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SEOUL, South Korea — U.S. Commerce Secretary Gina Raimondo told a gathering of business executives Tuesday in the Philippines that the Biden administration wants to double the country’s semiconductor facilities.
It’s a show of support for the government of Philippines’ President Ferdinand Marcos II, who has reversed the pro-China tilt of predecessor Rodrigo Duterte and has increased security ties and expanded basing rights with Washington amid a long-running territorial row with Beijing in waters adjacent to the Philippines.
Ms. Raimondo’s words are also the latest mission statement from Washington as it seeks to dominate the central component of the “chips-with-everything” digital economy. The global semiconductor sector is estimated to be worth $520 billion, and is central to cutting-edge industries from telecommunications and automobiles (“smartphones with wheels”) and artificial intelligence.
Her statements are further signals that seismic shifts in the market are underway. Industries worldwide suffered from chip supply bottlenecks during the COVID-19 pandemic, leading to massive new investments, and the U.S. has attempted to squeeze the supply of high-tech chips to China.
Washington is also seeking to diversify away from the two makers of the world’s most advanced chips: Taiwan for non-memory chips and South Korea for memory chips. Both countries are strategically vulnerable: Taiwan to China, South Korea to North Korea.
Though the industry is in flux, this dependency is not going away, one expert said. It is also questionable whether Southeast Asian nations like Malaysia, the Philippines and Vietnam, which currently operate at the sector’s back end, can climb the value chain.
According to the Manila Bulletin, Ms. Raimondo, on the last day of a trade mission, told local and U.S. business leaders of her hopes to double the Philippine capacity in the industry.
“The Philippines already has 13 semiconductor assembly, testing and packaging facilities. Let’s double it. It’s a moment now of growth. Your country is mineral rich, has the talent and the expertise,” she said.
She suggested the Philippines could also assist U.S. producers.
“U.S. companies have realized that our chip supply chain is way too concentrated in just a few countries in the world,” Ms. Raimondo said, the Bloomberg news service reported. “There’s a moment right now in supply chain for your country, for this whole region.”
Washington’s chip war may be enriching Southeast Asia, which has long lagged economically behind powerhouse Northeast Asia. The day before Ms. Raimondo’s remarks, Britain’s Financial Times reported that Malaysia is “the surprise winner of the China-U.S. chip wars,” enjoying a surge in investment from chip companies based in Europe, South Korea and the U.S. Chinese chip firms, in a hedge against further American restrictions, are also engaging with Malaysia.
Vietnam is also the recipient of chip investments, and its government is promoting plans for the sector. The three Southeast Asian nations, members of the ASEAN trade bloc, are all close to China, Taiwan and South Korea.
However, the work done in Southeast Asia is far from the most tech-intensive or capital-intensive sectors of the chip industry.
For leading-edge semiconductors, design is heavily focused in Europe and the US. Machinery used to make top-tier chips is produced by the Netherlands and Japan. The leading players in the fabrication of the most sophisticated chips are South Korean and Taiwanese. That leaves Southeast Asia as the “back end” supply chain, handling chip assembly, packaging and testing.
The Financial Times report noted that Malaysia lacks electronic engineering talent, has no domestic company that is a champion in the sector, and does not possess the flagship facility at the sector’s front end: a fabrication plant, or “fab.”
The same is true now for the Philippines, which has a relatively modest sector and which earlier this year announced its hopes — but no actual plans or investment partners — for its first fab. Vietnam faces the same limitations and also suffers from power supply issues.
“The Taiwanese and the Koreans are doing all their leading-edge [production] at home,” said Scott Foster, a Tokyo-based tech analyst with Lightstream Research. “The dependence on Taiwan and Korea is not going down to any significant degree, and might be doing up. Intel is now outsourcing to TSMC.”
While dependencies stubbornly remain in place, principles of free-market economics have been ditched.
The Biden administration’s drive to build up U.S.-based production has generated a rush by countries worldwide to own sovereign chip-making capacity, “without too much consideration for supply and demand,” Mr. Foster said.
Fabrication is massively capital-intensive, and while both South Korean and Taiwanese companies are taking advantage of the new U.S. CHIPS Act to invest in the United States, other capitals are hurling even more money at their own local sectors.
Japan, working with Taiwanese and U.S. partners and massive local subsidies, is getting back into high-end fabrication. Rising economic giant India is also set to start up its own fabs.
According to a February New Delhi briefing, the country has approved its first fab, a joint venture between local player Tata and Taiwan’s Powerchip, with another collaboration being planned by an Israeli firm. Multiple ancillary facilities have drawn investments from Japan, South Korea and the U.S.
“They are subsidizing the hell out of it to get it done,” Mr. Foster noted. “If you put together the national and local subsidies, it comes to 70%” of the investment costs
Mr. Foster said the policy of bypassing China has long-term risks.
With supply of top-end Dutch and Japanese lithographic equipment to China choked off, Beijing is — for now — unable to produce top-tier chips. China is, however, investing massively to upgrade local capacity.
“China consumes roughly 30% of global chip supply, and now their self-sufficiency is going through the roof, they are roughly 20% self-sufficient,” he said. “That takes this [sales opportunity] offline from the global market.”
• Andrew Salmon can be reached at asalmon@washingtontimes.com.
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