December 22, 2024

• 

Samsung Electronics' semiconductor manufacturing plant in Pyeongtaek, Gyeonggi Province (Bloomberg-Yonhap)

A sharp rise in the won-dollar exchange rate is deepening concerns among the nation’s top two chipmakers – Samsung Electronics and SK hynix – as they face snowballing financial burdens in their massive facility investments in the US.

The Korean won has suffered price fluctuations following President Yoon Suk Yeol’s short-lived martial law declaration on Dec. 3. On Monday, the won soared to a two-year high of 1438.8 against the greenback. As of 3 p.m. Tuesday, the won-dollar rate remained at 1,427.

Local analysts predict that the won will continue its weakening trend to hover at about 1,400 per dollar until the second quarter of next year.

“The ongoing political instability is expected to prolong the pressure on the Korean won’s weakness,” said Min Kyung-won, an economist at Woori Bank. “The ongoing (political) event could lead to a further decline in the Korean won value, potentially pushing it up to 1,450 won against the US dollar in the short term.”

According to industry sources, the unfavorable currency rate could delay the planned construction of new chip facilities of Samsung and SK hynix in the US.

Samsung is building a new foundry plant in Taylor, Texas, with an investment of $17 billion. The company plans to invest a total of $45 billion in the US by 2030. SK is also planning to build an advanced packaging plant in Indiana with an investment of $3.9 billion.

If the won-dollar rate rises by 10 won, Samsung is estimated to see an additional cost of 170 billion won for the Taylor plant.

“Although some offset may occur depending foreign debt holdings and export sales, rising geopolitical instability and soaring won-dollar exchange rate is increasing the necessity to review overall equipment purchases and investment strategies,” an industry source, who asked for anonymity, said.

Experts voice concerns that the strong dollar, coupled with possible chip subsidy cuts under the new Trump administration, would hamper the outlook for local chipmakers.

“In such a situation where they need to comprehensively reconsider investments in the US, not only Samsung and SK but small and medium-sized companies entering the US market alongside them could also feel much pressure. While the ongoing political situation will affect the domestic economy for a while, the situation won’t get any better under the Trump administration,” said Kim Yang-paeng, a researcher at the Korea Institute of Industrial Economics and Trade.

Kim said the sharp rise in raw material prices and labor costs in the US has increased the investment burden on the two chipmakers as well. Their competitors like TSMC and Intel are undertaking large-scale factory construction projects, which is expected to drive raw material prices and labor costs even higher, he explained.

“While the semiconductor market is expected to grow steadily next year, large-scale investments could lead to oversupply or an excess in foundry production capacity. Chipmakers need to assess whether it is appropriate to increase investments in the US considering the current industry’s situation. One potential solution is to increase investment in Korea,” the expert said.

By Jie Ye-eun (yeeun@heraldcorp.com)