Thanks in part to the demand for AI applications, semiconductor chips have become one of the most important tech products globally.
Nvidia, the cutting-edge chip designer, has seen its market cap explode over the last year and is now one of the world’s most valuable companies. Taiwan Semiconductor Manufacturing Company (TSMC), the leading producer of high-end chips, has become a household name for many.
Semiconductors are also at the center of the U.S.-China rivalry, with the former introducing ever-stricter export controls to prevent powerful chips from reaching the latter’s weapons systems, smartphones, and other tech.
The Vietnamese government has correctly identified the semiconductor industry as a key sector for future growth. Vietnam is already a significant hub for chip testing and packaging, with companies such as Intel and Amkor operating large plants in the country.
Our research shows that in 2021, semiconductors accounted for 19% of Vietnam’s tech exports by value, up from 11% in 2011. While still accounting for a modest global share, Vietnam posted the highest growth rate in semiconductor exports between 2011 and 2021, at 37.6% CAGR.
In 2023, semiconductor device exports hit US$7.53 billion in value, with over half of that total going to the U.S., followed by China and Canada. However, testing and packaging make up a small fraction of the semiconductor value chain, meaning Vietnam isn’t yet enjoying the true windfall of this industry.
For example, 80% of capex from chip companies goes toward wafer manufacturing, a process dominated by TSMC and Samsung, with a handful of other companies – none Vietnamese – taking up the rest of the global chip fabrication share.
Semiconductor fabrication plants – called ‘fabs’ – are wildly expensive, with the most advanced costing many billions of dollars. The price tag on TSMC’s under-construction fab in Arizona is currently US$40 billion.
Given those prohibitive costs, Vietnam aims to expand testing and packaging investments, while eventually targeting the lucrative design stage – i.e., where Nvidia makes its money.
To that end, the government aims to train 50,000 engineers for the semiconductor industry by 2030, including 15,000 chip design engineers and 35,000 engineers across manufacturing, packaging, testing, and other fields.
This hugely ambitious goal would address one of the biggest challenges facing the country’s chip industry: human resources.
“A highly skilled workforce is the backbone of any successful semiconductor industry,” a representative from FPT Group said. “Despite having a young and talented IT talent pool, the shortage of high-skilled semiconductor personnel has always been a primary challenge for Vietnam.”
FPT Group, meanwhile, hopes to be a domestic leader in this effort. With support from the government, FPT is focusing on talent development by investing in education and training programs that equip individuals with the necessary skills. In September 2023, FPT University partnered with FPT Semiconductor to set up a Department of Semiconductor and Microelectronics, aiming to develop a high-quality workforce and conduct research on microelectronics and semiconductors.
FPT Group, and Vietnam more broadly, have their work cut out for them amid intense regional competition.
Nvidia, Microsoft, and Google have each announced multi-billion dollar AI- and chip-related investments in Indonesia and Malaysia over the last year, while Vietnam hasn’t secured anything that large.
Advanced economies like the U.S., which dominates the design market, are also trying to get a bigger share of the semiconductor pie, most notably through the 2022 CHIPS and Science Act that subsidizes chip fabrication.
Amid that competition, the Ministry of Planning and Investment is drafting a decree for the to-be-launched Investment Support Fund, offering aid of up to 30% of the research and development (R&D) costs that businesses incur to attract more high-tech FDI. This will also include incentives related to corporate income tax, import-export tax, and land lease fees.
While this initiative may take time to come online, Vietnam does have strengths, including a strong STEM-focused education system and lower labor costs.
FPT, for their part, envisions a bright future: “We believe that Vietnamese engineers will be able to join the design process of modern semiconductor circuits, master packaging and testing technology, and work in semiconductor factories, thus gradually grasping technology in the production stage.
We hope that as Vietnam continues to grow as a global hub for semiconductor talent, we will also see increased investment from global semiconductor corporations, leading to the expansion of facilities and further development of the supply chain.”
FPT Semiconductor, which focuses on power management chip design, is a domestic pioneer in semiconductor design for commercial purposes. They are currently fulfilling orders for 70 million chips from Japan, South Korea, and Taiwan for medical equipment and microelectronics applications.
Writing credit Michael Tatarski
Join us for a Webinar hosted by Dynam Capital, the fund manager for VietNam Holding Limited (LSE: VNH) at 10 AM UK time, Thursday 8 August 2024, as we discuss the growing potential for Vietnam to participate in the global IT and semiconductor supply chain with FPT Corporation (HOSE: FPT) our largest portfolio holding.
FPT is the most valuable technology brand in Vietnam. The company has transformed itself from an IT services company to an end-to-end digital transformation service provider and operates from 290 offices and branches across 29 countries and continues to expand its overseas presence.
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