Form 10-K filed with the Securities and Exchange Commission that:

In 2020, we encountered a defect mode in the development of our 7nm process technology that resulted in yield degradation, which was the primary driver for a delay in our expectations for our 7nm-based CPU product timing. These delays can allow competitors to benefit from advancements in manufacturing processes introduced ahead of us by third-party foundries and could adversely affect the competitiveness of our products.

IC Insight's visual representation of the share of capital expenditure by the two largest players in the chip manufacturing space as a percentage of total expenditure. From 1994 to 2009 Intel was the biggest spender, except for the five years between 2004 - 2008 when it was replaced by Samsung. Since 2009, Samsung has consistently led others in spending, with TSMC and Intel replacing each other for the second spot. Image: IC Insights

Given that in the chip manufacturing arena research and development is king owing to the fact that it takes several years before research breakthroughs can be translated into manufacturable products, IC Insights speculates on what actions governments of the U.S., EU and China can take to mirror developments by TSMC and Samsung.

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According to the firm, the $150 billion figure quoted above is the bare minimum for governments if they want to stay competitive in the chip manufacturing space. At his front, the U.S., as part of the National Defense Authorization Act (NDAA) for 2021 has allocated up to $3 billion for individual projects aimed at increasing American chip manufacturing capacity.

Interestingly, a CHIPS for America Act (H. R. 7178) currently referred to the Committees of the House envisages precisely the magical $30 billion/year spending figure that IC Insights believes is crucial for developing the industry. This Act allocates $10 billion each for manufacturing chips on or below the 3-nanometer node, for supply chain security and for the creation of an institute focused on manufacturing and research. Spending for each of the sectors is for five years, for a total of $150 billion.

Finally, IC Insights also doubts China's ability to catch up to either TSMC or Samsung even if it does spend the $150 billion. This is due to export control regulations limiting the country's ability to procure key manufacturing equipment.

The author has no position in any of the stocks mentioned. NewAgeAds LLC has a disclosure and ethics policy.
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