Here’s why Singapore stands to gain from the ongoing wave of investment in chip manufacturing and turn into a semiconductor chip manufacturing.
The chip shortage continues
The imbalance between supply and demand was the top semiconductor issue in 2021. This imbalance resulted in chip shortages. This impacts both traditional chip end markets like data centers and smartphones, as well as traditionally less dependent markets like automotive.
In 2022, the severity and duration of the chip shortage is less pronounced because of increased capacity and also from
supply chain improvements that chipmakers, distributors, and end customers make.
The global semiconductor industry is committed to increase overall output capacity. Some will occur in traditional manufacturing clusters in Taiwan and South Korea. However, they are also considering investing in the United States, China, Japan, Singapore, Israel, and Europe. This trend is known as “localization”—which means increasing chip production closer to the next step in the supply chain.
Supply Chain “Localization”
We are starting to see a reshuffling of global supply chains. Moving global supply chain capabilities into a single country will not be easy, but these are some things to consider to push for localization.
- The pandemic has demonstrated leaves multiple industries vulnerable to the hazards from having manufacturer and consumer thousands of miles apart.
- Manufacturing staying closer to end users is now regarded as a prudent risk-reduction strategy.
- Political tensions in the East Asia manufacturing region have drawn attention to a global vulnerability of profound supply disruption due to blockades or military action.
For many years, the semiconductor industry has been organized around geographical clusters of suppliers, vendors, and their customers. Major industry players have been doubling down on existing clusters as part of the global capacity expansion drive.
For example, TSMC selected Kikuyo to set up its first Japan plant. It is partly because they will be next to a major Sony plant. Sony is TSMC’s largest customer in Japan, and it will be one of the plant’s first customers. Kikuyo also houses a production facility for Tokyo Electron, Japan’s leading manufacturer of chip equipment.
When Lam Research decided to establish its first manufacturing facility in Southeast Asia, it chose Penang. Penang is a well-known regional hub for electronics and semiconductor firms.
What is a Chip Production Cluster
A chip manufacturing cluster typically includes equipment suppliers and chip suppliers, as well as companies that supply materials used to manufacture chips, such as silicon wafers. The cluster reinforces itself by being efficient and provides cost savings and workforce required to manufacture semiconductors.
To establish an effective chips cluster, you need a big ecosystem to get a cost efficient position. This allows you to get that world-class performance and to be able to build a big enough ecosystem around you.
South Korea has over 20,000 semiconductor-related businesses. This includes 369 IC manufacturing companies, 2650 semiconductor equipment companies, and 4078 semiconductor material companies. A typical semiconductor factory is surrounded by numerous businesses that supports its operations. This led to a massive semiconductor industry chain in South Korea through layers of outsourcing and subcontracting. They have also established city clusters of semiconductor industries such as Yongin and Icheon to support South Korea’s entire semiconductor industry.
Singapore’s Semiconductor Industry Is An Essential Part Of The Global Supply Chain
Singapore is uniquely positioned as a neutral region with a well established and diverse semiconductor ecosystem. From the table above, Singapore is involved in all stages of the semiconductor value chain. Furthermore, its governments continue to support investments in this sector.
The semiconductor industry in Singapore is an essential component of the global supply chain. Many devices that are used all over the world are developed and manufactured in Singapore. Many global semiconductor companies have thrived as a result of their presence in Singapore. There is strong government support which allowed companies to position themselves to capitalize on growth opportunities.
Singapore offers a favorable business environment that includes an end-to-end semiconductor ecosystem. Companies involved in chip manufacturing have taken advantage of a plug-and-play environment in Singapore to gain access to a strong talent pool and a robust supplier network. In the equipment manufacturing sector, leading equipment manufacturers entrust Singapore with more than 80% of their global manufacturing, assembly, and/or testing of equipment and tools.
Singapore aspires to expand across the semiconductor value chain, from chip design to wafer fabrication to assembly and testing – as well as in supporting areas such as research and development and regional distribution.
Global Chipmakers’ Invests in Singapore
Singapore, as one of only a few global major chip clusters, stands to benefit from the industry’s drive to increase capacity.
In 2021, GlobalFoundries said it would invest USD4 billion (about SGD5.4 billion) to double its production capacity in Singapore. Expected to reach full capacity by early 2024, the facility will raise its Singapore production capacity to 1.5 million 300-millimetre (mm) wafers annually.
Singapore also saw other new chip-related investments last year. Germany’s Siltronic, one of the world’s biggest producers of silicon wafers, said in October it would invest 2 billion Euro in a new wafer manufacturing facility to make high-end silicon substrates.
Soitec, another silicon wafer producer, said it would invest SGD430 million to scale up operations in Singapore. The expansion would allow Soitec to produce 2 million 300mm wafers by 2026, two-thirds of its global capacity.
Infineon, a German microchip maker, announced a S$27 million investment over three years in late 2020 to make Singapore its global artificial intelligence (AI) innovation hub by 2023. The funds will be used to fund AI-related projects, training, and infrastructure.
Chipmaker giants like Micron and United Microelectronics Corporation have also announced plans to invest to boost its manufacturing capacity in Singapore.
Singapore produces 5% of the world’s chips. Singapore is the most popular foreign location for chip manufacturing among US chip manufacturers. They account for 17.4% of US front-end capacity.
Semiconductor Manufacturing Equipment
The city-state is even more important in semiconductor manufacturing equipment. For example, Applied Materials, the world’s largest chip equipment manufacturer by revenue, manufactures half of its global output in Singapore.
Singapore produces nearly 20% of all semiconductor production equipment, thanks to a supplier ecosystem that includes 1,000 precision engineering firms. According to data published by the US government, it is the fourth-largest exporter of such machineries and equipment.
Capitalizing On This Opportunity
CHIPS and Science Act
As Singapore accounts for 17.4% of US front-end capacity, they are set to benefit from the United States CHIPS and Science Act. Short for Creating Helpful Incentives to Produce Semiconductors and Science Act, the Act commits over US$280 billion including US$52.7 billion in subsidies to support semiconductor production and research in the US.
I expect we will see more reshuffling of global supply chains like this in the future where countries like Singapore. Regions with the right infrastructure, regulatory architecture, and other factor endowments will stand to benefit significantly.
There are many factors are driving this trend, ranging from the cost of intermediate inputs to investment incentives and shipping costs. One major factor is the geopolitical imperative to diversify global supply chains in critical industries.
Semiconductor Equipment Manufacturing
In pharmaceutical manufacturing, operations can run for years without upgrading of technology and equipment. For semiconductors, new process nodes emerge every few years. Existing fabs will need constantly to be upgraded with new equipment. Every new fab represents a potential revenue for a chip equipment manufacturer.
As a result, Singapore based semiconductor equipment manufacturers are well positioned to benefit from the push to increase global chip production capacity. As more fabs are built in Singapore, these companies will be increasingly called upon to manufacture the tools used to make the chips.
The long-term trends that drive semiconductor demand are still intact. In the short term, competition among producers will heat up as demand falls due to inventory de-stocking. Capacity expansion and spending will almost certainly follow, creating a vicious cycle in the industry. Semiconductor sales are expected to slow during a correction period, and could worsen if macroeconomic conditions deteriorate further.
Alvin Tan, Singapore’s trade and industry minister, stated in January that the country accounts for approximately 5% of global wafer fabrication capacity. Semiconductors, he says, are “the fastest-growing segment of the electronics industry.” The city-state has been attempting to strengthen its electronics sector, having set a goal of increasing its manufacturing industry by 50% by 2030, with the semiconductor segment playing a significant role.
Although Singapore has invested billions of dollars into the semiconductor-related sector over the past year, but it still has far to go if it wants to match other chipmaking powerhouses in Asia like South Korea and Taiwan.
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