The final stage of the semiconductor provide chain, the meeting, packing, and testing (APT) course of, has come to the forefront of the China-U.S. know-how competitors. The APT course of is crucial as a result of it offers chips safety to make sure their industrial purposes. But, at the moment, america solely has 3 p.c of worldwide APT capability in comparison with Taiwan’s 58.6 p.c. Amkor is the one main U.S.-headquartered agency specializing in APT operations, but it surely doesn’t have meeting crops in North America.
Against this, among the many prime ten APT corporations worldwide, six are Taiwanese, together with ASE, Sigurd, and Powertech. Because of this, regardless of TSMC’s forthcoming manufacturing in Arizona, it should ship most of its U.S.-made chips again to Taiwan. U.S. Consultant Jay Obernolte accurately identified the issue: “It wouldn’t matter if we did 100% of our chip manufacturing onshore if the packaging continues to be offshore.”
The U.S. Commerce Division is launching a $3 billion program aimed toward constructing a home APT trade. But, the U.S. try to ascertain a home APT cluster is prone to fail. That’s not solely due to how far behind america is on this ever-advancing section of the availability chain, but additionally due to the scarcity of expert labor within the nation. A brand new survey signifies that 58 p.c of the 115,000 new jobs within the U.S. chip trade might stay unfilled by 2030.
Behind this rising debate is China’s ascendant APT energy. America rightfully fears that an rising variety of manufactured chips will find yourself in China to be packaged for industrial functions, giving Beijing rising clout on this know-how race. But, a extra imminent danger lies within the overconcentration of APT providers in Taiwan, which faces the rising menace of a Chinese language blockade and navy battle. The deteriorating geopolitical surroundings there makes lowering U.S. reliance on Taiwan’s APT trade an pressing concern.
As an alternative of making an attempt to construct a home APT cluster from the bottom up, america ought to tailor incentive applications to encourage U.S. chip corporations to spend money on Southeast Asia. The member states of the Affiliation of Southeast Asian Nations (ASEAN) have already got an in depth APT community; as a collective, ASEAN instructions a 22.5 p.c share of worldwide chip exports, the second largest on the planet. The extra U.S. chip firms broaden their footprints there, the extra Taiwanese APT corporations will be a part of, pushed by the will to make use of geographic focus to cut back prices, thus diversifying the island’s APT operations.
In reality, main Taiwanese and U.S. chip firms are already becoming a member of forces in Singapore and Malaysia. These two international locations share three traits: mature semiconductor ecosystems, a sustained influx of chip-related FDI, and low geopolitical dangers.
Malaysia, as soon as often known as the East’s Silicon Valley till the technological rise of Taiwan and South Korea, has launched a comeback in recent times. Situated on the coronary heart of Southeast Asia, Malaysia controls 13 p.c of the worldwide marketplace for APT providers. That determine will proceed to rise within the coming years. Intel, for instance, is now developing its first abroad facility for superior 3D chip packaging within the nation.
ASE, the world’s chief in APT, has been working in Malaysia for over 30 years. The Taiwanese firm plans to additional make investments $300 million within the nation within the subsequent 5 years. On the similar time, Marketech Worldwide, a number one Taiwanese tools provider to TSMC and ASML, is finalizing a mission to construct new manufacturing websites in Malaysia.
Singapore, although extra broadly often known as a monetary hub, can be a classy participant within the semiconductor trade. Given its well-developed chip cluster, it has been a primary beneficiary of the trade’s diversification pattern. In September, U.S. chipmaker GlobalFoundries opened a $4 billion manufacturing plant within the nation. Vanguard Worldwide Semiconductor, an affiliate of TSMC, is planning to construct its most superior manufacturing facility ever in Singapore. Its Taiwanese counterpart United Microelectronics Company, the world’s third-largest chipmaker, is constructing a $5 billion plant close by.
Furthermore, Utilized Supplies, a U.S. semiconductor tools maker, has began development of a brand new $450 million manufacturing facility within the city-state. As a part of its eight-year growth plan named “Singapore 2030,” the corporate will improve its workforce there by round 40 p.c to greater than 3,500.
The 2 international locations’ proximity helps mix and amplify their distinct strengths within the semiconductor trade. Basically, Malaysia’s rising APT cluster and Singapore’s rising share in semiconductor manufacturing permit a chip to be produced and packaged for industrial purposes at an in depth distance, therefore insulating these clusters from provide chain disruptions. Moreover, the international locations’ home political stability and relative geopolitical neutrality additional improve their attractiveness as an FDI vacation spot for chip firms.
The Biden administration ought to seize this joint U.S.-Taiwan diversification pattern towards ASEAN to cut back American dependence on the island’s APT trade. It ought to make the most of focused subsidies to incentivize U.S. chip corporations to maintain this influx of FDI into Singapore and Malaysia. A rising U.S. presence there’ll function a magnet to draw different Taiwanese corporations to observe swimsuit, thus diluting the island’s APT focus. Over time, that may improve ASEAN’s attractiveness for different integral chip suppliers, making it a brand new hub of the semiconductor provide chain.
For america, this can be a extra sensible, cost-effective technique to cut back its reliance on Taiwan’s APT cluster than fostering one at house. For ASEAN international locations, this pattern can function an important stepping-stone to climb up the worth chain. For Taiwanese firms, it represents a possibility to mitigate their operational dangers in Taiwan and broaden their enterprise panorama past the island to advertise long-term development.