How much of China s electronic semiconductor manufacturing will be replaced by Southeast Asia?

Visual China.

Text |Semiconductor Industry Vertical and Horizontal , Author |Changqiu.

Huang Hanzhou said that Chinese mainland has spent 20 years to improve the overall ** chain to achieve the most efficient and low-cost production mode, and now, some production capacity must be moved to Southeast Asia, but Chinese mainland has some conditions that Southeast Asia does not have, such as infrastructure and operation capabilities. At this stage, the cost of production in Southeast Asia is still high, and Qisda Group has set up a factory in North Vietnam, and the components can be shipped from South China. However, short-term, large-scale investment has caused a manpower gap, Vietnam's total population is 90 million, not only there is a shortage of online operators, Vietnam does not have as abundant engineering manpower as Chinese mainland, Huang Hanzhou bluntly said, training engineers will take at least 5 or 6 years.

In the past, Qisda had investment and factory experience in the United Kingdom, the Czech Republic, Malaysia, and even Brazil, but in the end they were all closed, and the uncompetitive production lines had to be withdrawn.

In the past 20 years, Southeast Asia has been an important region for the export of semiconductor products, among which Singapore, Malaysia, the Philippines and other countries have a large export volume. Singapore has maintained its position as a net exporter of semiconductor products, and since 2018, the net exports of Malaysia and the Philippines have grown rapidly, and in 2022, Malaysia surpassed Singapore to become the largest net exporter of ASEAN. In recent years, Vietnam's electronics manufacturing industry has grown rapidly, allowing the country to remain the largest importer of semiconductor products in ASEAN since 2012.

Malaysia, the Philippines, Vietnam, Thailand's main layout of the semiconductor industry for the back-end packaging and testing, a number of the world's leading IDM, OSAT have a large share of back-end packaging and testing capacity in Southeast Asia, Infineon, TI, STMicroelectronics, NXP, as well as ASE Group, Amkor, Changdian Technology, Tongfu Microelectronics, etc., all have back-end packaging and testing production bases in Southeast Asia. According to SEMI statistics, by the end of 2022, the number of packaging and testing factories in Southeast Asia was 95, accounting for 196%。

As of April 2022, the world's top 20 semiconductor companies have a total of 27 manufacturing bases, 9 R&D centers, 13 sales centers and 7 regional headquarters in ASEAN. Among them, most of them are companies headquartered in the United States and the European Union, such as Intel, TI, Micron, NVIDIA, Qualcomm, ASML, STMicroelectronics, Infineon, ADI, Microchip, onsemi, etc.

In terms of local enterprises in Southeast Asia, excellent semiconductor companies such as UTAC, HANA Group, INARI, Vitrox, and SF Semicon have emerged. However, the number of local semiconductor companies in the Philippines, Thailand, Vietnam and other countries is relatively small, and the global share in their respective markets is relatively low, and they are still in the early stage of development.

In terms of front-end wafer manufacturing capacity, Southeast Asia is weak, accounting for only a small part of the global share, with the main capacity located in Singapore and Malaysia. According to SEMI statistics, as of the end of 2022, there were 63 wafer fabs in Southeast Asia, accounting for 43%。

Let's take a look at the development of the semiconductor industry in Southeast Asian countries represented by Singapore, Vietnam, Malaysia, the Philippines, and Thailand.

According to Statista, in 2022, Singapore's semiconductor output value accounted for 7% of its GDP, and globally, in 2022, Singapore accounted for 11% of the global semiconductor output value. Since 2020, a number of international semiconductor companies such as Micron, Infineon, and GF have continued to increase their investment in Singapore, and at present, Singapore has representative enterprises in all aspects from upstream design and manufacturing to downstream packaging and testing, including wafer foundries such as GF and VIS and NOVA, packaging and testing plants such as ASE and UTAC, as well as semiconductor equipment manufacturers such as Teradyne and TEL.

Singapore's Minister for Trade and Industry Gan Kim Yong said in March 2022 that he would implement the "Manufacturing Vision 2030" and continue to strive for a total of 50% growth in manufacturing value added over the next 10 years. In 2020, the National Research Society of Singapore announced that it would launch the "Research, Innovation and Enterprise 2025 Plan" in 2020-2025, devoting 1% of GDP to research and innovation every year, of which 26% will be used to support the four key areas represented by semiconductors.

Semiconductor companies with plans to expand production in Singapore include: GF, which announced an investment of US$4 billion in 2021 to expand production capacity in Singapore and expand the annual production capacity of its Singapore factory to 1.5 million chips by 2023; Siltronic AG, a wafer manufacturing company, invested US$2.2 billion in 2021 to build a new 12-inch wafer high-end substrate factory in Singapore; UMC announced in February 2022 that it will expand its Singapore factory to produce 22 28nm chips, which are scheduled to be put into production by the end of 2024, and the first phase of the new factory will have a monthly production capacity of 30,000 wafers. Soitec, a French wafer materials company, announced an investment of 3US$2.6 billion expansion of Singapore facility for production of 12-inch SOI wafers; Siliconbox, a Singapore-based semiconductor company, announced that it will invest US$2 billion to build a wafer foundry and plan to provide chiplet-related services.

The development of Vietnam's semiconductor industry relies on foreign investment and equipment imports, and according to statistics from the General Administration of Customs, in 2022, 99% of Vietnam's hardware was imported. At present, Vietnam's semiconductor industry is mainly concentrated in the Red River Delta and Ho Chi Minh City, among which, the Red River Delta region around Hanoi is more attractive to enterprises.

In September 2023, the White House announced that the United States and Vietnam have established a new semiconductor partnership to provide Vietnam with hands-on teaching labs and training courses for semiconductor packaging and testing, and sustainable semiconductor chain support for U.S. industry, consumers, and workers, with an initial $2 million in seed funding from the United States**.

In November 2021, Amkor announced an investment of US$1.6 billion in Bac Ninh Province, Vietnam, to build the largest packaging and testing plant in Vietnam and the world's largest packaging and testing plant in Amkor; In February 2022, Samsung Electronics announced that it would add an additional 8Invest US$500 million to establish a cutting-edge substrate mass production line for semiconductor packaging for the production of FC-BGA high-performance semiconductor packaging substrates; In February 2023, Intel announced an additional $1 billion increase in production capacity in Vietnam.

According to MSIA statistics, in 2022, Malaysia will contribute 7% of the world's semiconductor** value, and its chip packaging and testing industry will account for 13% of the world's total. At present, Malaysia has 8 front-end wafer manufacturing plants, 24 back-end packaging and testing plants, and 8 semiconductor equipment enterprise bases, mainly located in Penang and Kedah in the north of West Malaysia, and Negeri Sembilan, Malacca, and Johor in the south. Among them, Penang is the largest semiconductor cluster in Malaysia, and since Penang became a free trade zone in the 70s of the last century, it has attracted companies such as Intel, AMD, and HP, and by the end of 2022, it has gathered thousands of electronics companies.

At present, a number of leading international semiconductor companies such as Intel and ASE have plans to increase capital and expand production in Malaysia, mainly focusing on the back-end packaging and testing links. Intel announced in 2021 that it would invest US$7 billion to expand production in Malaysia, mainly investing in a 3D packaging and testing plant based on FoverOS technology, which is expected to be mass-produced by the end of 2024. In 2022, Japan Ferrotec Holdings established a manufacturing plant in Kulim Hi-Tech Park, near Kedah, for electromechanical assembly of semiconductor equipment and advanced materials manufacturing; In November 2022, ASE commenced construction of a US$300 million expansion project at its Penang factory, with factories 4 and 5 expected to be completed in 2025. In June 2023, TI announced a US$3 billion investment in Malaysia to build two packaging and testing plants, which will start construction in the second half of 2023 and plan to start mass production in 2025.

Since the 70s of the last century, TI, onsemi and other companies have invested in the Philippines to set up factories, and in 2022, semiconductors have become the largest export industry in the Philippines. Since 1990, Japanese companies such as Toshiba and Rohm have transferred production capacity to the Philippines. With abundant labor resources, the Philippines has attracted a large number of semiconductor packaging and testing and assembly enterprises in the United States, Japan and Europe to invest in and build factories, and has gradually formed a semiconductor industry pattern dominated by packaging and testing and assembly enterprises. However, there are few local semiconductor companies in the Philippines, mainly represented by IMI and SFA Semicon, which mainly provide packaging and testing foundry services.

According to SEIPI statistics, as of April 2023, the Philippine electronics exports accounted for about 59 percent of its total national exports28%, of which SMS (semiconductor manufacturing services) accounts for about 73%. With a key location and a large and relatively inexpensive workforce, international manufacturers such as Amkor, onsemi, ROHM, and STMicroelectronics have built packaging and testing facilities in the Philippines. The Philippine semiconductor industry is concentrated in Metro Manila, Calabarzon, North and Central Luzon and Cebu four major regions, among which, Metro Manila is the mainstay, gathering the packaging and testing plants of internationally renowned companies such as AMKOR and onsemi, as well as Toshiba's hard disk assembly plant.

According to Thailand's Board of Investment, the semiconductor industry has become the country's largest export industry. According to data from China Economic and Trade Network, in 2020, Thailand was the world's second largest producer and exporter of hard drives. Thailand has three major semiconductor industry clusters: Bangkok electronics cluster, where companies from Taiwan, Japan and other regions are concentrated; Bangkok's Eastern Economic Corridor, which has excellent educational resources and infrastructure; The Northeast, North and South regions are also important semiconductor clusters in Thailand.

The following is an introduction to the problems faced by the development of the semiconductor industry in Southeast Asia, especially in terms of industrial policy and human resources, and here we will mainly introduce the situation of three countries: Malaysia, Vietnam and India.

Currently, many Malaysian companies, especially small and medium-sized enterprises, still rely on unskilled foreign labor. Many people do not believe that Malaysia is capable of producing automated machines and precision tools at the level of Germany or Japan.

The semiconductor industry often complains about the lack of talent in Malaysia, and the country is also facing wage problems, and many skilled workers in Malaysia are increasingly going to Singapore to seek better-paying jobs. Low wages are a systemic problem that creates a vicious cycle of severe shortages of skilled jobs.

According to a report released by the Malaysian Council of Engineers in 2022, as of 2021, more than one-third of engineering graduates earn less than RM2,000 per month in starting salaries, while 90% of engineering graduates earn less than RM3,000 per month. For an adult family in Kuala Lumpur, this is barely enough to make ends meet. One consequence of low wages in the electrical and electronics industry is that students are reluctant to pursue full-time higher education or work in STEM fields.

At the end of 2022, Malaysia's engineer-to-population ratio was 1:170, well below the ideal target of 1:100. Those who decide to pursue a career in STEM often seek other part-time jobs to supplement their income. Many Malaysian engineering graduates also choose to work in Singapore, earning around S$2,800-3,400 (about RM9,750-11,840) per month as entry-level engineers.

Malaysia needs to invest more in STEM education, as well as technical and vocational training in schools, schools and universities, to develop a stronger workforce. But most importantly, Malaysia needs to raise the wages of skilled workers to address the industry's long-standing problems, including brain drain and underemployment.

According to Vietnam's Ministry of Information and Communications**, the value of Vietnam's semiconductor industry will grow to $200-30 billion by 2030. But among the more than 50 chip design companies in the country, only two are local companies: FPT Industrial and Viettel. There are also very few electronics manufacturers in Vietnam, and according to the country's General Administration of Customs, 99% of Vietnam's electronics exports come from foreign companies.

Binh of Vietnam National University said that the biggest obstacle to the development of the country's semiconductor industry is the market, chip production must be carried out in large quantities, and factories must be running all the time, but the question is, who will consume these products in Vietnam? Are there any supportive policies for this emerging industry? If Vietnam only focuses on basic and affordable chips, it will have to compete with the products of developed countries on ** and ultimately lose. He believes that 4 factors are crucial for the success of the semiconductor industry: university research, companies that understand and are willing to invest in the market, experienced experts, and mentorship. Semiconductor expert Nguyen Phuc Vinh believes that the support of ** is crucial for the development of the industry.

In terms of talent, Vietnam has about 5,000 semiconductor manufacturing engineers, and the scale of such a local talent pool is too small to be completely insufficient. Therefore, the relevant authorities in Vietnam have proposed policies to encourage local and international companies to invest in innovation centers in Vietnam's laboratories, research institutes and universities, with the aim of cultivating researchers who can master and utilize the core technologies in this field.

In India, there are more than 100,000 IC design engineers working in chip design and services. However, while India can produce 1.5 million new engineers a year, most of them are unemployable because of the quality of knowledge imparted in engineering and technology colleges, which is severely understaffed, resulting in a utilization rate of only 50 per cent of the available engineering seats each year, and only one in six of the 1.5 million engineering students graduating each year are employable.

To make up for the semiconductor labor shortage, Prime Minister Narendra Modi said in a speech at the Semiconductor Conference 2023 in India that about 300 universities will start offering semiconductor education to their students.

It is undeniable that in recent years, some chip packaging and electronic product manufacturing businesses and production lines have moved from Chinese mainland to Southeast Asia. The reason why it is Southeast Asia is because it has a certain semiconductor industry base and cheap human resources are relatively abundant, which are in line with the appetite of international semiconductor manufacturers.

However, there are many problems and defects in the education level and production efficiency of semiconductor practitioners in Southeast Asia, as well as the construction and improvement level of the local industrial chain, which are the strengths of Chinese mainland. In the foreseeable future, efficient production capacity and a complete industrial chain system are still the biggest advantages of Chinese mainland, and it is very difficult for Southeast Asia to improve and catch up in these aspects.

However, it is inevitable that Southeast Asia will eat up part of the original chip packaging and testing and electronic product manufacturing capacity in Chinese mainland, and in this process, while maintaining the original production efficiency advantages, Chinese mainland must continue to improve its advanced manufacturing capabilities, only in this way can it take the initiative in various competitions in the future.