TSMC and Samsung in talks to build a mega chip factory in the UAE, potentially reshaping the industry's landscape

TSMC and Samsung in talks to build a mega chip factory in the UAE, potentially reshaping the industry's landscapeSources reveal that global chip giants TSMC and Samsung are in discussions about potentially constructing a massive chip factory in the United Arab Emirates (UAE). This move could dramatically reshape the chip manufacturing landscape within the coming years and lay the groundwork for Middle Eastern AI investments

TSMC and Samsung in talks to build a mega chip factory in the UAE, potentially reshaping the industry's landscape

Sources reveal that global chip giants TSMC and Samsung are in discussions about potentially constructing a massive chip factory in the United Arab Emirates (UAE). This move could dramatically reshape the chip manufacturing landscape within the coming years and lay the groundwork for Middle Eastern AI investments.

Reports indicate that TSMC executives recently visited the UAE, engaging in conversations with local government officials about building a production facility on a scale comparable to the company's top factories in Taiwan. Samsung Electronics is also considering expanding its large-scale chip manufacturing operations in the UAE in the coming years, with Samsung executives having visited the country for strategic discussions on the matter.

Currently, these discussions are in their initial stages and face technical and practical challenges. There's a possibility that the plans might ultimately fall through. According to preliminary discussions, the UAE, particularly Abu Dhabi's sovereign wealth fund Mubadala, would be the primary financial backer of this project, aiming to bolster the country's technology industry.

Multiple sources indicate that the broader objective is to reduce chip prices by increasing global chip production while ensuring chip manufacturers remain profitable. A spokesperson for Mubadala, which through their government-backed MGX company leads major AI investment initiatives in Abu Dhabi, confirmed that semiconductor manufacturing is a strategic focus. They stated that MGX is "in constant dialogue with global partners," but no concrete plans for building a factory in the UAE have been finalized yet.

The potential collaboration between TSMC and Samsung with the UAE reflects not only the nation's ambitions in the technology sector but also the global demand for expanded chip production, particularly to meet the growing needs of the AI market. In recent years, the cost of building chip factories has skyrocketed, with a cutting-edge facility potentially exceeding $20 billion in construction expenditures. The project discussed in the UAE is ambitious in scale, with plans to build a complex encompassing multiple factories, potentially exceeding $100 billion in investment.

Abu Dhabi possesses one of the world's largest sovereign wealth funds, with Mubadala Group reporting a portfolio value nearing $300 billion by last year. However, the project still faces numerous technical and political hurdles.

One key obstacle is the requirement for large quantities of ultrapure water in chip manufacturing, which is used to rinse silicon wafers during the etching of microcircuits. Most of the UAE's water resources come from desalination, which would incur additional purification costs. Additionally, securing enough engineering talent to support a new factory far from headquarters in a country lacking an existing chip manufacturing supply chain poses a significant challenge.

If TSMC and Samsung overcome these obstacles and proceed with the project, it could trigger a new wave of industry expansion. Previously, government subsidies have driven growth in chip manufacturing in the US, Europe, and East Asia. The US Chips Act of 2022 plans to provide $390 billion in grants to domestic chip manufacturing, along with other tax incentives, to stimulate domestic production expansion. Meanwhile, Europe has also rolled out incentives that have attracted industry giants like Intel and TSMC.

While planning the UAE project, TSMC and Samsung have also engaged in communication with US government officials. The US has expressed concern about the potential risks associated with the UAE supplying advanced AI chips to China. Initial discussions have taken place regarding how the US might oversee chip production and transportation from the UAE factory, but specific details have not been finalized. A spokesperson for the US National Security Council stated, "We have deepened our cooperation with the UAE in cutting-edge technologies over the past two years. This collaboration is moving in a positive direction."

Sources indicate that chip manufacturers anticipate these issues to linger due to the US's ongoing concerns about China, potentially delaying the factory construction.

The UAE, a member of OPEC, has its capital city Abu Dhabi as a major global producer of oil and natural gas. In recent years, Abu Dhabi has strived for economic diversification by investing oil wealth into industries like aluminum production.

The UAE has also made strides in advancing the field of cutting-edge technologies. Sam Altman, CEO of OpenAI, met with UAE investors to discuss plans for expanding investments in chips, power, and other AI infrastructure, potentially reaching $5 trillion to $7 trillion.

The UAE actively collaborates with other AI giants, such as investing nearly $500 million in the AI startup Anthropic and participating in the latest funding round for OpenAI. Additionally, G42, the country's leading AI company, received a $1.5 billion investment from Microsoft this year.

In data center construction, MGX has partnered with companies like BlackRock and Microsoft to establish a fund aimed at investing $100 billion in expanding and building new AI data centers.

Abu Dhabi previously flirted with the chip industry. In 2008, Abu Dhabi acquired AMDs manufacturing operations, and discussions on building a chip factory in the UAE were held but never materialized. This business was subsequently spun off into GlobalFoundries, which successfully went public in the US in 2021.