Chip industry doubles down on Singapore as production hub

Big Western chipmakers and related suppliers are moving to increase production in Singapore as they work to meet growth in demand in the medium to long term and spread their supply chain risks.

French substrate manufacturer Soitec will invest 400 million euros ($430 million) to double the capacity of its wafer plant in Singapore, while U.S. semiconductor manufacturing equipment maker Applied Materials has broken ground on a new 600 million Singapore dollar ($450 million) plant in the city-state.

Soitec is expanding its factory in Pasir Ris Wafer Fab Park, an industrial park that houses manufacturers in the industry in northeast Singapore. Soitec's project is scheduled for completion in 2024 and will add a total floor space of 45,000 square meters, including office space, to the plant.

The Soitec plant in Singapore makes silicon-on-insulator (SOI) wafers. The expansion will see the plant's 300-millimeter SOI wafer capacity double to 2 million units annually. The company is also expected to more than double staffing at the plant to more than 600 by 2026.

SOI wafers prevent leakage of electrical current using layers of insulation and make semiconductors more energy efficient. They are widely used in smartphones, as they are suitable for power-source management and face and voice authentication.

Demand for semiconductors grew significantly during the COVID-19 pandemic but has since tapered off and remains sluggish due to concerns about a global economic downturn.

Last November, the industry organization World Semiconductor Trade Statistics forecast that global semiconductor sales will shrink 4.1% year-on-year to $556.5 billion in 2023, the first annual decline in four years.

But Soitec CEO Pierre Barnabe is upbeat on the company's outlook.

"The semiconductor industry undergoes periodic cycles and the current slowdown is no different," he said in an written interview with Nikkei, adding that Soitec "has taken a long-term perspective" and is expanding its Singapore plant to prepare for future growth, adding, "The current semiconductor slowdown is not affecting the key markets that are served by Soitec's specialized, energy-efficient wafers, namely in mobile communications, automotive and industrial [applications], as well as in connected devices."

"As these products add more features and increase in technological capabilities, more energy-efficient chips will be required to power them. Hence, we are optimistic that the demand for our wafers will remain resilient," he said.

The company's investment in Singapore is part of Soitec's five-year, 1.1 billon euro capital spending program announced in 2021.

Soitec's Singapore plant is its only production base outside France. The company decided devote more resources to the city-state, where a supply chain already exists, although land and labor costs are high.

Soitec has an 80% stake in French semiconductor design company Dolphin Design, which also plans to set up a dedicated cutting-edge computing and artificial intelligence center, its first in Asia. It will be the company's second overseas design center, after Montreal.

Meanwhile, Applied Materials broke ground on a large plant in the eastern Singapore district of Tampines in December last year, with completion scheduled for 2024. Singapore is the company's Asian hub and already its largest production base outside the U.S.

By boosting its capacity in Singapore, Applied Materials intends to meet growing demand from its main customers, including Taiwan Semiconductor Manufacturing Co. The new plant is a pillar of Applied Materials' eight-year expansion plan dubbed "Singapore 2030." It will have a total floor space of 65,000 sq. meters, including office space. The company's workforce in Singapore will be increased by about 40% to more than 3,500.

The new plant in Singapore will also conduct research into the commercialization of new technologies, improvements in semiconductor capacity and energy conservation. Applied Materials will partner with an electronic engineering research institute affiliated with Singapore's Agency for Science, Technology and Research, conducting joint studies on hybrid bonding and other 3D chip integration technologies.

Soitec and Applied Materials are expanding production in Singapore in the hope of strengthening ties with chipmaking Asian customers.

U.S.-based contract chipmaker GlobalFoundries is also building a $4 billion plant in Singapore.

The logistics system in Singapore is efficient, allowing it to mesh well with customers in Taiwan, South Korea and Japan. The semiconductor industry accounts for 7% of Singapore's gross domestic product.

Countries around the world are competing to attract chip-related companies. Singapore's government is also working hard to lure investment by offering tax breaks and land, and supporting research and development.

Glyn Truscott, a director of Bain & Co., said one reason for Singapore's popularity was its "sizable ecosystem of suppliers and partners stationed here."

In addition, although rivalry between the U.S. and China is heating up over advanced semiconductors, Singapore is "relatively neutral, geopolitically, making it less likely to be affected in any geopolitical conflict," Truscott said. "Furthermore, its location in Southeast Asia offers supply-chain diversification."

A version of this article was first published by Nikkei Asia on Feb 26 2023.
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