Vietnam's path to entering the billion-dollar semiconductor industry
VnExpress•12/09/2023
Vietnam is assessed to have a rapidly developing semiconductor ecosystem, with the potential to improve its position in the global semiconductor supply chain.
In the joint statement on the Vietnam-US Comprehensive Strategic Partnership, the two sides acknowledged Vietnam's great potential to become a key country in the semiconductor industry, and "supported the rapid development of the semiconductor ecosystem in Vietnam." The statement mentioned the launch of human resource development initiatives in the semiconductor sector, in which the US Government will provide an initial seed grant of $2 million, along with future support from the Vietnamese Government and the private sector. The above moves are considered a new step forward for Vietnam on the path to penetrating the semiconductor chip sector - an industry worth hundreds of billions of dollars and having a great influence on all fields in the world.
According to statistics in February from the US Census Bureau, chip revenue from Vietnam imported into the US market increased by 74.9%, from 321.7 million USD in February 2022 to 562.5 million USD after one year, accounting for 11.6% of the market share. The impressive figure puts Vietnam and some regions in Asia in the top markets with the strongest growth in terms of market share of imported chips into the US, according to Bloomberg 's assessment.
However, according to experts, if we consider the entire supply chain, Vietnam only contributes a small part. To make a chip, there are three basic stages: design, manufacturing and packaging. Vietnam, with the main representative being the Intel factory in Ho Chi Minh City, is currently only involved in the final packaging stage before the chip is put on the market. This is also the stage with the lowest value in the supply chain. According to the Semiconductor Industry Association SIA, packaging accounts for about 6% of the value in a chip, while more than 53% is in the design stage, 24% in the foundry stage. "Vietnam currently plays an important role in the global semiconductor industry, but mainly focuses on assembly, testing and packaging," Counterpoint Research analyst Ivan Lam told VnExpress . Over 40 years of ups and downs of the Vietnamese semiconductor industry Mr. Ivan Lam also assessed that one of Vietnam's shortcomings is that it has not been able to produce semiconductor products domestically. In fact, Vietnam used to have a component manufacturing factory. It was in September 44 years ago that the Z181 semiconductor factory was established, starting to carry out contracts to manufacture and export diodes and transistors. Industry insiders consider this the beginning of Vietnam's semiconductor sector. However, since the factory stopped producing semiconductors in the early 90s of the last century, this stage has been neglected. Vietnam's semiconductor industry stagnated, then started to revive with the appearance of some chip design engineer training offices in the late 1990s. In the period of 2004-2005, Vietnam began to participate more deeply in the chip design sector, with the appearance of some foreign companies opening domestic design offices such as RVC, Active Semi, and the establishment of the Integrated Circuit Design Research and Training Center (ICDREC). A year later, Intel invested in Vietnam, opening a factory in the Ho Chi Minh City High-Tech Park, marking its entry into the packaging sector. After a period of rapid growth, the chip industry slowed down due to the economic crisis in 2008. However, when it recovered in 2013-2014, Vietnamese enterprises such as Viettel and FPT began to participate in the global chip supply chain. Vietnam currently has more than 5,500 chip design engineers, according to statistics from the Vietnam Microchip Community. According to the National Science and Technology Portal, Vietnam has 1,072 international publications related to the semiconductor industry and 635 publications related to microchips by the end of 2022. Intel's packaging and testing factory in Ho Chi Minh City has shipped more than three billion chips by the end of 2022. The business ecosystem within the supply chain of Intel's factory has also gradually taken shape. Korean microchip design companies have also followed Samsung into Vietnam, such as CoAsia in Hanoi and Amkor in Bac Ninh. "The scale of Vietnam's electronics industry is large enough to drive the development of the semiconductor industry, first in the design and packaging stages," said Nguyen Anh Thi, Head of the Management Board of Ho Chi Minh City Hi-Tech Park. Kim Huat Ooi, General Director of Intel Products Vietnam, said: "We should not underestimate the role of packaging and testing. Compared to the previous generation, the production process of new microprocessors is much more complicated," he said. Entering the hundred-billion-dollar market According to a report by the Semiconductor Industry Association, global semiconductor chip revenue in 2022 is about 556 billion USD. More importantly, these small components, which can be found everywhere, from data centers, computers, rockets to washing machines, have become the driving force for the tens of trillions of USD economy globally. The huge potential makes the semiconductor industry an attractive target for many countries. However, according to analysts from CSIS, the complexity of a chip means that no country can produce semiconductor chips on its own. An integrated circuit (IC) chip is one square inch in size, but inside it contains millions or even billions of transistors. To make such a product, the manufacturer takes from 4 to 6 months, with more than 500 separate stages, from designing on specialized software to manufacturing at the factory and assembling and testing at specialized facilities. According to estimates from consulting firm Accenture, the components that make up a chip can be transferred between countries about 70 times, before a finished product reaches consumers. This is considered an opportunity for new markets like Vietnam to participate in the global supply chain. However, Vietnam, with a team of only about 5,000 engineers, is still very small compared to this hundred-billion-dollar market. To develop, Vietnam has two paths: expanding the remaining manufacturing sector, or improving the capacity and value in design and packaging. According to experts, Vietnam is prioritizing the second path. At a working session with two national universities on the morning of September 6, Minister of Information and Communications Nguyen Manh Hung said that Vietnam's strength is chip design and will consider this a core strength. The important infrastructure that the state needs to invest in is a system of leading laboratories. Having followed the semiconductor market in Vietnam for twenty years, Mr. Nguyen Thanh Yen, administrator of the Vietnam Microchip Community, assessed that choosing to develop design human resources is the right choice. "The number of 5,000 engineers is not large but not too small. This force plays an important role in training and career guidance for the next generation of engineers, which is very favorable for promoting strong growth in the number of engineers," he said. "In the chip industry, design engineers hold the most important position because they understand the entire design. If Vietnam focuses on developing this team, we will certainly have sweet fruits in the next 5-10 years." At the Vietnam - US Summit on Innovation and Investment on the morning of September 11, Mr. Truong Gia Binh, Chairman of FPT Corporation, also proposed that the Government invest in training from 30,000 to 50,000 semiconductor experts to meet the increasing demand of the industry. Previously, FPT University announced the establishment of the Semiconductor Microchip Faculty to supplement the high-quality human resources that are lacking in Vietnam. The Faculty is expected to welcome the first batch of students in 2024 with the orientation of specialized training in microchip design and conducting research for Vietnam's semiconductor microchip industry. To make chips without a factory, the model that Vietnamese companies can pursue is Fabless, which means that the company takes care of the design and business but does not manufacture itself. Nvidia, ARM, Qualcomm are big examples that follow this model. In Vietnam, that is FPT Semiconductor.
Vietnamese staff working at Intel Products factory. Photo: IPV
Meanwhile, the manufacturing sector requires expensive investment, while the domestic ecosystem is still in its infancy and the market is "not ready". When it comes to chip manufacturing, companies like TSMC and GlobalFoundries are the industry leaders. A TSMC 3nm chip factory could cost $20 billion. "When it comes to manufacturing, it is a matter of mass production in large quantities, and competition in quality and price is extremely fierce. It will be very risky if there is no preparation phase in advance," Mr. Yen assessed.
Human resource challenges
According to experts, semiconductor human resources are a challenge for Vietnam in increasing value in the chip supply chain.
Also at the meeting on September 6, Minister Nguyen Manh Hung cited statistics saying that Vietnam's semiconductor industry needs 10,000 engineers each year, but the current human resources only meet less than 20%. In fact, the human resources in this field in Vietnam only grow by about 500 engineers each year, according to a report by the Vietnam Microchip Community.
According to Mr. Nguyen Thanh Yen, the technical staff is mainly working for foreign companies. There are many talented Vietnamese engineers, but they are typically good at each stage and each process, while Vietnam has not yet had a large team at the general engineer level. "Our position is to provide human resources to serve each stage in the chip design field, not at the level of being able to provide a large team to complete the design and commercialize the chip," said Mr. Yen.
In addition, this field is characterized by being quite "conservative" and "emphasizing experience". According to him, in the IT industry, software errors can be quickly fixed and patched, but chip design errors will cost millions of dollars and the time to fix them will be measured in years. Therefore, new engineers have not accumulated enough necessary experience and have not been trusted with key tasks.
"The shortage of human resources is not about a shortage of new human resources, but how to solve the problem so that companies are ready to expand the recruitment of new graduates," he assessed.
In addition, experts also proposed the idea of reducing taxes for employees in the semiconductor industry to attract experts working abroad. In the next 5-7 years, Vietnam needs to have domestic companies making fabless chips that have a foothold in the market.
According to analyst Ivan Lam of Counterpoint Research, Vietnam still lags behind other Asian countries such as Singapore and Malaysia, although some domestic enterprises such as Viettel and FPT have conducted R&D and developed their own chipsets.
“Consistent investment in education, industry support, international cooperation and intellectual property accumulation will be crucial to overcome this challenge,” Ivan Lam assessed. “With the efforts of the Vietnamese government, the participation of local enterprises and the cooperation of global chip manufacturers, the Vietnamese semiconductor industry has the potential to grow in the long term.”
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