Samsung’s Texas chip plant cost said to rise by $8 billion due to inflation

The construction site for Samsung Electronics‘ chip plant in Taylor, Texas, U.S. [Photo provided by Samsung Electronics]

A semiconductor plant that South Korea’s Samsung Electronics Co. is building in Taylor, Texas, will cost the world’s top memory chipmaker over $25 billion, more than $8 billion higher than its initial forecasts, mainly due to inflation, according to a foreign media report.

Even considering the subsidies Samsung is eligible to receive from the U.S. government to support local chip production, the company will have to pay at least $6.8 billion more, Reuters reported on Wednesday, citing people familiar with the matter.

In February this year, the value of the won against the dollar was 1,276.5 won, down about 100 won from November 2021 when Samsung first announced the Taylor plant project. Taking this into account, the construction cost in Korean currency terms would be around 1.3 trillion won more, compared with the original projection of about 20 trillion won.

Global inflation and rising raw material prices are the main reasons for the cost increase, according to Reuters. The higher construction cost is about 80 percent of the total increase in expenses, said one of the sources in the Reuter’s report, adding that materials have gotten more expensive.

According to Reuters, Samsung has invested half of the originally announced $17 billion in Taylor. Even if Samsung maximizes production subsidies under the CHIPS Act, it is expected to have limited success in reducing its cost burden. The U.S. Department of Commerce said that direct subsidy payments typically range from 5 to 15 percent of total project capital expenditures.

Assuming a total construction cost of $25 billion, the Taylor plant could receive up to $3.75 billion in subsidies.

Under the original announcement, $2.25 billion would have been the maximum award, but the increased cost has increased that by $1.2 billion. Even if this is excluded, the increase in construction costs would be $6.8 billion, meaning the cost burden will remain significant.

In addition to the building cost, it may take more time for Samsung to make a profit after the factory is built, considering that the cost of producing semiconductors in the U.S. is about 20 percent higher than in Korea.