Vietnam's path to multibillion-dollar semiconductor industry

In their shared announcement about the U.S.-Vietnam Comprehensive Strategic Partnership, the two countries noted Vietnam’s sizable potential to become a key nation in the semiconductor industry and "are supportive of the rapid growth of the semiconductor ecosystem in Vietnam."

The announcement also mentioned initiatives to develop human resources in the semiconductor industry, with the U.S. providing a seed fund of US$2 million first and investments from the Vietnamese Government and the private sector in the future.

These are seen as Vietnam making new moves in its journey to join an industry worth hundreds of billions of dollars that impacts all areas globally.

According to data in February from the U.S. Census Bureau, chip imports from Vietnam jumped by 75% during the month to $562.5 million from $321.7 million a year earlier to account for an 11.6% market share.

This impressive figure placed Vietnam in the top tier in Asia in terms of growth, according to Bloomberg.

But experts pointed out that Vietnam’s contributions remain minor when the entire supply chain is considered.

There are three basic aspects in chipmaking: designing, foundry and packaging.

With the Intel factory in Ho Chi Minh City being its main producer, Vietnam only takes part in the last phase before the chip enters the market.

This is also the phase with the lowest value in the supply chain. According to the Semiconductor Industry Association (SIA), packaging accounts for 6% of a chip’s value.

"Vietnam is currently taking on a key role in the global semiconductor field, but its main focuses are assembly, testing and packaging," analyst Ivan Lam of Counterpoint Research told VnExpress.

Ups and downs of semiconductor industry

Vietnam lacks the ability to indigenously make semiconductors, he said.

Vietnam used to have a component factory. Semiconductor foundry Z181 was built in 1979, and it produced and exported diodes and transistors.

Industry insiders consider this the genesis of Vietnam’s semiconductor industry. But the factory halted production in the 1990s.

In 2004-05, foreign companies like RVC and Active Semi set up design centers and the Integrated Circuit Design Research and Education Center came up in Vietnam.

A year later, Intel invested in Vietnam, building a factory in Saigon’s Hi-Tech Park and making its mark in the packaging phase.

After a period of dizzying growth the chip industry was grounded by the Great Recession in 2008.

Following a recovery in 2013-14 local firms such as Viettel and FPT began to enter the industry.

Vietnam now has more than 5,500 chip design engineers, according to the Vietnam Microchip Community.

The Intel factory in Ho Chi Minh City has shipped more than three billion chips so far.

An ecosystem is gradually being established in the U.S. giant’s supply chain.

South Korean chip design firms are following in Samsung’s footsteps and setting up shop in Vietnam, including CoAsia in Hanoi and Amkor in Bac Ninh Province.

Kim Huat Ooi, general manager of Intel Products Vietnam, said: "We should not underestimate the role of packaging and inspection. When compared to the last generation, the production of new processing chips is much more sophisticated."

Entering a $500-B industry

According to the Semiconductor Industry Association, the global chip market was worth $556 billion last year.

More importantly, chips are all pervasive, from computers to rockets and washing machines, and the driving force behind an international manufacturing sector worth tens of trillions of dollars.

The colossal potential of the semiconductor industry makes it an appealing target for nations. But the complexity behind chipmaking means virtually no country can produce a semiconductor chip all by itself.

An integrated circuit (IC) is about one square inch in size but contains millions or even billions of transistors.

To make such a product takes a manufacturer four to six months and involves more than 500 separate steps from designing on dedicated software to creation and assembly at foundries and testing at specialized facilities.

Consulting firm Accenture estimates that the components to create a chip travels between countries around 70 times before the finished product reaches the end user.

This is seen as an opportunity for new markets like Vietnam to join the global supply chain.

However, this multibillion-dollar industry remains a bridge too far since the country only has 5,000 engineers.

Vietnam has two options to grow: expand the production sector or improve the skills and value in the design and packaging phase.

According to experts, Vietnam is opting for the latter.

At a meeting with two national universities on September 6 Minister of Information and Communications Nguyen Manh Hung said Vietnam possesses advantages in chip designing and would prioritize it.

The most important infrastructure for this, and one that requires government investment, is a chain of state-of-the-art research facilities, he added.

Nguyen Thanh Yen, administrator of the Vietnam Microchip Community, said he has observed the Vietnamese semiconductor market for 20 years and developing design expertise is the way to go.

"Five thousand engineers is neither a large number nor small, and they play an important role in training the next generations of engineers.

"In the chip industry, design engineers are the most crucial since they know every part of the design. If Vietnam focuses on developing engineers, we will see great results in the next five to 10 years."

At the Vietnam — U.S. Summit on Innovation and Investment on September 11 Truong Gia Binh, chairman of FPT Corporation, exhorted the Government to invest in training 30,000-50,000 semiconductor experts.

FPT University announced it has established a semiconductors and circuits department to address the country’s shortage of highly skilled workers.

It will take in its first students in 2024 and offer them comprehensive training in IC design, and carry out research into semiconductors.

Vietnamese companies can pursue a fabless manufacturing model like Nvidia, ARM and Qualcomm, designing chips and conducting business but not manufacturing them.

FPT Semiconductor does this in Vietnam.

The production process will require huge investments since the country barely has the ecosystem for it.

Workforce challenges

Experts said the shortage of personnel poses a hurdle to Vietnam’s ambitions to raise the value of its chip supply chain.

Also at the September 6 meeting with the universities, Hung said the semiconductor industry would need 10,000 engineers produced every year, but the current rate is less than 20% of that.

In fact, the number of engineers has only been growing by around 500 a year, according to a report by the Vietnam Microchip Community.

Most of Vietnam’s semiconductor engineers are currently working for foreign firms.

They include highly skilled ones, but typically in a certain phase or specific process, and few at the chief engineer level, Yen said.

"Our position now is that of a supplier of people who can manage a particular step in the chip design process and not finalize designs or market chips."

Besides, the industry is characteristically "conservative" and prioritizes experience, he said.

In IT, faulty software could be quickly amended and patched, but faulty chips could cost millions of dollars and years to repair, he explained.

So fresh engineering graduates are normally not entrusted with key tasks, he said.

"The shortage in the workforce is not due to a lack of new people but due to not yet discovering a way for firms to use fresh graduates."

Experts also called on the government to offer income tax breaks to lure back Vietnamese specialists working abroad.

In the next five to seven years Vietnam needs to have local fabless chip manufacturers with a solid footing in the market, they said.

Counterpoint Research analyst Ivan Lam said Vietnam lags other Asian countries like Singapore and Malaysia though companies like Viettel and FPT have developed their own R&D and chipsets.

"Consistent investment in education, industry support, international cooperation, and IP accumulation is vital to overcoming this hurdle.

"With efforts by the government, participation by local businesses and cooperation from global chip makers, the country’s semiconductor industry has the potential for long-term growth."