Southeast Asian countries are becoming one of the beneficiary regions of the semiconductor industry migration. From IC design, testing, packaging to downstream application terminal factories, almost all comers are welcome in Southeast Asia.
Major global terminal manufacturers set up factories in Southeast Asia one after another
In recent years, under the influence of factors such as China’s weakening demographic dividend, rising labor costs, industrial upgrading, and Sino-US trade frictions, companies from various countries have begun to gradually shift their production capacity in China to Southeast Asia, where costs are lower.
In terms of consumer electronics, among the major countries in Southeast Asia, Samsung mobile phones occupy a leading position and have a strong influence in the Southeast Asian market. Among them, Samsung Group’s investment in Vietnam has exceeded 20 billion US dollars, and it has built Samsung’s largest production base in the world locally, contributing 1/3 of Samsung’s global electronic product shipments.
Apple has some influence in Southeast Asia. Since the US-China trade friction in 2018, the number of Apple manufacturing plants in Vietnam, Malaysia, Singapore and Thailand has increased from 62 to 97. In addition, relying on the advantages of the demographic dividend, India has become Apple’s main transfer destination, and the number of factories has increased from 7 to 11. In 2022, Apple already produced 6.5 million iPhones in India, and it is estimated that by 2025, Apple may transfer as much as 25% of iPhone production to India.
Judging from the situation of major ODM/EMS, Apple’s two major OEMs, Hon Hai and Pegatron, have recently stated that they will include Southeast Asia in their 2023 expansion plan. Among them, Hon Hai announced in February that it had spent about 1.48 trillion VND (about 63 million U.S. dollars) to acquire land in Bac Giang Province, Vietnam, to expand production capacity. In addition, Pegatron India’s Chennai plant has been put into production in the second half of 2022. The company stated that it will allocate 300 million to 350 million US dollars of capital expenditure this year to continue to use it for the expansion plan of the Southeast Asian plant.
In terms of automobiles, a group of automobile companies represented by Tesla, BYD, and SAIC Motor have continuously increased their investment in Southeast Asian countries. Among them, Malaysia, Vietnam, Thailand, the Philippines, and Indonesia have received a lot of attention and investment enthusiasm.
Specifically, Tesla has entered the Singapore and Thailand markets in Southeast Asia, and plans to sign a contract with the Indonesian government for a new factory with an annual production capacity of 1 million vehicles in the future. In addition to Tesla, BYD has now confirmed the construction of Southeast Asia’s first electric vehicle production plant in Thailand with an annual capacity of 150,000 vehicles, which is expected to start production in 2024. In addition, BYD is also in talks with the possibility of opening a new electric vehicle factory in Indonesia.
In terms of industry, the German industrial giant Siemens said that it is currently looking for plans to invest in Southeast Asia in order to achieve a balance of diversification in the Chinese market. In terms of servers/data centers, major manufacturers such as Google, AWS, Meta, and Microsoft have begun to relocate the L6 server production lines of most ODM partners to Taiwan, and plan to set up new production lines in Southeast Asia in case of emergencies, further reducing geopolitical risk. Among them, two ODM companies, Wistron and Quanta, have stated that they will meet the needs of American customers, and it is expected to set up production bases in Malaysia, Vietnam, Thailand and other places for dispatch in 2023.
The electronics industry in Southeast Asian countries ushered in rapid development
Driven by the continuous migration of many terminal manufacturers such as mobile phones, automobiles, and data centers, the electronics industry in Southeast Asian countries has ushered in rapid development in recent years. The production capacity of electronic components accounts for 20% of the world, and a certain industrial agglomeration effect has been formed in specific fields such as manufacturing, packaging and testing, MLCC, PCB, and component assembly.
From the perspective of industrial undertaking, the industries of various countries have their own characteristics according to local conditions. Among them, India, relying on its population advantage, attracted a large number of mobile phone and home appliance companies to build factories in India in the early days. Singapore currently attracts a large number of silicon wafer manufacturing companies by virtue of its economic first-mover advantage although it is small in size. Malaysia has a relatively complete industrial chain mainly in the field of back-end packaging and testing. In addition, Vietnam, the Philippines, Thailand, and Indonesia also have certain industrial advantages in parts assembly, MLCC, hard drives, and automobiles.
Vietnam is the biggest beneficiary of the relocation of manufacturing from China. It not only has Samsung’s largest production base in the world, but also has the number of chain companies of Apple in Vietnam rising from 15 in 2018 to 21 affacted by Apple. At present, many electronic component production bases such as Hon Hai and Compal have gathered in this place. Buoyed by the expansion of the electronics manufacturing industry, Vietnam has become the fastest growing economy in Southeast Asia.
As the most important semiconductor manufacturing base in Southeast Asia, Singapore has fabs such as UMC, GlobalFoundries, and its production capacity accounts for nearly 5% of the global wafer production capacity. In addition, Singapore also has equipment factories such as Advan, Teradyne, TEL, Lam Group, and Applied Materials, accounting for 19% of the semiconductor equipment market. Also, Singapore is also the location of Micron’s global headquarters and Infineon’s Asia-Pacific headquarters. Distribution giants Avnet and Future also have factories and distribution networks in Singapore.
Penang in Malaysia is known as the “Eastern Silicon Valley” and has a history of more than 50 years of electrical and electronic industry development. More than 50 semiconductor giants such as AMD, Infineon, Intel, Texas Instruments and STMicroelectronics have invested in Malaysia, and packaging and testing manufacturers including ASE and Amkor have also set up factories in Malaysia. At present, Malaysia has a market share of 13% in the field of semiconductor packaging and has become one of the world’s seven largest chip exporters.
The development of the global electronics manufacturing industry
In fact, since the 1970s, the global electronics manufacturing industry has undergone four migrations.
① In the 1970s, Japan undertook the first migration of the global electronics manufacturing industry, and the semiconductor industry model gradually transformed into an IDM model, which boosted the development of the Japanese semiconductor industry;
②Beginning in the 1990s, the separation mode of “OEM + Design” emerged. Semiconductor manufacturing migrated from Japan to Taiwan and South Korea;
③At the beginning of the 21st century, developed countries such as Europe, America and Japan, and new industrialized economies such as the “Four Little Tigers” in Asia transferred labor-intensive and low-tech industries to developing countries, and China became the largest undertaking place for the third industrial migration;
④After 2018, with the disappearance of China ‘s demographic dividend, rising labor costs and trade frictions, manufacturing began to shift from China to low-cost countries such as Vietnam and India.
From the perspective of the relocated industries, the early relocations were basically low-end consumer electronics and home appliance manufacturing, assembly, packaging and testing. However, with the continuous downturn of consumer electronics, many Southeast Asian countries have begun to introduce emerging industries such as automobiles, industries, and servers in order to stimulate their own economic development. In addition to assembly and packaging and testing, the industrial chain will be further extended to the upstream high-value industrial chains such as EDA/IP, equipment/materials, and design.
From the perspective of the overall economic development level, Southeast Asia is currently equivalent to China in the early 2000s. The market is full of vitality and the economy is in a stage of rapid growth. For enterprises, taking Southeast Asia as a priority can bring greater driving force for the future development of enterprises.