Vietnam is emerging as a crucial new player in the global semiconductor industry, benefiting significantly from the ongoing US-led efforts to reduce dependency on China for critical technology components. As tensions in the semiconductor industry intensify due to geopolitical factors, Vietnam is increasingly seen as a viable alternative manufacturing hub. This shift is primarily driven by Vietnam’s pool of well-educated, motivated engineers who work for relatively low wages, attracting a range of semiconductor packaging and design companies from the US, Germany, Japan, South Korea, and Taiwan.
One of Vietnam’s most compelling advantages in the semiconductor sector is the cost-effectiveness of its labor force. According to market research, Vietnamese engineers earn about $8,000 annually, roughly half of what their counterparts in Malaysia make. In comparison, engineers in South Korea, Taiwan, Japan, and Singapore command significantly higher salaries of $34,000, $46,000, $50,000, and $68,000, respectively. Even semiconductor design engineers in Vietnam with less than three years of experience earn between $10,000 and $15,000 per year, a stark contrast to the $65,000 to $70,000 they would earn in the United States.
These cost advantages make Vietnam an attractive destination for semiconductor companies looking to maximize efficiency while minimizing costs. This has prompted many companies to establish and expand their operations in Vietnam, making it a burgeoning hub for the semiconductor industry.
Malaysia’s Footsteps
Vietnam is pursuing a technology-oriented industrial development policy, similar to Malaysia, currently the world’s sixth-largest semiconductor exporter. Malaysia holds 13% of the global assembly, testing, and packaging market share. Vietnam’s strategy mirrors Malaysia’s successful model, focusing on creating a supportive infrastructure, developing a skilled workforce, and attracting foreign investment. As the country follows this path, it stands to gain a significant foothold in the global semiconductor supply chain.
This shift aligns well with the Biden administration’s broader strategy to diversify semiconductor supply chains away from China under the US-Vietnam Comprehensive Strategic Partnership. The ongoing trade tensions and the strategic importance of semiconductors have made this diversification a priority. While the Biden administration’s support is crucial, the trend of moving semiconductor production to Vietnam would likely have happened regardless due to the country’s intrinsic advantages.
Vietnam’s Semiconductor Landscape
Several multinational corporations have already recognized Vietnam’s potential and established operations in the country. Intel, for example, operates its largest integrated circuit (IC) assembly, packaging, and test facility in Vietnam. Germany’s largest semiconductor maker, Infineon, has established a product development team in Hanoi. The decision to expand into Vietnam was driven by the country’s youthful population and its rapidly growing pool of technical talent.
At the inauguration of Infineon’s Hanoi office, C S Chua, CEO of Infineon Technologies Asia-Pacific, highlighted Vietnam’s transformation into a sought-after destination for multinational corporations. The development center in Hanoi will enhance Infineon’s ability to meet the growing demand for functional testing and customized circuit design, particularly for their industry-leading System-on-Chip (SoC) solutions.
The rapid development of Vietnam’s semiconductor industry is underpinned by its skilled workforce. Renesas Electronics, Japan’s largest integrated semiconductor device manufacturer, has been in Vietnam since 2004 and now has its largest design center outside Japan located in Ho Chi Minh City. Renesas is also contributing to the local talent pool by establishing semiconductor design courses at Vietnamese universities.
South Korean and Taiwanese companies are also increasing their footprint in Vietnam. BOS Semiconductors and CoAsia have set up R&D centers in Vietnam, leveraging the country’s talent for their partnerships with Hyundai and Samsung, respectively. Taiwanese companies like GUC and Faraday Technology have design centers in Vietnam, while Alchip Technologies is planning to follow suit. Notably, GUC and Alchip are affiliated with Taiwan’s world-leading Taiwan Semiconductor Manufacturing Company (TSMC), further establishing Vietnam as a critical node in the global semiconductor supply chain.
Vietnam is not just relying on foreign investments to bolster its semiconductor industry; it is also nurturing local talent and innovation. Vietnamese semiconductor companies such as FPT Semiconductor and VN Chip are making strides in the industry. The Vietnamese government is actively supporting these developments through initiatives like setting a goal to train 50,000 semiconductor engineers by 2030. This target, about ten times the current number of semiconductor engineers, underscores Vietnam’s commitment to becoming a global semiconductor powerhouse.
Associate Professor Truong Viet Anh of the Hanoi University of Science highlighted this ambitious goal, which aligns with the government’s broader vision to foster innovation and technological development. The combination of academic support, start-up incubators, high-tech industrial parks, and financial incentives is creating a conducive environment for the semiconductor industry to thrive.
American Influence in Vietnam’s Semiconductor Industry
American companies have a significant presence in Vietnam’s semiconductor industry. In addition to Intel, major players such as Microchip, Marvell, Qualcomm, Synopsis, Cadence, Savarti, Uniquify, and Amkor have established operations in Vietnam. These companies are leveraging Vietnam’s strategic advantages to expand their capabilities and secure their supply chains.
Marvell, known for its data infrastructure semiconductor solutions, anticipates that Vietnam will become its third-largest design center after the US and India. Similarly, Microchip, a manufacturer of microcontrollers and other devices, is using its Vietnam base to develop chips for various industries, including automotive, industrial, aerospace, and defense. Qualcomm, which has been present in Vietnam since 2003, plays a significant role in developing the country’s mobile telecom technology, from 2G to 5G.
Enhancing Vietnam’s Semiconductor Ecosystem
US companies are also actively involved in enhancing Vietnam’s semiconductor ecosystem through collaborations with local authorities and academic institutions. For instance, Synopsis, the world’s leading electronic design automation company, employs over 500 people in Vietnam. In 2023, Synopsis signed agreements with various Vietnamese institutions to support the development of IC design expertise and the establishment of a semiconductor research institute.
Similarly, Cadence, another US electronic design automation company, has partnered with Vietnam’s National Innovation Center (NIC) to provide design tools to universities, training centers, and start-ups. This collaboration aims to accelerate IC design innovation in Vietnam, enhancing the country’s semiconductor capabilities. The NIC has also partnered with Arizona State University to develop semiconductor-related training and research programs, further bolstering the country’s talent pool.
Amkor’s Expansion in Vietnam
A notable development in Vietnam’s semiconductor industry is the opening of Amkor’s first factory in the country in October 2023. Amkor, the world’s second-largest provider of outsourced semiconductor assembly and test (OSAT) services, established this state-of-the-art facility in the Yen Phong Industrial Park near Hanoi. According to Amkor CEO Giel Rutten, this new factory is designed to provide the kind of secure and reliable supply chain that customers in communications, automotive, and high-performance computing industries need.
The strategic importance of this facility is underscored by the US Department of Commerce’s decision to support the construction of Amkor’s first OSAT factory in the US under the CHIPS Act. While this legislation aims to bolster domestic semiconductor manufacturing, it also includes provisions to support the semiconductor industry in countries like Vietnam through the $500 million International Technology Security and Innovation (ITSI) Fund. This underscores the interconnected nature of global semiconductor supply chains and Vietnam’s role in them.
Despite the rapid growth and significant investments, Vietnam’s semiconductor industry faces challenges. Ensuring reliable supplies of electricity and water is crucial as the industry expands. The infrastructure needed to support a thriving semiconductor sector requires continuous improvement to maintain stability and meet the growing demands of multinational corporations.
Vietnam’s success in the semiconductor industry will depend on its ability to maintain a balance between attracting foreign investments and developing domestic capabilities. The government’s efforts to train a large number of semiconductor engineers, support start-ups, and create a conducive business environment are positive steps toward achieving this balance.
Vietnam’s emergence as a key player in the global semiconductor industry reflects the shifting dynamics of the US-China chip wars and the broader strategic realignments in the technology sector. The country’s competitive labor costs, growing pool of skilled engineers, supportive government policies, and strategic partnerships with multinational corporations position it well to become a significant node in the global semiconductor supply chain.
As companies seek to diversify their supply chains and reduce reliance on China, Vietnam offers a compelling alternative. The continued growth of Vietnam’s semiconductor industry will not only contribute to the global supply chain’s resilience but also provide significant economic benefits to the country, making it a key beneficiary of the ongoing US-led semiconductor decoupling efforts. The developments in Vietnam’s semiconductor sector are a testament to the country’s potential to become a global technology hub, driving innovation and growth in the region and beyond.
