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India, Vietnam may benefit as chipmakers shift from China amid US curbs


Illustration showing numbers, codes and glowing circuits on a black background.

Yuichiro Chino | Moment | beautiful pictures

The US restriction on chip exports to China is the latest move that has prompted companies to consider shifting some of their chip production capacity to neighboring Vietnam and India.

However, experts told CNBC that the Biden administration’s semiconductor export restrictions on China are unlikely to disrupt the global game of chip supremacy.

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Walter Kuijpers, a Singapore-based partner at professional services firm, said the number of recent inquiries to KPMG from customers and potential customers about expanding its chip manufacturing capabilities across Southeast Asia has grown by 30% to 40% from pre-pandemic levels.

“Companies are seeing the benefits of decoupling supply chains instead of relying on a single point… Recent geopolitical developments are expected to accelerate strategies already in place,” said Kuijpers. this implementation”.

October, America begins ask companies to obtain a license to export advanced semiconductors or related manufacturing equipment to China. Those businesses also need Washington’s approval if they use American equipment to make specific high-end chips to sell to China.

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Semiconductor companies have been trying to find a solution.

Taiwan’s chip manufacturing powerhouse TSMC and Korean rivals Samsung and SK Hynix reported having received a one-year exemption to continue to send American chipmaking equipment to their facilities in China.

Dutch semiconductor tool maker ASML says its employees in the US are prohibited from providing certain services to advanced semiconductor fabrication plants or fabrication plants in China.

Moving from China to Asia

The curbs are the latest in a series of upheavals for $600 billion global semiconductor industry.

In recent years, chipmakers once attracted by China’s competitiveness in chip production have had to deal with rising labor costs in China, supply chain disruptions caused by Covid-19 restrictions and increased geopolitical risks.

These China-focused chipmakers are now finding new impetus to replicate those production lines elsewhere. Equipment depreciation is the highest cost for these wafer mills.

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As a result, they wanted to move somewhere nearby to make production and output as efficient as possible, said Jan Nicholas, executive director of semiconductor focus at Deloitte.

Southeast Asia has become a natural choice for factories looking to move outside of China, he said.

“When you make big investment decisions that have a long useful life for a plant, you tend to stay away from risky situations… for sure,” says Nicholas.

Southeast Asia can also be seen as more attractive than chip-making powers like South Korea and Taiwan as the region is seen as neutral amid ongoing trade tensions between the US and China. .

Sarah Kreps, director of Cornell University’s Technology Policy Lab, told CNBC: “South Korea and Taiwan can’t be disguised, but countries like Vietnam, India, and Singapore are positioning themselves as human beings. the third road, the neutral bridge between the two giants”.

1. Vietnam

Vietnam has emerged as an alternative production base to China for global semiconductor manufacturers. The country has invested billions of dollars in investments to establish research and education centers, attracting major chipmakers to shop there.

Pictures of computer circuit boards in Vietnam.

Maika Elan | Bloomberg Creative Photos | beautiful pictures

Samsung, the world’s largest memory chip maker, has committed invest another 3.3 billion USD in this Southeast Asian country this year. The Korean conglomerate aims to produce chip components by July 2023.

“Companies that already have manufacturing facilities in China, like Samsung, can invest in alternative manufacturing solutions that bring many benefits to their manufacturing facilities in China without incurring the burden,” said Kreps. political weight”.

2. India

India is also emerging as a production base for these chipmakers, as the country has a growing pool of design talent in microprocessors, memory subsystems, and more, said Kuijpers from KPMG. and similar chip design.

He added that labor is abundant and costs are low in India as well. However, the country’s lack of manufacturing capabilities reduces its appeal.

“Although India has attempted to set up manufacturing units in the past, these initiatives have encountered many obstacles, including high capital investment costs for setup costs,” he said.

China firmly leads

Despite Asia’s growing appeal to chipmakers, experts point out that China maintains its lead over regional economies in terms of sector competitiveness. chip production.

In it”Made in China 2025The blueprint released in 2015, the country laid the groundwork for technological self-sufficiency in chip production.

KPMG’s Kuijpers says its domestic chip sector is also growing thanks to growing demand for chips in applications such as 5G, autonomous driving and artificial intelligence.

Today, China is still a large company and an important producer of semiconductors, especially lower-end chips. By some estimates, China is the third largest producer of semiconductor chips, earning a quarter of market share accounts for about 16% of global semiconductor production capacity — ahead of the US but behind South Korea and Taiwan.

“China has taken a long time to develop that skill set…it will take about the same amount of time as another country to figure that out because the skill set doesn’t come immediately,” Nicholas said.

Not everyone agrees that Vietnam or India will be the direct beneficiaries of US restrictions on Beijing.

Yongwook Ryu, an East Asian international relations researcher at the National University of Singapore, said: “It is uncertain whether Vietnam and India can benefit from US export controls on China or not. no, because they do not have the strength in manufacturing capacity.”

However, he added that “a country or a company can produce quality chips at competitive prices – in other words, a country or company can replace China or Chinese chipmakers.” Quoc – can become a big winner in the future.”

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