SK faces huge hurdles to building chip plant in US

Asia's Tech News Daily

SK faces huge hurdles to building chip plant in US

SK Group Chairman Chey Tae-won, right, speaks with U.S. Senate Republican Leader Mitch McConnell at the U.S. Capitol in Washington D.C., Oct. 27. Courtesy of Senator Mitch McConnell’s office

Costs, securing workforce pose huge obstacles for chipmaker

By Kim Bo-eun

SK Group Chairman Chey Tae-won grabbed headlines recently after commenting on the possibility of its chip affiliate building a manufacturing plant in the U.S. But SK hynix is highly unlikely to make the move mostly due to the huge estimated cost of building chip fabrication lines there as well as high labor cost in the world’s largest economy.

“We have a so-called precondition study,” the SK Group chief said in a recent media interview, but added “The problem is the workforce and cost.”

The U.S. and China are the most important markets for SK Hynix. The group’s semiconductor affiliate already operates a massive memory chip plant in the Chinese city of Wuxi with the help of huge tax breaks and administrative support from both the central and regional Chinese governments. But SK does not operate a chip plant in the United States, despite the fact that memory chips and batteries have become strategically important products for U.S. national security.

Chey made it clear that SK does not have immediate plans to set up a chip fabrication plant in the U.S. Circumstances are not favorable for the chipmaker either. SK hynix has major clients in the U.S., such as AWS, Microsoft and IBM, but the cost of setting up a new chip plant and securing engineers pose challenges.

Despite large-scale incentives the U.S. government plans to offer for chipmakers to build semiconductor plants there, it costs more money than setting up factories in Asia. This is why Micron Technology is also weighing the decision to select a location for a new memory chip plant. Most of the U.S. company’s memory chip production is based in countries in Asia, such as Japan, Taiwan and Singapore, according to analysts and officials knowledgeable in the matter.

SK hynix, formerly known as Hynix Semiconductor, built a $1.3 billion semiconductor plant in Eugene, Oregon in the late 1990s, but ended up selling the factory after running it for 10 years, as the company lost competitiveness in the DRAM market. Given this track record, SK will likely take a more conservative stance in setting up new production facilities when it comes to semiconductors.

SK Group also has its hands full with aggressive battery investments. Its battery affiliate, SK On, has pledged to invest $15 billion to scale up battery production capacity around the world by 2025. SK On is spending $6.4 billion to build an electric vehicle battery plant in the U.S. under a joint venture with Ford. Despite massive CAPEX investments, SK has yet to make profits from its battery business.

In the meantime, the No. 2 memory chipmaker is set to focus on bolstering its competitiveness in the U.S. market. SK hynix set up a new division, led by CEO Lee Seok-hee, which will oversee its business in the U.S. as the chipmaker prepares to acquire Intel’s NAND business.

“The division will oversee all functions including sales and R&D. It will be in charge of building relations with clients in the sector of information and communications technology,” an SK hynix official said.

But balancing its business between the U.S. and China will likely remain one of the most challenging tasks for the chipmaker, amid growing pressure from Washington. SK hynix’s China plant could become subject to disadvantages as the U.S. seeks to contain China’s growing technological prowess. Washington has continued to lobby allies to prevent advanced chip-making equipment from being brought into China.

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