Samsung won’t follow Intel to China

The world’s second largest chip maker does not plan to follow Intel Corp.’s lead and build a chip fabrication plant in China anytime soon, a top executive said Tuesday.

Samsung Electronics Co. Ltd. isn’t even looking into the possibility of building such a plant in China right now, but it may consider such a venture in the future, said Chang-Gyu Hwang, president of Samsung Electronics’ semiconductor business.

“China is a growing market, but it is a low-price, low level market,” he said during a news conference in Taipei.

Samsung plans to focus its capital spending on South Korea, where it benefits from keeping its research and development (R&D) close to its chip fabrication plants, or fabs, Hwang said. The only other major location Samsung maintains is in Austin, Texas, where it will likely expand, he added, because the site is close to major customers and a highly educated work force.

A day earlier, Intel, the world’s largest chip maker, announced a US$2.5 billion chip fab investment plan to be built in Dalian, on China’s northeastern coast. Some analysts have called the move a savvy foray into Intel’s fastest growing market, and say the company probably enjoyed tax breaks, subsidies, low or no-cost land and other benefits from China. But Intel normally does not build new fabs unless they are cutting edge, and the China plant won’t be state-of-the-art due to U.S. technology export regulations.

The Samsung executive’s comments suggest that not every chip maker plans to rush to China just because Intel has made the move, despite what some reports indicate. They also show a differing view of how chip makers can best take part in China’s growth.

Samsung operates chip testing and packaging facilities in Suzhou, China, and has an R&D lab nearby working on system LSI (large scale integration) and packaging technology. Many other chip makers, operate such facilities in China. Chip packaging and testing is the final stage in the production of a chip, and it is more labor intensive, so China’s low-cost labor is a benefit. Chip fabrication is the start of the chip production process, and is mainly done by high tech machines because of the intricate work involved. Chip packaging factories also cost less, around US$300 million, compared to billions for the kind of chip fab Intel plans to build.

Intel decided to build a fab in China mainly to continue investing in a fast growing market, but also to learn more about low-cost manufacturing, according to company CEO Paul Otellini. The fab will produce chipsets, not the company’s flagship microprocessors.