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Semiconductor cycle: Going up or down?

Nicole Lim and Douglas Toh
Nicole Lim and Douglas Toh • 26 min read
Semiconductor cycle: Going up or down?
Nvidia was already the world’s most valuable semiconductor firm. Now, it has become the first chip company ever to hit US$3 trillion in market capitalisation. Photo: Bloomberg
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The AI theme has taken global stock markets by storm, but for locally listed semiconductor stocks, that frenzy is still fuzzy for now

The Nvidia rally never seems to end. No thanks to the release of ChatGPT in November 2022, the artificial intelligence (AI) chipmaker has smashed new milestones every time it appears in the news — and that is happening often.

In February, Nvidia reported total revenue for the full year more than trebled to US$22.1 billion ($29.9 billion) from the previous year while net income for the quarter rose more than eightfold to US$12.3 billion.

Just last week, Nvidia’s market capitalisation hit US$3.3 trillion, surpassing that of mega-cap tech peers Apple and Microsoft.

“Nvidia becomes world’s most valuable company” and “Here’s why Nvidia will reach US$10 trillion market cap by 2030” screamed the headlines — a signal to many that the AI company’s growth has just begun. But Nvidia is not alone.

“If you look at the US guys, Applied Materials (AMAT), Lam Research ... they’re all doing very well. Recovery is indeed happening because demand for AI and data centres is coming up,” says Jarick Seet of Maybank, who heads the team covering small and mid caps and the technology sector.

See also: TSMC hikes revenue outlook to reflect heated AI demand

No doubt, the AI frenzy has been a catalyst propelling the semiconductor industry out of the cyclical downturn last year — the seventh downturn since 1990 — with this year predicted to see global sales of US$588 billion or 13% higher than in 2023, according to Deloitte.

Photo: T Rowe Price 

See also: UMS acquires land parcel in Penang for expansion

The chip industry has oscillated between shortages and surpluses for years. The most recent downturn began in the middle of 2022 after the industry overcame supply problems plagued by the pandemic when customers of personal computers (PCs), smartphones and cloud providers piled on new servers and switches.

Enter 2024, where chip manufacturing companies are currently sitting on excesses of inventories, particularly for PCs and smartphones, what Seet calls “low-end” or “consumer chips”.

Chips, which are produced in three steps: design, fabrication and assembly-testing-packaging (ATP), are experiencing the pace of recovery differently as well. The US, which accounts for more than 40% of the global integrated circuit (IC) design market, posted a sales growth of 22% y-o-y for 1Q2024, on the back of demand for high-performance computing (HPC) and memory chips.

Fabrication, dominated by companies in Taiwan, China and South Korea, is also seeing better days. Taiwan Semiconductor Manufacturing Co (TSMC), sometimes called “the most important company in the world”, produces about 90% of the world’s super-advanced semiconductor chips. Its net revenue in 1QFY2024 ended March 31 rose 16.5% from a year ago to NT$592.64 billion ($24.8 billion), while net income increased 8.9% to NT$225.49 billion.

However, according to the economic forecast company Oxford Economics, these benefits are not evenly distributed along the value chain. A report from June 3 said: “For Asean economies, where semiconductor activities are focused on lower value-added segments such as ATP, the benefits are likely to be limited.”

Jarick Seet from Maybank Securities who covers the small-mid caps and technology sector, names Frencken as the best proxy for semiconductor recovery in 2024. Photo: Albert Chua/The Edge Singapore 

To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section

True enough, the three closely watched Singapore Exchange S68 -

-listed semiconductor plays have had a tricky past year. The companies, mainly involved in contract manufacturing for semiconductor equipment testing, have been going through an uneven and slower-than-expected recovery, while numerous other companies within the ecosystem have already begun to ride the wave for the last six months.

There are signs these companies have put the worst of the previous downcycle behind. For UMS Holdings 558 -

, which generates bulk of its business from semiconductor, the decline in revenue for this segment in 1QFY2024 has moderated versus the preceding 4QFY2023.

Frencken Group suffered a 7.4% drop in semiconductor revenue between FY2022 and FY2023 but in the more recent 1QFY2024, revenue increased by 37.4% over 1QFY2023.

From a loss of $1.16 million in FY2023, versus earnings of $127.3 milllion, AEM Holdings AWX -

has reported earnings of $2.34 million for its most recent 1QFY2024.

“Yes, the recovery is happening, but in the context of things, there are specific reasons why certain stocks are not performing,” says Seet. So, what does the recovery play for AEM, UMS and Frencken hinge on, and are they missing out on the AI boom?

The outlook for AEM 

Outwardly, things are not looking great for AEM, a company mainly involved in the back-end testing of the semiconductor manufacturing process.

This once-hot stock of the pandemic has seen its share price tumble by more than 50% in the last two years. Lately, its share price plunged to a four-year low of $1.80 on May 13, shortly after it reported an 85% drop in 1QFY2024 ended March net profit to $2.4 million. Besides the industry downturn, AEM had to assure investors that a recent episode of inventory overstatement was a one-off occurence. On May 30, the group also announced the resignation of CEO Chandran Nair, who has held the position since 2020.

A big reason for AEM’s weaker showing can be attributed to its dependence on its biggest customer, Intel, who has yet to make new orders to clear a backlog of test equipment it over-ordered during the pandemic years.

Loke: Unlike other companies that focus on financial engineering through share buybacks and dividends, AEM takes care of all its stakeholders. Photo: Albert Chua/The Edge Singapore 

“The semiconductor industry is obviously cyclical … [and] it’s no secret that we’re concentrated on having one customer,” says AEM’s non-executive chairman Loke Wai San.

This surge in orders during Covid-19 famously propelled AEM’s revenue to a historic high of $870 million in 2022. At present, Intel itself is fraught with challenges. For one, the once-dominant PC chip maker is slowly losing its market share to other players, including Advanced Micro Devices (AMD).

PC shipments have just returned to a 3% growth in 1Q2024 after a long streak of contraction caused by excess inventories, according to UOB Kay Hian (UOBKH) analyst John Cheong in his May 9 note on AEM. Furthermore, he adds that the business conditions for other end markets, including mobility, automobile and industrials, remain challenging.

DBS’s analysts Amanda Tan and Lee Keng Ling also note that the steep drop in test and automation equipment sales in AEM’s 1QFY2024 results could be due to Intel’s low utilisation rates of test equipment. They highlight that spending on tests from Intel remains uncertain, as Intel identified savings opportunities of between US$4 billion and US$5 billion annually by eliminating non-standard tests.

Given the weaker-than-expected recovery, some analysts have downgraded the stock and advised investors to look again closer towards the end of the year. Maybank is downgrading AEM from “buy” to “hold”, UOBKH is downgrading it to “sell”, CGS International is reiterating its call of “reduce”  and DBS is keeping its “hold”.

“We were too optimistic of a much stronger 2H2024 based on potential order recovery from its key customer as well as ramp up of recently unveiled new orders, but new orders will only start mass production at end-FY2024 and the main surge will only come in FY2025 … We now believe earnings recovery is only likely in FY2025 and it would be better to revisit it towards 4Q2024,” says Maybank’s Seet.

Loke, who is not one to sugar-coat the plight of AEM, admits there is “nothing you can do about” the industry’s dynamics. “But, we have been successful in moving towards the direction of having more customers,” adds Loke.

As the co-founder and managing partner of Novo Tellus Capital Partners, which invested in AEM, Loke notably reversed the fortunes of AEM in 2011 when he took control of the company after it was embroiled in a corporate scandal.  

In his 2023 annual report memo, Loke has set his sights on two key avenues to guide the company out of the pits to capture the recovery: diversification through new customer acquisition and technological solutions.

“We’re focusing on customer wins, and the win rate has been remarkable in AI sockets,” he says. “That’s worth a lot. It may not be worth a lot the next quarter in terms of dollar value, but the lifetime value and your determination of how long AI infrastructure will retool from core to the edge.”

Loke says that AEM already has four new vectors in the pipeline and is finishing up the testing phase with them. The group was awarded nine patents in 2023 with its Test 2.0 solutions. With small production volume orders already on the way, Loke thinks this “should materially contribute” by 2Q2025.

“With a proven case for our Test 2.0, we have also caught the attention of players across the industry,” boasts Loke in the annual report memo. With Test 2.0, better known as “design for test” solutions, there is a change in the focus where testing is done along the traditional four-stage test.

Test 2.0 enables the final stage of systems-level test (SLT) to be applied before the final stage and in isolation, without putting the entirety of the chip through the cookie-cutter four-stage test.

In a world where chips are getting more complicated, the odds of failure increases and testing costs go up. Test 2.0, as Loke declares, offers customers up to 30% of cost savings.

Part of Test 2.0 includes thermal control technology, which Loke says AEM’s version is a generation or two ahead of those currently available in the market. The technology allows the stress test of a portion of the chip, instead of the full chip itself, thereby reducing inefficiencies.

The key to putting all pieces of the puzzle together will fall on AEM’s new CEO-in-waiting, Amy Leong, who is part of Loke’s strategy to ride the incoming AI wave across Asean. She will replace Nair come July 1.

AEM’s incoming CEO Amy Leong has spent more than two decades in the semiconductor test and measurement field, most recently having worked at FormFactor on AI-driven test requirements. Photo: Albert Chua/The Edge Singapore 

Leong has spent more than two decades in the semiconductor test and measurement field, and her most recent stint at California-based FormFactor involved working with advanced packing and AI-driven test requirements. Unsurprisingly, this is an area in which AEM finds itself wanting to make advances.

Leong notes that, at present, much of the recovery in the semiconductor industry is vertical-market-centric. However, the overall volume recovery is expected to come in 2026 or later.

With AI chips incorporating advanced packing and triplet integration, Leong explains there will be growing demand for more advanced and complex test content with higher thermal requirements.

“These requirements generate new requirements that we have never seen before and AEM has a remarkable technology that provides a ‘step-function change’ in the performance,” she adds.

How AEM will make it out of the year remains to be seen, as articulated by DBS’s Tan and Lee. “While AEM’s technology capabilities in SLT and thermal control are levers that would help it grow its accounts with new customers, it ultimately remains a ‘show me’ story,” they write in their May 10 note.

Still, Loke remains confident that the company will be able to perform, with the steadfast backing of Temasek, who adds that AEM, unlike other companies, eschews certain financial engineering practices such as share buybacks.

“We take a view of stakeholder management, and I think one has to build a company for the long haul, where we take care of all stakeholders,” says Loke. 

“You have got to think about the type of shareholders and if they’re gonna stay like [some long-term shareholders have] stayed on for many, many, many years and will continue to stay, then you can’t take care of the traders."

New customer to the rescue for UMS 

Since the trade wars between the US and China began in 2018, an onslaught of tariffs and other trade barriers imposed have forced global supply chains to de-risk and diversify their business lines.

In particular, the semiconductor industry, which will see the ballooning of US tariffs on Chinese semiconductor imports from 25% to 50% by 2025, is increasingly moving towards Southeast Asia as a migratory hotspot, thanks to the region’s relatively neutral position.

Today, only 40% of semiconductor output comes from China, a dip from the dominant 80% a few years ago, a gap Southeast Asian nations are poised to rush in and fill.

UMS’s Loh is certain of improved earnings next year thanks to the company’s new customer although analysts have remained bearish. Photo: UMS Holdings 

UMS, an original equipment manufacturer (OEM) provider of semiconductor components whose headquarters and facilities are spread across Singapore and Malaysia, stands to benefit from this change, says CFO and executive director Stanley Loh, who observes that his customers who used to source from Chinese vendors have now turned to him and his peers in the region.

Despite this bullish view, UMS’s FY2023 results tell a different story, with lower earnings of 34% y-o-y to $68.5 million and a decreased revenue of $299.9 million, 19% softer y-o-y. The company’s most recent 1QFY2024 ended March results have not performed much better, with earnings of just $9.8 million and revenue of $54 million, down 44% y-o-y and 33% y-o-y, respectively.

Although the present low of the semiconductor industry’s cyclical nature is partly to blame, the company’s weak performance can be attributed to losing its share of orders from its main customer, capital equipment maker Applied Materials (AMAT).

Loh explains: “For years, we were the 100% vendor for them; however, after several years, they (AMAT) decided to diversify their risk from just relying on us and they looked to a second source for their needs.”

Following this, while AMAT had previously included in its contract an obligation to purchase a certain share or percentage of its needs from UMS, the US semiconductor player has since moved away from the arrangement.

“In 2022’s contract, they agreed to source around 70% of their needs from us. Today, it’s around 50%,” says Loh, with “nearly half” of UMS’s revenue coming from AMAT as smaller contracts led to dwindling earnings.

With AMAT still sitting on excess inventory and the likelihood of immediate orders for UMS low, the company has begun looking elsewhere to diversify this risk.

UMS’s new customer is a Nasdaq-listed American semiconductor equipment manufacturer actively transferring its procurement from the US to Malaysia, a country with an established tech manufacturing history that has once again become a hotbed for big-name manufacturing and semiconductor companies.

UMS’s new 300,000 sq ft extension to its existing 500,000 sq ft facility in Penang, Malaysia, will be largely geared towards manufacturing for this new customer. “This business will grow this year, but it won’t be that visible until next year,” says Loh.

With improved results expected to only show in FY2025, analysts have been bearish on the company’s recent 1QFY2024 update.

“We had earlier sought to be prudent and cut our FY2024 to FY2026 forecasts in our 1QFY2024 earnings preview. Despite the cuts, 1QFY2024 still came in below expectations. We further reduce our FY2024 to FY2026 revenue by 17.3% to 21.2% as we believe revenue recovery may remain slow, leading to a 32.4% to 37.2% reduction in our FY2024 to FY2026 EPS forecasts,” writes William Tng of CGS, a veteran analyst who has covered technology stocks for around 20 years.

Despite downgrading his “add” call to “hold” and lowering his target price on UMS to $1.06 from $1.68 previously, Tng is quite positive about the company’s outlook once more orders from the new Nasdaq customer come in. “We expect UMS’s business with its new customer to gain traction, and hence its EPS growth could return to 8.7% from FY2025 to FY2026.”

Likewise, Cheong of UOBKH is bullish on the company’s longer-term prospects. He writes: “UMS has taken the right initiatives to beef up its production capabilities and strengthen its capital base, and will be in an excellent position to capture new growth opportunities when the global semiconductor demand rebounds.”

On the other hand, Maybank’s Seet is not as bullish. On May 13, he downgraded UMS to “sell” from “hold” and slashed his target price to 88 cents from $1.41. “While we expected a weak 1QFY2024, we did not expect the outlook to be gloomy, and our view of UMS losing market share with its key customer was also validated,” writes Seet.

Although UMS’s Loh knows that an uptick in business will be visible next year thanks to its new customer and facility, he admits that further challenges remain, even internally.

“There is a manpower shortage of sorts in Penang because Penang is such a hot investment spot for many companies, especially in the semiconductor business. I think Intel is hiring a few thousand people there, so hiring talent’s a very competitive area. It’s hard to get young people in this industry too as it’s just not sexy,” says Loh.

Frencken is ‘best proxy for recovery’ 

Perhaps, the brightest star out of the three semiconductor listcos is Frencken, which Maybank’s Seet has named “the best proxy for a semiconductor recovery even for FY2024”. The group remains his top pick in the Singapore technology sector, according to Seet’s May 27 note.

In its recent 1QFY2024 update, Frencken stood out among its listed peers for its healthy results, which soared 73% higher y-o-y to $9 million in earnings and 12.2% y-o-y up to $193.6 million in revenue, with the leading semiconductor segment showing a 37.4% y-o-y growth in revenue to $79.5 million.

Au: Frencken Group E28 -

benefits from having two leaders in the semicon industry as its key customers, alongside a group of diverse business segments. Photo: Albert Chua/The Edge Singapore 

Despite the current downturn in the semiconductor industry, Frencken group president Dennis Au says that revenue from the company’s semiconductor segment continues to be “one of its largest”, driven by robust sales from its key customer in the Netherlands, ASML, the leading manufacturer of chip-making equipment.

Frencken has also benefitted from gaining a market share of orders from AMAT, which has long been a key customer for UMS.

At the industry’s peak, Au says the segment made up around 50% of Frencken’s revenue, in no small part thanks to both its key customers being industry leaders.

Furthermore, the company’s semiconductor segment lies within its mechatronics division, which provides product design, development, and fabrication of high-precision engineered products in the semiconductor space and other industries including the medical and automation spaces.

This differs from players such as UMS, who offer manufacturing and assembly capabilities in two separate business segments.

Maybank’s Seet also notes that Frencken has relocated its US operations to a larger facility while expanding its motor business and supporting semiconductor equipment customers like Texas Instruments and Qualcomm — all of which spell good news for the company.

“It is also working with a US front-end equipment customer to expand its range of programmes, which is likely to translate to higher revenue in the future,” says Seet.

In an interview with The Edge Singapore, he says: “For Frencken, these six months will be very good. On a q-o-q basis, I expect them to do better, with 2QFY2024 doing better than 1QFY2024 and 3QFY2024 doing better than 2QFY2024. As long as they keep performing like this and the outlook remains positive, Frencken will continue to do well in share price performance as well.”

OCBC Investment Research’s Donovan Tan is also bullish about Frencken, prompting him to initiate coverage on the stock with a “buy” call at a fair value of $1.74 on June 5.

Despite the bright outlook, Frencken’s Au focuses on opportunities to diversify the company’s revenue base. Most of Frencken’s peers that are pure semiconductor-play companies are “probably having a rough time”, Au says.

“While we also have a tough time because that business has come down, we have other businesses to sustain us during this time, such as our automotive segment or our life sciences segment.”

“In Singapore, we build an entire semiconductor ecosystem, and we ship it all over the world to our customers, to the US, to Korea, to Taiwan. So it depends on what the customer wants, and we can offer the entire value chain for them to pick and choose what they want. Be it in semiconductors, wafer fabrication equipment, bonding equipment, or the packaging and test, we cover the entire spectrum,” says Au.

With this range and versatility, Frencken has built a business that is resistant to cyclical changes, such as those of the semiconductor industry.

But, like any business, challenges remain. One hurdle that Frencken faces, which Au admits that “can’t be controlled”, is geopolitical complications such as the US tariffs on China and the Red Sea Crisis.

He continues: “We just have to figure out how to accommodate, and we’ll give our customers set expectations, and they realise it as well. So, in case of a longer lead time, they will order ahead. Unfortunately, we can’t avoid oil prices going up, with infrastructure pricing going up accordingly, we can’t do anything about it. Our customer understands this as well and they too have to pay for it.”

Another problem that Frencken suffers from is periodical forex losses. In 1HFY2023 and FY2023, a loss of $448,00 and $4,000 were reported, respectively. This is because its reporting currency is the Singdollar while it incurs costs and books revenue across various other locations such as US and Europe.

“The Singapore dollar is relatively strong and tied to many major currencies, so we see less fluctuation. For example, we have a plant in Malaysia, and their currency has dropped considerably more, so translating it into Singapore dollars is not beneficial to us,” says Au.

Despite this, the company president is pragmatic in his expectations, noting that it is “not Frencken’s intent” to profit off of forex translations but to “be in a position to manage” it.

Although the semiconductor industry is poised for an upturn, Au is careful not to overstretch but remain flexible and ready to react to any sudden changes.

“We had a facility in Malaysia that was added before the slowdown happened, and it was unfortunate, so today we have more capacity than we need. However, the ratio is such that we will not have enough space once the industry comes back. So we are constantly looking into whether we need to set up new facilities, and indeed, even as we speak, our team is doing that at this moment.”

Given Frencken’s long history in this industry, Au is confident that the company will capture its fair share of the business generated by wider adoption of AI. He says: “Everybody talks about AI now, right? So the question is: Is Frencken into AI? Well, we don’t boast about it, but I think we have been in AI for as long as AI has been in existence.”

“AI is based on software and hardware and in order for software to run, it needs to have hardware. This hardware is always a microchip and we’ve been dealing with microchips from the day the company was formed,” concludes Au.

Grand Venture Technology catches up 

One more semiconductor-related company has caught the eye of analysts like Maybank’s Seet of late. When Grand Venture Technology JLB -

(GVT) was first listed in 2019, it was on the Catalist board. Two years later, it was upgraded to the mainboard. GVT has four lines of business — life sciences, medical equipment, aerospace and semiconductor equipment manufacturing.

Like Frencken, these different business lines helped the company weather the semiconductor downturn last year. GVT’s FY2023 results saw a “relatively stable y-o-y growth” in these three areas, while the semiconductor sector saw a decline in revenue to $53.3 million, a 26.6% y-o-y drop.

In the most recent quarter, the group reported a 14.8% y-o-y increase in revenue from its semiconductor segment of $15.7 million.

Ng: GVT needs to be a bit more careful when seeing customer’s demand and forecasts. Photo: Albert Chua/The Edge Singapore 

A pick-up in the shipping of testers for high bandwidth memory (HBM) can be attributed to this quarter’s revenue growth, says Julian Ng, CEO of GVT. “We are also seeing the dynamic random access memory (DRAM) market slowly depleting their inventories and our customers are also slowly depleting their inventories.”

HBM and DRAM are computer memory chips typically used in applications that need high-performance computing, such as graphics cards, AI and supercomputers, which are parts of the industry currently driving semiconductor recovery.

Again, unlike some of its manufacturing peers, GVT is competent in a variety of processes within the semiconductor manufacturing space, both at the front- and back-end. About three years ago, the group began engaging customers in four different front-end semiconductor processes — etch, metrology and inspection, atomic layer deposition (ALD), and chemical vapour deposition (CVD).

GVT is an approved vendor and serves two to three OEM customers in the front-end semiconductor business. Ng confirms there are already orders for etching and wafer inspection while ALD orders are “already in the door”, a term which means GVT has qualified for first article sampling but not mass production.

These investments in multiple processes are part of GVT’s strategy for deeper market penetration. However, the group’s CFO, Robby Sucipto, admits that it has caused a strain on profit as many of these investments have not come to fruition yet.

GVT is a "very small company" compared to some other Singapore listcos in the semiconductor space, says CFO Robby Sucipto. Photo: Albert Chua/The Edge Singapore 

“It’s worth noting that GVT is a very small company compared to some of our peers in Singapore and the region, so we’re [extra] focused on building customer intimacy and stickiness,” says Sucipto.

Seet from Maybank concurs. “They’re trying to get more front-end customers, like Lam Research and a few other guys,” says Seet. “After the big three moves, then GVT will follow.”

“[The] volume and scale of our business is not as large as our peers, there’s a lot more for us to do in building these customers’ wallet share,” Sucipto concludes.

The next two to three quarters will be crucial for GVT. Ng says it will need to focus its efforts on winning market share in front-end manufacturing, shipping products for HBM and DRAM, and qualify to work with back-end customers on hybrid bonding and thermal compression, capabilities that peers like AEM tout to be “at least a generation or two” ahead of others.

However, one can agree that GVT has made smart moves in the acquisition space. Its most recent purchase of surface treatment specialist ACP Metal Finishing has a two-pronged rationale — to move beyond machining for its aerospace business and to borrow the aerospace industry capabilities for its semiconductor business.

Ng reveals that GVT will use ACP’s capabilities to set up new entities in Penang and offer cleaning and plating services to front-end customers.

As Ng and his team navigate through the semiconductor business downturn, he highlights that some risks require more careful management. With ongoing geopolitical tensions and countries raising trade barriers as a display of protectionism, much of the demand in the industry may be fuelled by politics and not economics, he says.

“There’s a key risk that this will head into an overcapacity,” Ng adds. “Therefore, we need to be a bit more careful when seeing customer’s demand and forecasts. We need to be very sticky with them to understand their end-customers and where they are ultimately shipping this equipment to.”

Asean’s rising semiconductor fortunes 

As a region, Asean is keenly aware of its power as a neutral ground within the semiconductor supply chain and it is working hard to milk the opportunity.

A little over two weeks ago, Malaysian Prime Minister Anwar Ibrahim announced a target to attract at least RM500 billion ($143.5 billion) in investment for its semiconductor industry to progress into chip design, fabrication and more high-value developments.

For years, Malaysia has built up a bustling semiconductor industry. The country is responsible for 13% of chip packaging, assembly and testing services globally, according to data from the government. The island of Penang, in particular, has been called the “Silicon Valley of the East”, with its reputation as a foreign tech manufacturing and free trade zone since the 1970s. All of the above-mentioned listed companies in Singapore have parts of their businesses in Penang, Malaysia, which has recently drawn even greater attention among big international names.

Over the past year or so, Malaysia has gained international fame as a “neutral” hotspot for chip firms amid US and China trade tensions. With Intel’s early presence, numerous other smaller suppliers and contractors also set up shop. In recent years, a growing list of other companies has joined them. Just this April, China’s China Wafer Level CSP Co, Ningbo SJ Electronics Co, and Wuxi AMTE Inc were reported to have shown interest in investing in Penang with total investments of US$100 million.

But Seet hardly considers this a threat to Singapore-listed semiconductor companies. “Because current manufacturing players will get the customers first. If you haven’t already secured a customer by now, it may be a little too late,” says Seet. “Once you secure a customer, as long as you don’t screw up, these guys won’t change.”

There is plenty of room for players in the semiconductor manufacturing space. Economics forecast company Oxford Economics says that Asean nations also need to move up the value chain in the semiconductor industry to ride on the AI boom’s growth potential and business opportunity.

Only Singapore has successfully transformed itself from being a location for assembly, test and packaging businesses to a tech and innovation hub for design and R&D enterprises, as well as fabrication, says Oxford Economics. This leaves room for other Asean peers to catch up.

Vietnam has also shown its ambition, with the nation announcing in its National Master Plan for 2021 to 2030 to become a semiconductor production hub by 2050. According to Asean data specialist, Asean Briefing, as at March, the country already stands among the top 10 in the world for the export of semiconductor devices and integrated circuits, with its industry expected to grow at an annual rate of 6% until 2027.

And competition in the region keeps ramping up, with the recent news of the building of a US$7.8 billion chip wafer plant in Singapore by TSMC partly-owned NXP Semiconductors NV. TSMC-backed Vanguard International Semiconductor Corp and NXP plans to begin construction in the second half of this year, with production slated to begin in 2027.

“NXP continues to take proactive actions to ensure it has a manufacturing base which provides competitive cost, supply control and geographic resilience to support our long-term growth objectives,” says NXP chief executive Kurt Sievers in a statement.

Vanguard will manage the facility, which is poised to generate 1,500 job opportunities in Singapore, signalling a fresh advantage for the nation against its regional peers.

“Without Asean, without the companies in Singapore, [NXP] cannot do it too. Take ASML as an example. ASML just focuses on making lithography machines, using its own IP and patents which belong to it. However, ASML does not manufacture parts of the lithography modules itself. It depends on companies like Frencken to do it instead. So, it’s still a very integrated supply chain,” says Seet.

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