Singapore: On the second day of his visit to Singapore on Thursday, Prime Minister Narendra Modi is scheduled to tour a cutting-edge semiconductor facility in the city-state alongside his Singaporean counterpart.

PM Modi, who reached Singapore on Wednesday, is slated to hold numerous engagements in the city-state on Thursday as well.This visit is poised to further bolster the bilateral ties between India and Singapore.

This visit has underscored the growing significance of the semiconductor sector, which holds promise for expanding India's technological capabilities and fostering deeper economic ties between the two nations.

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

Subsequently, PM Modi will visit AEM Holdings Ltd's semiconductor facility with Singapore's Prime Minister, after a lunch hosted by Senior Minister Lee Hsien Loong. He will also meet with President Tharman Shanmugaratnam and Emeritus Senior Minister Goh Chok Tong. Following a business meeting with CEOs, PM Modi will return to New Delhi.

PM Modi's visit to the semiconductor industry is significant in terms of enhanced 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 opportunities for India in many aspects, including collaboration in talent development as Singapore universities have developed customised courses for the semiconductor sector, and knowledge sharing about best practices of managing semiconductor industrial parks (called Wafer Fab Parks in Singapore).

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

Singapore also has semiconductor equipment and material manufacturers. For the development of the semiconductor manufacturing ecosystem in India, engagement and collaboration with such companies may also be helpful.

As per data collated here by the government, Singapore, the city-state in Maritim Southeast Asia, contributes to around 10 per cent of global semiconductor output, 5 per cent of global wafer fabrication capacity and 20 per cent of semiconductor equipment production. The semiconductor sector contributes to 8 per cent of Singapore's economic growth.

The data mentions that nine out of the 15 top semiconductor firms have set up shops 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, Utac, STATS ChipPack, Silicin Box. iii) Wafer fabrication: GlobalFoundries, UMC, Siltronic and Micron, and iv) Equipment/ raw material producers: Soitec, Applied Materials.

In the 1960s, US chip makers, looking for lower labour costs with a sufficiently skilled workforce, started to offshore parts of their production process to Southeast Asia, including Singapore.

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

Factors that contributed to the development of Singapore's semiconductor industry are infrastructure and connectivity, stable business conditions, a critical mass of leading companies based in Singapore covering the value chain (from design to wafer fabrication to assembly and testing), and human capital.

Semiconductor plants in Singapore are currently clustered in four wafer fabrication parks that span 374 hectares, where the Singapore government offers customised infrastructure solutions to investors.

To develop talent, Singapore universities are offering majors in microelectronics, and IC design and are collaborating with semiconductor companies by having their employees do PhD research.

Singapore is now getting the benefits of a global focus on de-risking 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 USD 5 billion to set up a semiconductor fab. It is expected to begin operations in 2024. In September 2023, GlobalFoundries inaugurated its new USD 4 billion fabrication plant in Singapore. This plant is capable of manufacturing speciality chips at 28 nm node technology (most advanced in Singapore).

In June 2024, NXP Semiconductors and TSMC-backed Vanguard International Semiconductor Corp announced a USD 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 commence in the second half of 2024, with production starting in 2027.

Singapore's semiconductor industry is limited to "mature-node chips" (process node technology of 28 nm or more), which are used in appliances, cars, and industrial equipment. It is not equipped to make high-end logic chips like the one used in the AI sector (AI chips have process nodes of 7 nm and smaller, and thus require specialized production methods).

Singapore's semiconductor industry is not expected to drive into AI chips. One thought is that the market for mature-node chips is much larger with stable growth prospects, so Singapore need not focus on AI chips. Another angle is that manufacturing AI chips needs huge investments, existing companies in Singapore are not capable of committing to such investments and big players like TSMC, Samsung and Intel have already committed their investments elsewhere.

The cost of production is increasing in Singapore, forcing semiconductor companies to move up in the value chain and diversify low-cost and labour-intensive operations out of Singapore.

Several countries are offering massive incentives to attract semiconductor investments. Singapore has not announced any matching scheme. Singapore appears to be relying on its inherent strengths. It is possible that such competition from other countries will drive down Singapore's share in global semiconductor production in the long run.

Singapore has carved out a niche space for itself in the global semiconductor value chain over several decades. Singapore continues to invest in both hard and soft infrastructure to sustain its position. However, changes in the global situation led by the US-China rivalry and growing attention to de-risking are leading major economies (including India) to have their own semiconductor industry. This may not have an immediate impact on Singapore, but coupled with the increasing cost of production and limited resources (land and labour) in Singapore, it can pose a serious challenge to Singapore's current position in the global semiconductor industry.

This report is auto-generated from a syndicated feed