Marvell Technology and Novatech will each establish semiconductor design centers in Vietnam.
According to a statement from the White House on September 10th, during President Biden’s visit to Vietnam, the United States and Vietnam will elevate their bilateral relationship to a comprehensive strategic partnership. They also announced the establishment of a new semiconductor partnership to provide sustainable semiconductor supply chain support for American industry, consumers, and workers.
Additionally, both countries declared the launch of a comprehensive workforce development program in Vietnam. They will jointly develop practical teaching labs and training courses for semiconductor assembly, testing, and packaging. The U.S. government will provide an initial seed funding of $2 million.
The United States also announced enhanced technical cooperation with Vietnam to support its efforts in quantifying its rare earth element resources and economic potential, attracting high-quality investments to promote the comprehensive development of the country’s rare earth element industry.
The White House statement indicates that businesses from both countries will engage in cooperation in multiple fields.
Vietnam Airlines and Boeing will sign a multi-billion-dollar agreement to purchase 50 Boeing 737 MAX aircraft, promoting job growth in the United States and supporting the development of Vietnam’s tourism industry. The statement mentions that this deal will support over 33,000 direct and indirect jobs across the United States.
The U.S. semiconductor product packaging and testing services provider, Amkor Technology, will announce the commencement of its advanced testing and packaging factory in Bac Ninh province, Vietnam, starting in October, with a total investment of $1.6 billion.
Marvell Technology, a U.S. chip manufacturer, will announce the establishment of a “world-class” semiconductor design center in Ho Chi Minh City, Vietnam. Additionally, the U.S. electronic design automation company, Synopsys, will collaborate with the Saigon Hi-Tech Park in Ho Chi Minh City to launch a semiconductor design and incubation center.
Microsoft and the Vietnamese AI financial technology company, Trusting Social, are set to announce an agreement to develop generative AI-based solutions for Vietnam and emerging markets.
In addition, Nvidia will collaborate with the Vietnamese software group FPT, the Vietnamese military electronics and telecommunications company, and Vietnam’s largest conglomerate, Vingroup, to deploy AI in the fields of cloud computing, automotive, and healthcare. According to the statement, Meta Platforms will partner with the Vietnam National Innovation Center to launch the “Vietnam Innovation Challenge” project, aimed at promoting digital transformation for small and medium-sized enterprises.
01
The Chinese Ministry of Foreign Affairs Response
On September 11th, the spokesperson for the Chinese Ministry of Foreign Affairs, Ma Ning, presided over a regular press conference. When asked about the announcement that the United States and Vietnam would elevate their relationship to a comprehensive strategic partnership and cooperate in areas such as semiconductors, AI, and critical minerals, Ma Ning responded as follows:
Regarding the relationship between the United States and Vietnam, we have also noted that the Vietnamese side has repeatedly emphasized that developing a comprehensive strategic partnership with the United States is Vietnam’s foreign policy priority and a top priority in its foreign relations.
“China believes that the development of bilateral relations by any country should not be targeted at third parties and should not harm regional peace, stability, and development,” Ma Ning stated. China requires that when the United States handles its relations with Asian countries, it must respect the common aspirations of regional countries for stability, cooperation, and development, adhere to the basic principles of international relations, and abandon hegemony and Cold War thinking.
02
Vietnamese Semiconductor Current Level
According to data from the US Census Bureau, the total import value of semiconductor chips in the United States in February this year was $4.86 billion, a 17% year-on-year increase. The Asian region accounted for 83% of the total import of semiconductor chips in the United States. According to Bloomberg, Vietnam has accounted for more than 10% of the US chip imports for seven consecutive months. In February this year, Vietnam exported chips worth $562.5 million to the United States, compared to $322 million in February of the previous year. In terms of sales, Vietnam ranks third in the export of semiconductor chips to the United States in Asia.
Professionals predict that the Vietnamese semiconductor market is expected to grow by $6.16 billion (approximately ¥39.938 billion) between 2020 and 2024, with a compound annual growth rate of 19%.
A recent report by a South Korean bank pointed out that Vietnam has rapidly become a major market for South Korean semiconductor manufacturers, and Vietnam has become the production base for major smartphone manufacturers. South Korean semiconductors are used as intermediate products in Vietnam for the production of IT finished products.
In recent years, Vietnam has signed new-generation free trade agreements with multiple countries, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the European Union-Vietnam Free Trade Agreement (EVFTA), and the Regional Comprehensive Economic Partnership (RCEP), among others, expanding its import and export markets. Vietnam has currently joined at least 15 different free trade agreements, covering more than 50 countries globally. Additionally, Vietnam is also in negotiations with Israel and the European Free Trade Association (EFTA) for future agreements.
In 2019, the Vietnamese government launched the Vietnam Manufacturing 2030 plan, supporting foreign businesses in introducing high-value-added technologies to Vietnamese local companies, transitioning from low-value-added contract manufacturing to upgrading the value chain of high-end industries and product production. The goal is for the industrial sector’s output value to account for more than 40% of GDP, making Vietnam a modern industrial powerhouse by 2030.
At the same time, this plan will be complemented by the preferential measures of the 2015 Investment Law, which provides different tax rates and different investment incentives depending on investment projects and regions. Particularly encouraged areas include computer hardware and software production, the development of semiconductor technology, and the production of high-tech electronic components.
Vietnam’s main incentives include a corporate income tax exemption for 2-4 years, a 50% reduction in corporate income tax for 4-9 years, exemptions from land use tax, and exemptions from import taxes for production equipment and raw materials. In addition, each industrial zone offers exclusive investment incentives.
03
Laptop Supply Chain Migration to Vietnam
The global supply chain has been impacted by the tense relationship between China and the United States, leading many companies to expand their production bases in Vietnam, turning Vietnam into a significant hub for electronic contract manufacturing.
In fact, even before the COVID-19 pandemic and the U.S.-China trade tensions, Taiwanese contract manufacturing companies had already started establishing a presence in Southeast Asia. Companies like Foxconn and Pegatron, for instance, acquired land in Vietnam as early as 2008, with their facilities located in the northern regions of Guangning Province and Vinh Phuc Province, which are geographically closer to China. However, despite this early investment, most Taiwanese firms considered Vietnam as a backup option, and over the years, they did not show the same level of enthusiasm as companies like Samsung in relocating their entire smartphone production lines to Vietnam.
One of the primary reasons why Taiwanese companies only set up a small portion of their production in Vietnam is the complexity of the supply chain and the completeness of the local ecosystem, according to TrendForce analyst Huang Shufang. For example, a single laptop requires approximately 2,000 components, and in the event of any component shortage, establishing a production base outside mainland China becomes much more challenging in terms of component supply and parts management. The key to successful production relocation lies in rebuilding clusters and ecosystems, which takes time.
However, at the behest of brand manufacturers, the electronic contract manufacturing industry has quietly undergone a significant migration over the past 2-3 years. Companies like Foxconn, which announced a $900 million expansion plan in Vietnam in 2022, as well as Wistron, Pegatron, and Inventec, have all declared investments of billions of New Taiwan Dollars to expand their production capacity in Vietnam.
According to data from research firm TrendForce, the proportion of laptops shipped from Vietnam is expected to increase to 20% in 2023. Just a year ago, in 2022, less than 5% of the world’s laptop production and assembly came from Vietnam.
The proactive moves in the supply chain are largely attributed to pressure from customers and the brand manufacturers. Industry insiders note that in the past two years, due to the pandemic, the entire supply chain was focused on securing supplies, but now, as the market shifts to oversupply, companies are reevaluating the issue of supply chain diversification.
Among these brands, Apple and Dell, both American companies, have been particularly proactive in their supply chain adjustments. According to industry insiders, Dell began actively assessing the sources of suppliers and components as early as 2022. This was due to Dell’s significant presence in the North American public procurement market, and in consideration of geopolitical risks, they were keen to reduce their dependence on China. Apart from scrutinizing suppliers and sources, it is reported that nearly all of Dell’s laptop contract manufacturing was previously done within China. However, at Dell’s request, suppliers including Pegatron and Wistron have actively established laptop contract manufacturing lines in Vietnam over the past two years to meet customer demands and increase production capacity from Vietnam.
A similar trend can be observed in Apple’s supply chain dynamics. Apple’s MacBook products are primarily manufactured by Quanta and Foxconn. According to industry insiders, both companies were requested by customers to establish MacBook production lines in Vietnam last year, and it is estimated that this year, a portion of MacBook contract manufacturing will be shifted to Vietnam.
With TrendForce estimating that 20% of laptops will be produced in Vietnam in 2023, roughly 34 million laptops are expected to come from Vietnam in a year, solidifying Vietnam as the second-largest laptop production base after China. Not only in laptop production, but contract manufacturers have also been gradually setting up consumer electronics production lines in Vietnam, including headphones, watches, and tablets. Among these developments, Foxconn’s decision to establish AirPods production lines in Vietnam has garnered significant attention.
Looking at the current capacity deployment by brands and contract manufacturers, it appears that India and Vietnam are emerging as the second-largest production bases for smartphones and laptops. However, from the perspective of supply chain risk diversification, what brands require in the future is not only a second major production base outside of China but also a “more flexible production model.” According to high-ranking officials in the contract manufacturing industry, brand customers are now demanding production models that not only reduce the risk of concentrated production in China but also have the ability for adaptive production at each production base. In other words, even if laptop production is concentrated in China and Vietnam, in the event of unforeseen circumstances, contract manufacturers’ production lines in other regions must be able to respond immediately. Such a production model is likely to reshape the appearance of the supply chain once again.
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