Samsung plans to invest $228 billion in the world's largest chip facility in South Korea

Taking part in South Korea's aggressive push to take a lead in critical technologies, Samsung Electronics said Wednesday that it plans to invest 300 trillion Korean won ($228 billion) in a new semiconductor complex.

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It is expected that the investment will take place over the years to 2042, according to a spokesperson for Samsung.

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In order to spur development in key areas, the South Korean government is looking to bring together its biggest technology companies. In a statement Wednesday, the government said that 550 trillion won will be invested by the private sector in areas such as chips, displays, batteries, and electric vehicles by 2026.

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But the real focus is on semiconductors - the key components in everything from smartphones to cars - which have increasingly become a geopolitical issue as they are critical to the functioning of everything. South Korea has made a massive investment in its semiconductor industry in hopes of catching up with the U.S.'s aggressive investments in the same field.

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“President Yoon Suk-yeol, explained in a recent press conference that, while it is important for a high-tech industry such as semiconductors to grow through a mid-to-long-term plan, the company has to move quickly to implement these plans as if it were a matter of life or death, given the current situation of global competition.” Yoon's spokesperson, Lee Do-Woon, said in response.

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The new chip complex Samsung is building will have a total value of 300 trillion won and will be located just outside of the South Korean capital of Seoul.

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The South Korean government is aiming to connect chip facilities from Samsung to other companies to create a "semiconductor mega cluster." The idea is to connect various parts of the semiconductor supply chain from design to manufacturing.

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“Our choice of locations was based on the synergy effect that can be seen from existing semiconductor clusters in the area,” Lee Chang-yang, the South Korean minister for trade, industry, and energy, said in a statement.

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This cluster of manufacturing facilities will be home to five companies that will be building chip manufacturing facilities in the country.

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Samsung is the world's largest memory chip manufacturer. These are semiconductors that are used in devices such as laptops and servers. SK Hynix, the world's second-largest manufacturer of memory chips, is also located in South Korea.

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Rivalry between semiconductor companies heats up

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There has been a significant politicization of semiconductors in recent years, resulting in a complex dynamic between allied countries, driven by the U.S.'s twofold strategy in the semiconductor industry.

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Besides pushing to bring chip manufacturing back to U.S. shores, Washington has also obtained commitments from companies including Samsung and TSMC, the largest chipmaker in Taiwan, to build factories there in the near future.

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On the other hand, the United States has sought to stall China's semiconductor development by preventing it from moving forward. Washington introduced sweeping rules last year with the intent of preventing China from obtaining or manufacturing key chips and components.

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To help cut China off from key technologies, the U.S. has looked to strike alliances with South Korea, Japan, Taiwan, and the Netherlands as part of its tech warfare with China.

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While the Chips and Science Act was being signed, the federal government committed $52 billion to support companies producing chips in order to attract investment into America.

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This has led to a competitive environment between allied nations even as they seek to form partnerships on the one hand, and on the other hand.

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“Currently, all countries are working hard to build up their own competitive strengths in order to stay competitive. In order to onshore semiconductor production, governments are offering tax breaks and committing capital," Pranay Kotasthane, chair of Takshashila Institution's high-tech geopolitics program, told Trade Algo.

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“The impulse to compete is stronger than the impulse to cooperate, and it is stronger than the impulse to compete. If the planned incentives do not work or the semiconductor industry sees a downward trend in investment, incentives might be changed.”

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Samsung manufacturing push

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Samsung might be able to catch up with TSMC - the largest contract chipmaker - with the government's help. Apple and other companies rely on TSMC to manufacture some of the world's most advanced semiconductors.

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In order to expand its contract chip manufacturing business, Samsung is looking to ramp up its consumer electronics and memory chip production.

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As part of an ambitious roadmap set out by the company in October, it announced that it will manufacture the world's most advanced chips by 2027.

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The shares of Samsung closed 1.3% higher in South Korea on Wednesday following the announcement of its chip investment plans.