Back To Top
Business

Seoul fine-tuning K-chip support measures

Eyes are on new investment plans to be unveiled by Samsung, SK hynix in response to government support

Samsung's chip plant in Pyeongtaek, Gyeonggi Province (Samsung Electronics)
Samsung's chip plant in Pyeongtaek, Gyeonggi Province (Samsung Electronics)

With government measures to help cement South Korea’s leadership in the global semiconductor market to be announced this week, industry watchers are paying keen attention to how much Samsung Electronics and SK hynix could benefit from the measures that would largely pivot on tax breaks.

As early as Thursday, Seoul is expected to unveil what it calls the “K-Semiconductor Belt Strategy,” which could include drastic increases in tax benefits for chipmakers’ R&D projects and facility investments.

The policy package comes amid calls for national-level measures to support the country’s leading semiconductor manufacturers, who are facing growing risks in maintaining their positions in the global market amid a power struggle for chip leadership triggered by the US-China trade dispute.

Drawing keen attention is how much tax credits will be given to Samsung and SK Hynix, which both spend huge amounts on research and development and are currently finalizing new facility investment plans.

At present, the two companies, which together control nearly 70 percent of the global memory chip market, are eligible for tax credits of 0-2 percent on their chip-related R&D and 1 percent on new facility investments.

The Ministry of Trade, Industry and Energy is currently mulling an amendment of related laws to re-categorize semiconductors to be included in the new growth engine and core technology category eligible for 20-30 percent tax credits. It is also considering creating a new tax break category for chip-related facility investments.

Hong Nam-ki, deputy prime minister for economy, said last week, “The measure should be a totally different approach from current measures in order to maintain Korea’s competitive edge in the memory market and secure competitiveness in the logic chip market.”

Details are unclear, but observers say the government would devise tax measures to give a break of at least 30 percent to Samsung and SK hynix, to put them on par with competitors in the US and elsewhere. The US has pledged a 40 percent tax break for chipmakers committing to new facility investments.

The Korea Semiconductor Industry Association previously asked the government for a 50 percent tax credit for chip R&D and facility investments, among other things.

Separately, the ruling Democratic Party’s special committee on semiconductor technology leadership is pushing for bolder steps to help the local chip industry. Members prefer tax breaks of over 40 percent for chip-related projects, according to party officials.

The committee aims to come up with a concrete roadmap and report it to President Moon Jae-in by August.

Amid the tax break discussions, industry watchers have an eye on possible announcements from Samsung or SK hynix on new investments.

Although it is yet uncertain as to what will be the scope of the government measures and when they will be implemented, the companies could benefit from the increased tax credits for new plants, an industry insider said.

Samsung is preparing to break ground on its third chip plant in Pyeongtaek, Gyeonggi Province, and SK hynix is laying the groundwork for a new plant in Yongin, Gyeonggi Province, as part of its 120 trillion-won ($107.7 billion) project to build a chip cluster there consisting of four new fabs.

“If the government intends to roll out chip industry support measures currently under discussion in a timely manner, Samsung and SK hynix could benefit from them in their new fab projects slated for completion in 2023 and 2024 respectively,” said an industry insider.

Sources say Samsung’s plan for the third Pyeongtaek plant has been recently accelerated considering growing market competition.

The Korean tech giant has been working to break ground on the so-called “P3” line since early this year, with a goal of making it the most cutting-edge chip manufacturing facility in the world.

The P3 fab would be equipped with the most advanced extreme ultraviolet lithography equipment for memory chips on 10-nanometer process nodes and below.

The new fab is expected to be not only the most advanced, but also the largest among Samsung chip fabs. Industry observers say that the construction site for the third line is much larger than P1 and P2, driving expectations that the upcoming investment could reach up to 50 trillion won.

Some also project that Samsung could use some portion of the P3 line for foundry production, considering the growing demand amid the ongoing chip shortage.

Besides, Samsung is likely to announce its final plan for a $17 billion new foundry plant in Austin, Texas, in time for President Moon’s visit to the US next week, industry sources say.

By Song Su-hyun (song@heraldcorp.com)
MOST POPULAR