Geopolitical tensions and economic uncertainties are prompting Asian semiconductor companies to accelerate their pursuit of geographical diversification. 

Over the next five years, Asia is expected to maintain its leading position in global semiconductor manufacturing, leveraging its cost advantages, mature industrial ecosystem, and deep technological expertise.

A recent report from Moody's, an international credit ratings agency, indicates that Asia currently controls over 75% of global chip manufacturing capacity, encompassing logic chips, memory chips, and DAO chips (referring to discrete, analog, optoelectronic, and sensor chips), as well as the supply chain for key materials.

Moody's notes that the assembly, testing, and packaging market is currently concentrated in North Asia, but Southeast Asia is also steadily expanding its capacity. Southeast Asia currently boasts the second-largest number of related facilities after mainland China and Taiwan, and is projected to account for approximately 24% of global capacity by 2032.

By market segment, Malaysia maintains its leading position in the back-end segment of semiconductor manufacturing. With continued growth in foreign investment, Vietnam's capacity is expected to increase to 8% by 2032. In contrast, Singapore and Thailand's share of the back-end market will decline.

Moody's notes that despite increasing overseas investment and strong growth in mainland China, Taiwan, South Korea, and Japan will continue to dominate high-end chip manufacturing.

The report also states that semiconductors have become a key engine of export and manufacturing growth in Southeast Asia. Last year, semiconductors accounted for 26% of Malaysia's total merchandise exports, and 32% of the Philippines'. Vietnam's share of semiconductor exports has also steadily increased, reaching approximately 6% by 2023.

With demand driven by artificial intelligence, high-performance computing, and 5G technologies, Southeast Asia is well-positioned to capitalize on continued growth in semiconductor exports. However, short-term risks remain. Potential US tariffs could weaken Southeast Asia's attractiveness as a base for exports to the US. This could disrupt export growth, particularly weighing on export-oriented economies such as Vietnam, Malaysia, and Singapore.

Moody's believes that while South and Southeast Asian economies are emerging as back-end hubs, technological gaps limit their ability to capture greater economic value.

Except for Singapore, the region's innovation ecosystem remains underdeveloped, with limited research infrastructure, capital, and global connectivity. Furthermore, regulatory fragmentation and weak intellectual property enforcement hinder investor confidence and limit technology diffusion.

"While Malaysia and Vietnam host major factories for multinational corporations such as Intel and Samsung Electronics, they remain focused on basic assembly and have made limited progress in scaling higher-value businesses."

The report also noted that supply shortages during the pandemic exposed the vulnerability of overly concentrated regional supply chains, while ongoing geopolitical tensions between China and the United States have further heightened global interest in supply chain diversification.

While the United States maintains its lead in semiconductor design, core intellectual property, and electronic design automation, the actual manufacturing supply chain remains primarily concentrated in Asia.

Moody's noted that Asia's competitive advantages lie in cost, highly integrated ecosystems, and a skilled labor pool. For example, labor costs in the United States are approximately two to four times higher than in Asia. The cost of manufacturing wafers in the United States is approximately 50% higher than in Taiwan, primarily due to higher construction and operating costs, including labor, land, and utilities.

In addition to wages, utility and infrastructure costs are significantly lower at Asian manufacturing plants. Taiwan offers utility subsidies of up to 30%.

"Expanding semiconductor businesses outside of Asia remains commercially challenging due to high capital intensity and less competitive cost structures," the report said.

The Boston Consulting Group (BCG) estimates that establishing a fully self-sufficient local supply chain would require an additional $1 trillion in upfront capital investment, potentially leading to a 35% to 65% increase in chip prices, a cost that would ultimately be passed on to consumers.

Source: Content from Lianhe Zaobao

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