With an annual sales value exceeding half a trillion dollars, semiconductors are a critical component in various products, including data centers, laptops, mobile phones, cars, and more. The global semiconductor industry in Southeast Asia faces both challenges and opportunities as countries seek to diversify supply chains and navigate the dynamics of chip nationalism.

These shifts are primarily influenced by various factors, including increased production demand for end products like EVs and IoT and AI applications, economic uncertainty leading to decreased consumer demand, regulatory efforts for self-reliance and diversification, and multinational corporations seeking to diversify their supply chains.

The China Factor

The semiconductor industry is just one of many industries impacted by supply chain diversification efforts, especially in light of the pandemic and geopolitical tensions. Countries like the US and Europe are looking to reduce their dependence on China for semiconductor supplies. In response, China is pushing for self-reliance in chip production and has accelerated its efforts to become a significant player in the semiconductor market.

More Global Activity Coming to SEA

Southeast Asia, particularly Singapore and Malaysia, has emerged as hotspots for semiconductor manufacturing. Singapore, supported by the government, has attracted major players and investments. Malaysia boasts a history of skilled labor in the sector and houses strong domestic and foreign companies. Countries like Vietnam and Thailand are also positioning themselves to benefit from the industry’s growth.

Singapore, as a key player in the region, holds 11% of the global semiconductor market share and contributes 7% to its GDP. It has attracted international players, who have set up production hubs and factories, and has become a magnet for talent influx, including founders and PhDs, driving innovation in the sector.

Vietnam, another beneficiary of supply chain diversification, witnessed impressive growth, achieving US$562 million in annual revenue by February 2023. Vietnam has attracted major players such as Samsung, which invested US$220 million in an R&D center in Hanoi in 2022, and Intel, have made substantial investments amounting to US$1.5 billion by early 2023 (with plans then to increase it even further).

With 13% of the global semiconductor market share and 7% of global trade, Malaysia, historically recognized for its skilled labor, has continued to attract investments into its E&E and semiconductor industry, like the US$7 billion plant by Intel in 2021 and the new US$2.6 billion fab plant by Infineon in 2022.

Thailand, with a semiconductor market value of US$5.7 billion in 2022, is carving a niche for itself in the car manufacturing sector, aiming to export over 1 million cars by the end of 2023.

Automotive Chips and Upstream Demand: Is this enough?

One of the notable opportunities lies in the automotive sector, where the demand for semiconductor chips has grown exponentially. Cars now require approximately ten times more chip content than before, with chip content in luxury cars such as BMWs reaching around $5,000 and even more for electric vehicles due to advanced technologies like AI integration and battery management.

Challenges for Startups

While opportunities abound in the Southeast Asian semiconductor industry, challenges persist for startups seeking to innovate in this capital-intensive field. However, initiatives by countries like Singapore to foster talent and create an attractive environment for researchers and entrepreneurs may pave the way for growth in the startup ecosystem.

The global semiconductor industry in Southeast Asia remains in a state of transformation, fueled by various drivers such as supply chain diversification and FDI investments. As countries and multinational corporations seek to adapt to economic uncertainties and regulatory changes, opportunities emerge for the region. The automotive sector’s exponential growth in demand for semiconductor chips and the increased need for smart devices and AI integration capabilities offer promising prospects.

Southeast Asian countries like Singapore, Vietnam, Malaysia, and Thailand have strategically positioned themselves to benefit from these shifts. Although challenges persist for startups, the support and initiatives provided by governments may enable the industry to flourish further. As Southeast Asia continues to navigate the challenges and opportunities, it remains a pivotal player in the global semiconductor landscape.

More insights in our conversation with Reuters Asia Technology correspondent Fanny Potkin: