Samsung to Spend $4 Billion to Boost Texas Chip Output

Samsung Electronics Co. (005930), the world’s largest maker of memory chips, said it will invest about $4 billion in its Texas factory to boost output of processors increasingly used in smartphones and tablet computers.

The investment will help convert the production of memory chips to logic products, including processors that power mobile devices, at the Austin, Texas, plant, Samsung said in a statement today. The Suwon, South Korea-based company plans to complete the conversion and start mass production in the second half of 2013.

Samsung is shifting away from chips used to hold memory in personal computers and digital gadgets to more complicated, yet lucrative processors acting as the brains of devices. As the exclusive manufacturer of Apple Inc.-designed chips running the iPhone and iPad, Samsung has benefitted from the popularity of the U.S. rival’s devices and its own Galaxy phones that together control more than half the global smartphone market.

“It’s the right move to concentrate on the non-memory business because it’s much more profitable,” Choi Do Yeon, a Seoul-based analyst at LIG Investment & Securities Co., said by phone. “The market for mobile application-processors is getting big, and Samsung is having a hard time keeping up with demand. They need extra capacity.”

Source: Samsung

Samsung's Austin, Texas plant. Close

Samsung's Austin, Texas plant.

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Source: Samsung

Samsung's Austin, Texas plant.

China Investment

Samsung, which plans to spend 15 trillion won ($13 billion) on the semiconductor business this year, had added another production line dedicated to logic chips at the Austin plant and began full operations in October.

With the new investment, the largest in size to be made by a foreign company in Texas, Samsung’s spending on the factory since 1996 will exceed $13 billion, according to the statement. About 2,500 construction workers and equipment vendors will be hired for the project, it said.

In April, Samsung announced it will spend $7 billion building a semiconductor factory in China to satisfy growing demand for mobile devices. The initial investment in that project was $2.3 billion.

Samsung’s shares fell 0.1 percent to 1,282,000 won in Seoul trading today, before the announcement. The stock has risen 21 percent this year, adding on three consecutive years of gains.

Apple Chips

Production at the Austin factory may be tailored for iPhone and iPad chips, Choi said.

Apple accounts for 8.9 percent of Samsung’s revenue, making it the company’s largest customer, according to a Bloomberg supply-chain analysis, even as the two companies have been locked in global patent disputes for more than a year.

Apple’s reliance on Samsung chips for its best-selling phones and tablets will be worth as much as $7.5 billion to Samsung this year, a 60 percent jump from 2011, Gartner Inc. estimates. Chief Executive Officer Tim Cook said at a conference earlier this year that “the engine” for the iPhone and iPad is made in Austin, without mentioning Samsung.

Samsung and Apple’s interdependence traces its roots to the beginning of the iPhone. The two companies, which had already worked together in screens and memory chips, cut a deal that resulted in Samsung becoming the sole manufacturer of the so- called A-series of chips, which are at the heart of the iPhone and iPad.

The two companies also are locked in patent disputes on four continents, with lawyers scheduled to make final arguments in a California courtroom today after a three-week trial.

To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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