PM Modi to learn about semiconductor innovations in Singapore on second day of his/her visit

Prime Minister Narendra Modi will visit a state-of-the-art semiconductor facility in Singapore along with his/her Singaporean counterpart on Thursday, the second day of his/her Singapore visit.

Prime Minister Modi, who arrived in Singapore on Wednesday, will also participate in several programmes there on Thursday. This visit will further strengthen bilateral relations between India and Singapore.

The visit underlined the growing importance of the semiconductor sector, which has the potential to expand India’s technological capabilities and foster deeper economic ties between the two countries.

The day will begin with a ceremonial welcome for Prime Minister Modi at the Singapore Parliament House, followed by a meeting with Singapore Prime Minister Lawrence Wong and the signing of several Memorandums of Understanding (MoUs).

After this, Prime Minister Modi will visit the semiconductor facility of AEM Holdings Limited along with the Prime Minister of Singapore. This will be followed by a lunch hosted by Senior Minister Lee Hsien Loong. They will also meet President Tharman Shanmugaratnam and Emeritus Senior Minister Goh Chok Tong. After a business meeting with the CEOs, Prime Minister Modi will return to New Delhi.

This visit of Prime Minister Modi is significant for the semiconductor industry in terms of enhancing trade opportunities between the two friendly countries, as Singapore, despite being a small city-state, has a well-developed semiconductor industry.

The semiconductor industry opens up opportunities for India in many aspects, including cooperation in talent development, as Singaporean universities have developed customized courses for the semiconductor sector, and sharing of knowledge on best practices in managing semiconductor industrial parks (called wafer fab parks in Singapore).

In terms of factors of production, Singapore has limitations of land and labour. With abundant land and skilled labour, India can be part of Singapore’s semiconductor value chain. Semiconductor companies in Singapore may be encouraged to consider India for their expansion plans.

Singapore also has semiconductor equipment and material manufacturers. Engagement and collaboration with such companies can also be helpful for developing the semiconductor manufacturing ecosystem in India.

Singapore, a city-state in maritime Southeast Asia, accounts for about 10 per cent of global semiconductor production, 5 per cent of global wafer manufacturing capacity and 20 per cent of semiconductor equipment production, according to data compiled by the government here. The semiconductor sector contributes 8 per cent to Singapore’s economic growth.

Data shows that nine of the top 15 semiconductor companies have set up shop in Singapore.

Singapore has players in all three segments of the semiconductor value chain – i) IC design: MediaTek, Realtek, Qualcomm, Broadcom, MaxLinear, AMD; ii) Assembly, packaging and testing: ASE Group, UTech, STATS ChipPack, Silicon Box. iii) Wafer fabrication: GlobalFoundries, UMC, Siltronic and Micron, and iv) Equipment/raw material manufacturers: Soitec, Applied Materials.

In the 1960s, American chip manufacturers began moving parts of their production process to Southeast Asia, including Singapore, in search of lower labor costs with a sufficiently skilled workforce.

Singapore actively facilitates such investments, as they create well-paying jobs in the manufacturing sector in its service-dependent economy.

Factors contributing to the growth of Singapore’s semiconductor industry are infrastructure and connectivity, stable business conditions, a significant cluster of leading companies based in Singapore covering the value chain (from design to wafer fabrication, assembly and testing), and human capital.

Semiconductor plants in Singapore are currently clustered in four wafer fabrication parks, spread across 374 hectares, where the Singapore government provides customized infrastructure solutions to investors.

To cultivate talents, Singapore’s universities are offering leading courses in microelectronics and IC design and collaborating with semiconductor companies to provide PhD research to their employees.

Singapore is now benefiting from the global focus on reducing risk and improving supply chain resilience, as it appears to be a safe bet in the era of US-China rivalry.

In 2022, Taiwan’s United Microelectronics Corporation announced an investment of US$5 billion to set up a semiconductor fab. It is expected to begin operations in 2024. In September 2023, GlobalFoundries inaugurated its new US$4 billion fabrication plant in Singapore. The plant is capable of manufacturing specialized chips on 28 nm node technology (the most advanced in Singapore).

In June 2024, NXP Semiconductors and TSMC-backed Vanguard International Semiconductor Corp. announced a US$7.8 billion joint venture for a Singapore plant (named VisionPower Semiconductor Manufacturing Company) that will make 40 to 130 nm chips for the automotive, industrial, consumer, and mobile market segments. Construction will begin in the second half of 2024, and production will begin in 2027.

Singapore’s semiconductor industry is limited to “mature-node chips” (process node technology of 28 nm or above), used in appliances, cars and industrial equipment. It is not equipped to make high-end logic chips used in the AI ​​field (AI chips have process nodes of 7 nm and smaller, and therefore require special production methods).

Singapore’s semiconductor industry is not expected to make a foray into AI chips. One view is that the market for mature-node chips is very large with stable growth prospects, so Singapore does not need to focus on AI chips. Another view is that manufacturing AI chips requires huge investments, existing companies in Singapore are not able to make such investments and large companies such as TSMC, Samsung and Intel have already committed their investments elsewhere.

Production costs in Singapore are rising, forcing semiconductor companies to move up the value chain and diversify to lower-cost and labour-intensive operations outside Singapore.

Many countries are offering massive incentives to attract semiconductor investment. Singapore has not announced any matching plans. Singapore appears to be relying on its inherent strengths. It is possible that such competition from other countries will reduce Singapore’s share of global semiconductor production in the long run.

Singapore has carved a niche for itself in the global semiconductor value chain over several decades. Singapore continues to invest in both hard and soft infrastructure to maintain its position. However, changes in the global situation due to the US-China rivalry and increasing focus on risk mitigation have led to major economies (including India) setting up their own semiconductor industries. This may not have an immediate impact on Singapore, but with rising production costs and limited resources (land and labour) in Singapore, it could pose a serious challenge to Singapore’s current position in the global semiconductor industry.