In recent years, influenced by shifts in the international landscape, the issue of global semiconductor supply chain security has garnered increasing attention. Driven by policies like chip subsidies, various regions are strengthening their semiconductor industry chains, with Europe and the United States being prime examples. Both aim to attract large chip manufacturers to set up factories locally. However, will they succeed in altering the current global semiconductor production landscape dominated by Asia?

Even with Increased Capacity in Europe and the US, Will Asia Remain the Semiconductor Hub?

Christophe Fouquet, President and CEO of ASML, recently provided his perspective on this question.

In a media interview, Fouquet mentioned his attendance at TSMC’s groundbreaking ceremony in Dresden, Germany. He believes that Europe and the United States need to not only establish subsidized chip factories but also genuinely impact the industry’s structure. Addressing long-term cost and resilience issues is crucial for developing a true ecosystem.

Fouquet argues that for Europe and the US to succeed, they must improve the economic model of semiconductor manufacturing. Producing components at a significantly higher cost is not sustainable. Subsidies are a temporary solution to cultivate time and space; the real challenge lies in tackling more structural issues. Europe’s primary advantages in semiconductors lie in its skilled workforce and renewable energy resources.

Fouquet believes that increased chip production capacity in Western countries is unlikely to shift the balance of power in the semiconductor industry. Even with subsidized new semiconductor plants, he anticipates a slowdown in chip production capacity growth, with Asia remaining the dominant manufacturing leader for many years to come.

Industry insiders reveal that expanding wafer fabrication capacity often leads to significant cost challenges. The cost structure of a wafer fab includes land and facility construction, equipment procurement, technology R&D and intellectual property, operation and maintenance, etc. A modern wafer fab can cost hundreds of billions of dollars. Construction costs also vary across regions. In Europe and the US, the need to import technology, cultivate talent, and enhance the industrial chain could lead to higher wafer fab construction costs.

Comparatively, the Asian market benefits from a mature supply chain, a vast talent pool, and supportive policies, resulting in relatively lower wafer fab construction costs.

Asian Chip Factories are Flourishing

Driven by recovering market demand and favorable chip subsidy policies worldwide, the global semiconductor market value continues to grow in 2024.

TrendForce indicated in a September survey that driven by AI deployments and improved supply chain inventory, the foundry market value is projected to grow by 20% in 2025, surpassing the 16% growth in 2024.

Industry sources also reveal that Asia stands out in terms of regional semiconductor capacity layout. Major markets like mainland China, Taiwan, South Korea, and Japan boast leading monthly production capacities, followed by Europe and the United States.

Besides these established markets, new semiconductor manufacturing forces have emerged in Asia, represented by Singapore, Malaysia, and Vietnam.

Singapore, a semiconductor powerhouse in Southeast Asia, possesses a complete semiconductor industry chain encompassing design, manufacturing, packaging, testing, equipment, materials, and distribution.

Many semiconductor companies including Texas Instruments, STMicroelectronics, Infineon, Micron, GlobalFoundries, TSMC, UMC, VIS, and ASE, have established branches or expanded their factories in Singapore. Leading foundries like TSMC, GlobalFoundries, UMC, and VIS have set up 8-inch and 12-inch fabs there.

Malaysia plays a crucial role in the global semiconductor packaging and testing segment. DRAMeXchange estimates that approximately 50 semiconductor companies have established back-end packaging and testing plants in Malaysia, including Intel, Micron, Texas Instruments, NXP, ASE, Nexperia, Infineon, HT-Tech, Tongfu Microelectronics, Suzhou Good-Ark Electronics, Renesas, Onsemi, Amkor, and STMicroelectronics.

Vietnam has attracted foreign investments from companies such as Intel, ASE, Samsung Electronics, Amkor, Qualcomm, Onsemi, Renesas, TI, NXP, Marvell, Synaptics, Heno Microelectronics, and Amphenol etc..

Notably, the semiconductor industry is one of Vietnam’s nine national products and has been listed as a key development focus for the next 30 to 50 years. According to the plan, Vietnam aims to have at least 300 chip design companies, three semiconductor chip manufacturing plants, and 20 semiconductor packaging and testing plants by 2040-2050.

(Photo credit: Samsung)

The major suppliers of WFE (wafer fab equipment) in the US are progressing smoothly in the application for license from the US government for the exportation of equipment systems, equipment parts, and customer services for 14nm and above processes to Chinese foundry SMIC. The US-based equipment suppliers that are applying for the license include Applied Materials, Lam Research, KLA-Tencor, and Axcelis. TrendForce believes that as some support from US-based equipment suppliers is forthcoming, SMIC should be able to continue its efforts in the optimization of the mature process modules and overcoming production bottlenecks to avoid a scission in raw materials and spare parts, and predicts the company to sit at a global market share of 4.2% in 2021. Keeping SMIC in operation will provide a bit of relief to the capacity crunch in the global foundry market, however, the tightening of the available production capacity will remain a challenge that is difficult to resolve for the foundry industry as a whole. Also, the US government continues to prohibit SMIC from obtaining the equipment of the advanced nodes that are 10nm and below, and the particular restriction poses a potential risk for the long-term development of the Chinese foundry.

SMIC Continues to Expand Domestic Demand and Localization under China’s Explicit Direction in Long-Term Development of Semiconductor

As the fifth largest IC foundry in the world, SMIC obtains over 70% of revenue from China and Asia-Pacific. In terms of process node perspectives, 0.18um, 55nm, and 40nm contribute to the majority of revenue that totaled to over 80% from being applied on service platforms such as logic, BCD, eFlash, sensor, RF, and HV, and the coordination with the IC projects listed in the 13th and 14th Five-Year Plan of China will continue to enhance on the assimilation of localized WFE (wafer fab equipment) and raw materials.

The sanctions imposed by the US Department of Commerce that have affected the long-term planning in production capacity and development strategies of SMIC are expected to result in a YoY declination of 25% in the capital expenditure of 2021 for the Chinese foundry. SMIC intends to allocate the majority of its capital expenditure to capacity expansion for the mature nodes and the construction of a new joint-venture fab in Beijing, and is conservative towards investing in advanced process technology such as FinFET. TrendForce believes that geopolitical factors and uncertainties in the WFE section of the supply chain have compelled SMIC to scale back its capital expenditure and shift its development focus to the 55/40nm and 0.18um nodes.

A breakdown of SMIC’s revenue by region shows that more than 50% comes from China, though whether major global clients are willing to continue placing their orders with SMIC under the consideration of foundry selection and long-term cooperation amidst the unabated status in the semiconductor competition between China and the US will be a focus of observation going forward. Pertaining to the return on investment for technology scaling and mature node, the development planning in advanced processes for SMIC no longer succumb to immediacy in demand under restricted client conditions and constraints from subcontractors. On the other hand, the resources for chiplet and specialty IC that exert better functions for the operation of the company are focused on the existing 14nm and above matured processes to enhance on PDK (process design kits) for clients that may create a business model with prolonged profitability, as well as preserve R&D staffs and future growth dynamics.

For more information on reports and market data from TrendForce’s Department of Semiconductor Research, please click here, or email Ms. Latte Chung from the Sales Department at lattechung@trendforce.com