Since Malaysia imposed a nationwide blockade on June 1, the originally peaceful Southeast Asia has once again been caught in the whirlpool of the epidemic. Calculated on a per capita basis, Malaysia’s daily rate of new cases has surpassed that of India, and the total number of new crown cases in Thailand, Vietnam and other countries has more than doubled in the past month. Southeast Asia, as a major semiconductor production center, is not as famous as East Asia, but it is actually a very important link in the industry chain. Against the background of repeated epidemics and a warming trade war, what kind of future Southeast Asia will face in terms of semiconductors.
The strength of Southeast Asia not to be underestimated
The General Administration of Customs issued an announcement in July 2020 that my country imported 226.81 billion yuan of integrated circuits from ASEAN, an increase of 23.8%, accounting for 24.2% of the total value of imports from ASEAN, and exports of integrated circuits to ASEAN were 89.68 billion yuan, an increase of 29.1%, accounting for 7.8% of the total export value of ASEAN. ASEAN includes Malaysia, Singapore, Thailand, Vietnam and other countries and is already one of the most important export regions of semiconductors in the world.
The biggest impact on the global semiconductor industry chain is Malaysia. This country is one of the world's most important semiconductor packaging and testing bases, accounting for 13% of the world's packaging and testing share, and it is also one of the world's 7 largest semiconductor export centers.
A total of 50 multinational companies, including Intel, AMD, NXP, ASE, Infineon, STMicroelectronics, Renesas, Texas Instruments and ASE, have assembly and testing and wafer production lines in Malaysia.
Penang in Malaysia is known as the Silicon Valley of the East. It has an ecosystem composed of more than 3,000 diversified local suppliers, covering fields including automation, software development, assembly, electronics, precision engineering and metal processing, including Intel, Broadcom, Micron, International companies, including Motorola, Dell, and iPhone supplier Jabil, have built manufacturing plants there.
Malaysia's share of the global back-end semiconductor manufacturing market is as high as 8%, of which Penang contributes 80%, occupying an advantageous position in the global microelectronic assembly and packaging and testing fields.
Singapore is another powerhouse of semiconductors in Southeast Asia and is known for its generous industrial policies. According to estimates by Boston Consulting Group (BCG), if the cost of operating a cutting-edge memory factory in the United States for 10 years is set at 100, it will only be 79 in Singapore. The main reason is the difference in preferential policies for equipment investment and corporate tax.
In the first decade of the 21st century, the number of semiconductor-related companies in Singapore has exceeded 300, from North America, Europe, Japan and other regions, including 40 IC design companies, 14 silicon fabs, and 8 special fabs. , 20 packaging and testing companies, and some companies in charge of substrate materials, manufacturing equipment, photomasks and other industries.
On January 18, 2021, the Singaporean government released data stating that exports in 2020 will reach 172.4 billion Singapore dollars, an increase of 4.3% over 2019. With the increase in global semiconductor demand, the export of electronic components such as integrated circuits and transistors has been strong, so the overall export value has maintained a growth momentum under the epidemic.
Compared with Singapore and Malaysia, the layout of the semiconductor industry in the Philippines is not complete, focusing on the production of electronic components, especially MLCC. International MLCC manufacturers such as Murata, Samsung Electro-Mechanics and Taiyo Yuden have factories in Manila, the capital of the Philippines. As a result, Manila gained the title of "MLCC Factory Gathering Place".
Thailand and the Philippines are in similar conditions. They are stronger than hard disk production (including hard disk drives), and are currently the world's second largest hard disk exporter and producer. In 2017, the total trade volume of Thailand's electronics industry was approximately US$71 billion, of which export revenue was approximately US$37 billion.
Vietnam is the late star of Southeast Asian semiconductors. A report by Technavio, a global technology research consulting company, predicted that the Vietnamese semiconductor market will grow by nearly 19% to US$6.16 billion from 2020 to 2024. Vietnam has a population of 90 million and its population composition is very young, which is important for the development of all industries, so it has huge potential.
In 2013, Vietnam's semiconductor technology industry attracted the attention of the Vietnamese government and was included in the country's nine key product catalogs at that time. In that year, in order to achieve the goal of achieving an average annual turnover of 2 billion US dollars, in addition to government support, relevant Vietnamese enterprises and colleges also strengthened the training of technical development talents, increased integrated circuit factories, and focused on integrating the semiconductor technology industry with Integrate national development strategies.
At present, Intel, Samsung and Jabil have been operating in the Saigon Hi-Tech Park in Ho Chi Minh City for many years. Nowadays, many foreign companies choose to invest in the provinces surrounding Ho Chi Minh City: Dong Nai, Binh Duong, Tay Ninh, Hanoi and other places.
Due to Southeast Asia's special position in the semiconductor industry and the suspension of the epidemic in 2020, the industry is paying special attention to the current situation.
Inextricably linked with China
Southeast Asia is also a beneficiary of the transfer of the semiconductor industry. Singapore and Malaysia began to undertake some semiconductor industries including chips from Japan and South Korea in the 1990s. Through 30 years of development, semiconductors have become the pillar industries of these two countries. The Philippines, Thailand, and Vietnam also see great prospects, hoping to attract more international companies with low labor and land costs.
Semiconductors in Southeast Asia and China have very close ties. As mentioned above, the semiconductor trade between China and Southeast Asian countries has become the most important part of bilateral trade. According to statistics, China's imports from ASEAN increased by 24% year-on-year, and its exports to ASEAN increased by 29% year-on-year (all settled in RMB). The semiconductor alone drove the growth rate of China's trade with ASEAN by 3.2 percentage points.
Except for the traditional countries such as Malaysia and Singapore, the semiconductor trade between China and emerging market countries is also expanding.
According to statistics from the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, since August 2016, my country's exports of integrated circuits to Vietnam have increased substantially. As of May 2020, Vietnam’s monthly imports of integrated circuit products from China have increased from US$100 million in August 2016 to nearly US$1.2 billion today, with an average monthly growth rate of more than 30%.
Conversely, emerging countries like Vietnam are also inseparable from China if they want to develop their own semiconductor industries. Technavio has predicted that Vietnam's semiconductor market will increase by USD 6.16 billion (equivalent to RMB 42.3 billion) during 2020-2024. According to the analysis of industry insiders, the international semiconductor giants who want to open up the Vietnamese market value that Vietnam is close to China, the world's largest industrial manufacturing country, and can obtain a stable supply of key equipment parts.
Whirlpool and the future
After all, the impact of the epidemic is temporary. The factors affecting the development of semiconductors in Southeast Asia are the trade war in the short term, and it will be attributed to itself in the long term.
With the outbreak of the trade war, many American and European manufacturers have shifted their manufacturing and purchasing operations from China to Southeast Asia. After the escalation of the Sino-US trade war, these companies were able to continue to export to the United States, and as a result, exports from Southeast Asian countries to the United States grew rapidly.
At the same time, foreign capital has also begun to favor Southeast Asia because of the trade war. Take Malaysia as an example. Its foreign direct investment in the first half of 2020 has increased by 11 times compared with the past, reaching US$2 billion, which is even higher than the total investment received in any year in the past.
However, can this wave of dividends support the future of Southeast Asian semiconductors?
Southeast Asian countries all hope to develop their own semiconductor ecology and eventually get rid of the status of processing factories.
In Malaysia, many local semiconductors and semiconductor-related companies, especially publicly listed companies, are mostly involved in the middle and low end of the semiconductor industry chain, providing services for foreign semiconductor manufacturers, brand owners, IC developers and manufacturers .
From 2018 to 2022, the average annual revenue growth rate of Malaysia's local electronics sector is expected to reach 9.6%. "Whether it is EMS, OSAT, or R&D and design of electronic products, Malaysian companies have successfully consolidated their position in the global supply chain." A foreign observer gave this Evaluation.
The Malaysian government also plans to provide tax incentives to promote the country's high-value-added semiconductor industry.
In Singapore, the government has re-adjusted its strategy and launched a multi-billion-dollar incentive program to attract foreign investment, while vigorously developing smart manufacturing, including new automation technologies and the Internet of Things.
The Future Economic Council of Singapore regards precision manufacturing as a key growth driver for Singapore. With the support of the "Research, Innovation and Enterprise 2020 Plan", the Singapore government allocated S$3.2 billion to invest in precision manufacturing engineering.
Vietnam is also accelerating the development of its local semiconductor industry. According to local media reports, Vietnam’s national industrial and high-tech parks in Hanoi, Ho Chi Minh City, Hong Kong, Thai Nguyen, Bac Ninh and Bac Giang will play an important role in the development of the country’s IC industry and have attracted investment from foreign companies.
However, the industry still has doubts about the future of Southeast Asian semiconductors. Senior industry analyst Zheng Yue believes that even if there is a decoupling between China and the United States in the future, semiconductors in Southeast Asia will not undergo too many changes.
"The most important thing is the lack of talents," Zheng Yue said, "Semiconductor talent training is a systematic project. Southeast Asian countries (except for a few countries) do not have a foundation in this area, and there are currently no corresponding plans."
The era of cheap labor as a competitive factor is passing. A domestic expert once pointed out that "education, training, and infrastructure constitute the factors of future competitiveness."
"In addition, the development of semiconductors also needs to see which projects are most suitable for their own circumstances, but there are already leading countries in each field, and it will be very difficult for Southeast Asian countries that want to catch up." Zheng Yue emphasized.
In the global semiconductor industry chain, each country or region has its most suitable positioning, which is also a situation formed after years of gaming. For Southeast Asian countries that want to play a more important role, the road ahead will not be smooth.