Under the superposition of various factors, the global semiconductor industry is also facing new fluctuations, with the Southeast Asian region becoming the "epicenter" of the fluctuations.

Although the semiconductor industry in Southeast Asia is at the lower end of the industrial chain, it plays a crucial role in the global chip industry division of labor. It is estimated that 15%-20% of passive components worldwide are manufactured in Southeast Asia, and Southeast Asia is also an important testing and packaging center for technology companies, accounting for 27% of the global semiconductor packaging and testing market. According to statistics, the chip market size of Southeast Asian countries was about 27 billion US dollars in 2020, and it is expected to reach about 41.1 billion US dollars in 2028.

Tracing the driving force behind the industry fluctuations, in addition to the key factors of population dividend and cost, under the influence of international geopolitical conflicts, Sino-US trade frictions and other factors, ensuring the security of the supply chain has gradually become a consensus, further catalyzing the global electronic industry chain to diversify, migrate, fluctuate, and adjust.

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From the 2018 US sanctions against ZTE and Huawei, to the US "Chip Act" that set off a global chip industry development competition, to the new agreement between the US, the Netherlands, and Japan in January this year, which once again expanded the export control measures of chips to China... A series of fluctuations have accelerated semiconductor factories in Southeast Asia to seek a "Chinese alternative" to fill the supply gap caused by the United States' attempt to separate mainland China from the chip market.

In this process, many players, including industry giants, have laid out in the Southeast Asian region, and some links of China's semiconductor industry chain have gradually moved to Southeast Asia. Countries such as Singapore, Malaysia, Vietnam, Thailand, the Philippines, and India are benefiting greatly from the global reordering of the semiconductor industry.

Semiconductor manufacturers flock to Southeast Asia

In recent times, major US chip equipment manufacturers have been continuously transferring their business in China to Southeast Asia, indicating that US export control has accelerated the technological decoupling of the world's two major economies.

Applied Materials, Lam Research, and KLA Corporation together hold about 35% of the global semiconductor equipment market. According to Nikkei Asia, since the US government introduced comprehensive export control measures last October, restricting China's access to equipment and manpower for manufacturing advanced chips, these three companies have begun to transfer non-Chinese employees from China to Singapore and Malaysia, or increase production capacity in the Southeast Asian region.

Export control has led to a decline in the business of US companies in China, which is also a key factor in their industrial transfer. According to SEMI data, China once accounted for nearly 30% of the revenue of US chip equipment manufacturers, but in the latest quarterly performance, Applied Materials dropped to 20%, Lam Research to 24%, and KLA to 23%.Lam Research stated that the company's strategy is to be geographically close to its customers, which has prompted it to invest throughout Asia, including new technology production facilities in Malaysia, a technology center in South Korea, and engineering facilities in India. "Due to macroeconomic headwinds, recent trade restrictions have limited our ability to do business in China, and we expect a decline in global wafer manufacturing equipment spending in 2023, we are taking a series of measures to control costs."

"Given the current geopolitical pressures, our business in Southeast Asia is increasing," said Tim Archer, CEO of Lam Research.

In addition, semiconductor manufacturers such as Samsung, Intel, GlobalFoundries, and UMC have factories in Southeast Asia and plan to further expand there.

Counting the countries in Southeast Asia, Singapore's human capital, infrastructure, and business-friendly environment make it a natural first choice; the Philippines, Malaysia, Thailand, and Vietnam have skilled labor and talent bases that can support the back-end manufacturing of complex chips.

Now, with changes in the international geopolitical landscape and industrial environment, Southeast Asia is becoming a "treasure land" for chip giants.

Singapore: Complete Industry Chain

In my previous article "Unveiling Singapore's Semiconductor Industry," I described the development process of Singapore's semiconductor industry from its inception, prosperity, decline, and recovery.

In 2020, the proportion of Singapore's semiconductor industry output value increased to 46.3%. In just a few years, Singapore's semiconductor industry has achieved significant growth. In the subsequent development process, industry manufacturers have once again focused on Singapore.

It is understood that Singapore is the location of Micron's global headquarters, three memory wafer factories, and an assembly and testing facility; it is also the location of Infineon's Asia-Pacific headquarters, responsible for managing R&D, supply chain, marketing, and sales; ST, Avago, MediaTek, and distribution giants Avnet and Future Electronics have factories and distribution networks in Singapore.

In addition, in the wafer manufacturing process, Singapore has companies such as GlobalFoundries, UMC, SSMC, Soitec, and Siltronic; in the equipment process, there are large production bases such as ASM, KLA, and equipment manufacturers such as Advantest, Teradyne, TEL, Lam Research, and Applied Materials also have large regional headquarters in Singapore; in the packaging and testing process, major packaging and testing factories such as ASE, Amkor, and Jiangsu Changdian Technology have factories in Singapore.According to data, Singapore currently has a range of companies in the semiconductor industry, including 40 IC design companies, 14 silicon wafer manufacturers, 8 wafer fabs, 20 packaging and testing companies, and several enterprises responsible for materials, manufacturing equipment, photomasks, and other related industries. Data from IC Insights indicates that in 2021, Singapore accounted for nearly 5% of the global wafer fab capacity and held a 19% market share in the global semiconductor equipment market.

The participation of these manufacturers has once again provided momentum for Singapore's semiconductor industry.

The reason for this is not hard to find: the Singaporean government recognized earlier than other countries the core importance of the semiconductor industry as the pillar of high-tech manufacturing and the entire electronics industry. With tax incentives, a professional regulatory framework, and a robust intellectual property (IP) system, combined with a relatively large workforce of well-educated workers and engineers, Singapore has attracted many multinational companies.

In the past one or two years, Singapore has announced tens of billions of dollars in semiconductor-related investments and set a goal to increase its manufacturing industry by 50% by 2030.

Malaysia: A Hub for Packaging and Testing

Malaysia plays a significant role in the packaging and testing segment of the semiconductor industry chain. It is understood that Southeast Asia accounts for 27% of the global packaging and testing market, with Malaysia alone accounting for half of it.

Major industry IDM companies such as Intel, Micron, and Texas Instruments have established assembly and testing facilities in Malaysia. In addition, major outsourced packaging and testing companies, including ASE Group and Tongfu Microelectronics, have also set up factories in Penang, Malaysia.

Among them, Penang in Malaysia is even known as the Silicon Valley of the East, with a history of more than 50 years in the development of the electrical and electronics industry, and has become the leading electronics industry center in Malaysia. According to data from SEMI, Penang's global semiconductor industry backend output accounts for about 8%, making it a leading region in the world for microelectronics assembly, packaging, and testing.

In November last year, ASE Group's new chipset assembly and testing factory in Penang, Malaysia, broke ground. The new factory of ASE Malaysia (ASEM) focuses on high-demand packaging product types, including copper clips and image sensors.

In addition to the packaging and testing field, Malaysia also has some large manufacturers of components and power semiconductors.Major MLCC manufacturer Taiyo Yuden announced in September 2022 that it will invest approximately 18 billion yen to build a new MLCC factory at its subsidiary in Sarawak, Malaysia, with the new plant expected to be completed by March 2023.

In July 2022, Infineon held the groundbreaking ceremony for its most advanced wafer factory in Kulim, Malaysia, with an investment exceeding 8 billion ringgit, which will significantly increase the company's manufacturing capabilities for SiC and GaN power semiconductors. The factory is expected to be completed in the third quarter of 2024.

Statistics show that there are about 50 multinational semiconductor companies with packaging and testing factories in Malaysia, with fewer local companies and most being multinational corporations, including NXP, Broadcom, Micron, STMicroelectronics, Infineon, Texas Instruments, ON Semiconductor, ASE Technology, and others. The Malaysian semiconductor industry is striving to evolve from low-cost contract manufacturing to design and manufacturing.

In recent years, Malaysia has also approved new investment projects for multinational microelectronics companies totaling 95 billion ringgit (about 140 billion RMB). In the first half of 2022, another 25 semiconductor industry chain-related projects were newly approved, with a total investment of 9.2 billion ringgit (about 13.9 billion RMB), including well-known companies such as AMD, Texas Instruments, and ROHM.

Vietnam: Accelerating Transfer

Currently, Vietnam's semiconductor industry is rapidly developing at various stages of the supply chain.

At the beginning of 2021, Intel invested $475 million in its Vietnamese business to build high-tech chip testing and packaging facilities in the Saigon High-Tech Park. Intel invested $1 billion in a chipset assembly and testing factory in Vietnam many years ago, and the factory remains an important production base for the Intel group to this day.

In the same year, South Korean tech giant Amkor Technology signed an agreement to build a $1.6 billion semiconductor manufacturing plant in Bac Ninh province.

In August last year, Samsung Electronics announced an investment of $850 million to produce semiconductor components in Vietnam, making Vietnam one of the four countries, along with South Korea, China, and the United States, to produce semiconductors for the world's largest memory chip manufacturers.

In addition, EDA software giant Synopsys is transferring its investment and engineering training from China to Vietnam. There are also companies such as Renesas, Applied Micro, Splendid, Sonion, etc., but the project scale is relatively small at present.Under the strategic layout and support of a number of international semiconductor giants, Vietnam's semiconductor industry is also expected to achieve rapid development. A report from the research institution Technavio shows that the compound annual growth rate (CAGR) of Vietnam's semiconductor industry from 2020 to 2024 will reach 19%, with an industry scale of $6.16 billion by 2024.

So far, Vietnam's semiconductor industry is still mainly focused on packaging and testing, with the low-profit packaging and testing industry gradually shifting out of China, providing them with opportunities. A report released by the market research company Technavio believes that from 2020 to 2025, Vietnam's semiconductor market will grow by $1.65 billion, with an annual growth rate of 6.52%.

Vietnam also has one of the most open economies in the world, with 15 free trade agreements. According to the VKFTA information, Vietnam has abolished 31 tariff items on electronic products and components imported from South Korea, which has also prompted the South Korean semiconductor giant Samsung to establish a factory in Vietnam.

Although Vietnam's semiconductor industry chain is relatively weak at present, Vietnam has the convenient geographical advantage of being adjacent to China. The industrial chain formed by the establishment of factories by Japanese and South Korean automotive giants in the local area has attracted investment from electronic manufacturing giants, moving towards a capital-intensive and technology-oriented electronic technology industry cluster. Local Vietnamese enterprises are also more actively involved in the IC industry, including capacity expansion and mergers and acquisitions, and may become an important part of the semiconductor market in the future.

For the prospects of Vietnam's semiconductor industry, its advantages lie in a large amount of cheap labor and land. The Vietnamese government is also participating in the global tax incentive competition, but some analysts, after thorough research, have indicated that Vietnam does not have enough well-educated workers, and Vietnam's bureaucratic institutions are often cumbersome and unpredictable.

For Vietnam, the next step is not only to attract foreign direct investment but also to integrate multinational companies into the Vietnamese economy. It is necessary to immediately eliminate the unfavorable factors in the country's investment environment, including backward infrastructure, weak intellectual property enforcement, cumbersome procedures, underdeveloped supplier networks, and a lack of local skilled personnel.

Thailand: A gathering place for Japanese semiconductor manufacturers

Thailand is the world's 13th largest manufacturing base for electronic products and components, and it is also a long-term investment gathering place for Japanese enterprises. Sony, Rohm, Samsung, Murata, Toshiba, Kyocera, and others have established fabs in Thailand. In addition, NXP, Western Digital, Microchip Technology, and others also have factories in Thailand.

In terms of policy, Thailand has approved tax incentives for semiconductor investment, granting a 10-year tax exemption for front-end capital and technology-intensive manufacturing such as wafer manufacturing. Projects investing more than 1.5 billion baht in advanced integrated circuits, IC substrates, and printed circuit boards can be exempted from corporate income tax for 8 years.

Previously, Thailand also introduced incentives for semiconductors. The Board of Investment of Thailand (BOI) stated that companies with R&D expenditures not less than 1% of their total sales or not less than 200 million baht in the first 3 years will be granted an additional 5 years of corporate income tax exemption, depending on the amount of R&D investment. Companies that increase R&D investment in their main business can enjoy a joint tax exemption period of up to 13 years.Thailand boasts a vast pool of human resources, and labor cost is a key factor in its competitiveness. Currently, over 750,000 people are employed in Thailand's electronics and electrical industry. The government is actively and vigorously working to improve workforce skills to support rapidly changing technology.

Philippines: The Capital of MLCCs

It is understood that the Philippines' largest export category is the semiconductor industry, with an export value of 40 billion US dollars in 2020, accounting for 62% of exports.

Among them, Manila, the capital of the Philippines, is known as the "MLCC factory concentration area", where there are major MLCC manufacturers such as Murata, Samsung, and Taiyo Yuden. Data shows that Murata's factory in Manila accounts for 15% of the company's overall capacity; Samsung's factory in Manila accounts for 40% of the company's overall capacity; Taiyo Yuden also has an MLCC production base in Manila.

In comparison, the Philippines' semiconductor industry layout is not very complete, mainly focusing on the production of electronic components, especially MLCCs. However, in recent years, it has also achieved diversification of the semiconductor industry with the layout of more related enterprises.

To maintain a competitive edge, the Philippine government is working hard to attract more semiconductor industry investment and has signed the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which includes a strategic investment priority plan for the electronics and semiconductor industries. It also provides incentives for job creation and value chain, national development, research and development, and the creation of new property and intellectual property rights.

Overall, while many countries have become semiconductor "new stars," the industry in Southeast Asia is developing rapidly. According to a report from Fortune Business Insights, the ASEAN semiconductor market is expected to grow from $26.91 billion in 2020 to $41.88 billion in 2028, with a compound annual growth rate of 6.1%. In addition, Southeast Asia has also become one of the most important semiconductor export regions.

India: Focusing on Chip Manufacturing

In addition to the aforementioned Southeast Asian countries, India has also been revealing its "chip ambitions" to the outside world from time to time recently, stating that semiconductor manufacturers in Asia face "geopolitical concerns" and "natural disaster risks," and India will become an "alternative destination."

India has a significant advantage in the field of chip design, with Bangalore being one of the world's largest chip design centers.But this also makes many people wonder: "Does India have a semiconductor manufacturing industry?" Because compared with other Southeast Asian countries, India's semiconductor performance is not outstanding. Data shows that in 2020, India imported $10.4 billion in hardware and software, while technology exports were only $300 million. In the past two years, the global pandemic has caused disruptions in semiconductor supply, and India's chip shortage problem is particularly prominent. The Indian government has realized that it is not reliable to rely entirely on the global supply chain in key areas such as semiconductor chips. Limited fiscal support and insufficient manufacturing capacity will seriously restrict the development of the country's semiconductor industry. In 2022, the Indian government announced that it plans to invest 760 billion rupees to create a production incentive plan, which will provide "globally competitive" incentives for semiconductor, display manufacturing and design industries, and create a "new era" for India's electronics manufacturing industry. At present, some companies have chosen to invest in India. Applied Materials, a major semiconductor equipment manufacturer in the United States, invested $50 million to establish R&D facilities in Bangalore; Micron has risen rapidly in India and has also established an Indian research center in Hyderabad; Singapore IGSS Ventures will invest $3.25 billion to establish a semiconductor high-tech park in Tamil Nadu, India; Hon Hai Group and Indian mining and manufacturing group Vedanta have reached a total of $19.4 billion agreement to build a wafer fab in India, which is expected to start operation in 2024. It is reported that TSMC is also seeking to set up a wafer fab in India and is currently negotiating with different government ministries to confirm the feasibility of setting up a factory in India. TSMC has set up a large office in Bangalore, India to support customers in Asia, Europe and North America, and to support and encourage Indian fabless chip companies. Another Taiwanese chip manufacturer, Powerchip, is also exploring negotiations with several Indian companies to help set up new chip facilities locally. Powerchip Chairman Huang Chongren once said that the Indian government is actively planning the construction of local wafer fabs and has approached Powerchip for negotiations, hoping that Powerchip will provide assistance in areas such as factory affairs and talents. At the same time, international chip giants such as Renesas Electronics, AMD, and Intel are also looking to set up bases in India, hoping to promote "Made in India" on a global scale. Recently, U.S. Secretary of Commerce Raymondo said in an interview that the United States is considering promoting cooperation with India in chip manufacturing. She revealed that she is expected to visit India with several U.S. CEOs in March to discuss related issues. According to the Indian Electronics and Semiconductor Association, the Indian semiconductor market was worth $27.2 billion in 2021 and is expected to more than double to $64 billion by 2026. In addition to recent news in India, Samsung Semiconductor India Research Institute (SSIR) announced a new partnership with the Indian Institute of Science (IISc). Written at the endOverall, these individual business decisions collectively form a more apparent trend: Southeast Asia is becoming one of the winners in the development process of the global semiconductor industry. Under the current industrial environment and situation, the semiconductor ecosystem of Southeast Asia and India has great potential for growth.

However, the process of "shifting from contract manufacturing to a technology hub" still faces many difficulties for Southeast Asian countries and India.

Semiconductors, as a highly capital, technology, and knowledge-intensive business, require comprehensive support from all aspects of the industry chain for research and development and manufacturing. At present, the Southeast Asian region has a high degree of dependence on foreign enterprises, and the way to develop the semiconductor industry is relatively singular, mainly engaged in labor-intensive and bottom-end of the industry chain, such as packaging and testing. From an industrial perspective, the advantage of labor cost is the main factor attracting foreign investment. This may also be the key factor hindering the further development of the semiconductor industry in Southeast Asia.

At present, almost all important countries have elevated the semiconductor industry to the national strategic level, but Europe, the United States, Japan, South Korea, Mainland China, and Taiwan still occupy a larger advantage in various links of the industry chain. Although Southeast Asian countries are actively investing in the development of the semiconductor industry, they are not enough to disturb the global market pattern in the short term, and there is still a need for further improvement and strengthening in aspects such as the integrity of the industry chain, talent education, infrastructure, and systems.

It is undeniable that the transfer of foreign investment in the semiconductor industry has a certain impact on our country, which may increase the pressure of employment and capital outflow. However, at the same time, China needs to actively adapt to this trend, accelerate the upgrade of the semiconductor industry, and respond to the various impacts and challenges brought about by industrial transfer.

In this regard, some industry insiders have made suggestions:

For the government level, it should improve the strategic status of the chip industry internally, increase support for the chip industry in all aspects, and improve the domestic chip R&D, manufacturing, and production capabilities. At the same time, it should strengthen the training of talent in the chip industry, and through talent projects, vigorously implement the "attract and retain" talent strategy, and encourage localities to customize mechanisms for introducing high-level talent in the chip industry.

Externally, it should make full use of the advantage of the domestic super-large-scale market, expand the channels for obtaining products through diversified imports and independent substitution, and do a good job in stabilizing the prices of raw materials for related industries. In addition, it should maintain an open cooperation development strategy, and continue to create a higher level of open economy through lower tariff levels, more convenient market access, more transparent market systems, and more attractive business environments, to offset the adverse effects caused by some economies "ganging up" on China's chip industry.

For Chinese enterprises, they should establish a semiconductor policy tracking system internally. Pay close attention to the latest developments in export control related to the United States, the European Union, and other economic entities, and adjust the company's strategic layout in a timely manner and continuously promote the construction of its own compliance system.

At the same time, the participation of more countries also means that cross-border chip transactions will face greater policy risks. Therefore, when signing contract terms, companies should set up relevant risk clauses in the agreement to reduce economic losses caused by policy adjustments. In addition, companies should also establish backup supply chains to avoid relying on a single source of materials, thereby reducing the risk of production and operation caused by the lack of materials.