The Rising Sun of Silicon Alley: Vietnam’s Semiconductor Revolution

The international semiconductor supply chain is highly complex, with major chipmakers sourcing from tens of thousands of vendors globally. A few of these vendors hold unique technological capabilities crucial for chip production, which causes inputs for an average IC chip to transit more than 70 international boundaries before a final product reaches customers. With expertise in R&D, IC design, and backend manufacturing, Vietnam has proved its significant and growing foothold in the semiconductor value chain across ASEAN in recent years.

A Booming Market with Tailwinds

The semiconductor market is projected to surge from US$17.24 billion in 2023 to US$26.20 billion by 2027. Vietnam mirrors this growth, particularly in its electrical equipment exports to the United States, which have skyrocketed since 2018. This phenomenal rise can be attributed to several key factors:

Strategic Location: With 34 harbors and 15 major highways connecting it to global trade networks, Vietnam sits on major international logistics routes. Moreover, Vietnam is a globally integrated country which has entered 16 FTAs and holds strong economic ties with leading countries in chip production, including the United States, South Korea, and Japan. This offers an attractive opportunity for chip firms to diversify their regional facilities to mitigate the impact of U.S.-China tensions.

Labor Cost Advantage: With a large working-age population and relatively low cost of living, Vietnam boasts a competitive labor cost advantage. Recognizing this potential, the Vietnamese government is actively promoting computer science education, aiming to cultivate 50,000 semiconductor engineers by 2030.

Thriving Electronics Industry: Vietnam’s booming electronics industry (EI), led by multinational corporations such as Samsung and Daewoo, has played a vital role in a proportional increase in semiconductor materials to fabricate the necessary electronic components. In 2022, electronics exports made up 30% of Vietnam’s total exports, solidifying its place as one of the world’s top 12 electronics exporters.

Technological Advancements: The adoption of 3D packaging technologies has revolutionized the industry, enhancing performance and energy efficiency. Furthermore, advancements in materials like gallium nitride (GaN) and silicon carbide (SiC) are opening new possibilities.

Diversification and China Plus One

The COVID-19 pandemic and U.S. trade restrictions have exposed the risks of overdependence on China. As a result, semiconductor manufacturers are on the lookout for new locations, and Vietnam has emerged as a compelling choice.

The Vietnamese government is capitalizing on this trend by offering competitive incentives for foreign direct investment (FDI) projects, particularly in high-tech sectors. These incentives include tax exemptions, reduced land rental costs, and preferential credit terms. Additionally, Resolution No. 105/NQ-CP, issued in July 2023, aims to streamline production and business processes, further propelling the industry’s development.

A Surge in Foreign Investment

Vietnam’s strategic advantages have attracted significant investments from leading semiconductor players. Some notable examples include:

• Samsung: Established a US$220 million R&D center in Hanoi in 2020.
• Qualcomm: Launched its first regional R&D center in Hanoi in 2020.
• Marvell: Plans to build a new design center in Ho Chi Minh City by the end of 2024.
• Intel: Opened a US$1.5 billion assembly, test, and packaging (ATP) plant in Ho Chi Minh City High-Tech Park in 2021.
• Amkor: Launched a US$1.6 billion chip facility for packaging and testing in Bac Ninh Province in 2023.

Local Innovation Takes Flight

Alongside foreign investment, Vietnamese technology companies are actively shaping the future of the industry. Notably, FPT, through its subsidiary FPT Semiconductor, has entered the domestic fabless market. In August 2022, FPT Semiconductor introduced its first self-designed analog IC specializing in power management for healthcare IoT devices.

Vietnam’s strategic location, cost advantages, and burgeoning electronics industry position it as a rising star in the global semiconductor landscape. With government support, technological advancements, and increasing foreign and domestic investments, Vietnam is poised to play a vital role in the future of this critical industry.

How Tractus Can Help

For over 25 years, Tractus has empowered companies to navigate the complexities of Asian expansion. We understand the evolving landscape, including the growing focus on supply chain diversification and security. Our partners and senior management leverage their experience running successful manufacturing and service businesses, bringing this commercial perspective to our client work. We have proven experience advising companies on their location strategies, helping them optimize their real estate portfolios, and identifying the optimal sites to support their companies’ growth and reduce risk. Let us show you how we can support you to make your next investment decision a success.

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Authored by

Nhi Nguyen is a research analyst based in Vietnam.