By Alexandra Alper, Stephen Nellis and Heekyong Yang
WASHINGTON/SAN FRANCISCO/SEOUL (Reuters) -A chip plant that South Korea’s Samsung Electronics Co Ltd is building in Taylor, Texas, will cost the world’s biggest memory chipmaker over $25 billion, up more than $8 billion from initial forecasts, according to three people familiar with the matter.
The increase in cost is primarily due to inflation, the people said, declining to be named because the information was not public.
“The higher construction cost is about 80% of the cost increase,” one of the sources said. “The materials have gotten more expensive,” the source added.
A second source said “the newly estimated cost could go up even more if the construction of the Taylor plant gets delayed,” adding that the estimate could be fluid. “The later the plant is completed, the higher cost we would be looking at.”
Samsung did not immediately respond to a request for comment.
Chipmakers are applying for billions in grants from the Biden administration thanks to the CHIPS Act, aimed at ramping up chip production in the United States. But increasing costs raise questions about how far those dollars will go. The bill was proposed in 2020, before a historic run-up in inflation that U.S. officials are still working to tame.
U.S. Commerce Department officials said early this month that most government grants will only cover up to 15% of the cost of new plants. Meanwhile, in the three years since lawmakers first floated the $52 billion figure for CHIPS Act grants, of which only $39 billion is now earmarked for direct investment in plant construction, the cost of labor has risen sharply, along with the price of construction materials like steel.
That could push up the cost of what are already huge spending plans. Last year, Taiwan Semiconductor Manufacturing Co, the world’s largest contract chip manufacturer, announced it was more than tripling a planned investment in a new plant in Arizona to $40 billion.
Meanwhile, Intel Corp announced a $20 billion chip factory in Ohio that it could expand to cost up to $100 billion. Also last year, chipmaker Micron Technology said it planned to invest up to $100 billion over the next 20-plus years to build a computer chip factory complex in upstate New York.
Samsung, the world’s No.2 contract chip manufacturer, announced its Taylor, Texas, plant in 2021. It aims to make advanced chips for functions such as artificial intelligence, 5G and mobile phones, and promises to create 2,000 high-tech jobs. Unlike some of its rivals, Samsung has already broken ground.
One of the sources told Reuters the company is rushing to finish the plant by 2024 so that it is producing chips by 2025, which would put the company ahead of a 2026 deadline to secure investment tax credits on tools for the factory.
Two of the sources said Samsung had already spent as much as half of the $17 billion initially projected for the Taylor site and noted that the company might eventually opt to build additional factories.
(Reporting by Alexandra Alper and Stephen Nellis; additional reporting by Heekyong Yang and Joyce Lee in Seoul; Editing by Lisa Shumaker and Christopher Cushing)