Singapore to benefit from upturn in global semiconductor cycle

A SIGNIFICANT portion of Singapore’s economic growth stems from exports, with a notable focus on electronics. This underscores the importance of closely examining its manufacturing sector, particularly the semiconductor industry.

We anticipate a pivotal moment in the global semiconductor landscape – we project a 40 per cent year-on-year growth in chip sales by the second quarter of 2025. This forecast is underpinned by the expectation that chipmakers will experience a structural surge in demand as the world becomes increasingly digitalised, potentially resulting in increased semiconductor applications and higher silicon content.

Despite the prevailing sales downturn, we anticipate that adjustments in production levels, government incentives and base effects will contribute to heightened future sales growth. These factors are further boosted by the adoption of artificial intelligence (AI).

Riding on this trend, we expect higher manufacturing output in Singapore which could, in turn, lead to greater electronics exports. We also expect the country’s gross domestic product to soar by 4 per cent in 2024, as a result.

Growth drivers

Known for its political stability, prime geographical location and bilingual population, Singapore is a key bridge between the East and West.

Another driver is the China+1 strategy adopted by companies to promote greater geographical supply chain diversification beyond China. Semiconductor giants like Vanguard International Semiconductor Corporation, the affiliate of Taiwan Semiconductor Manufacturing Company (TSMC), and GlobalFoundries (GF), are actively pursuing expansion plans within Singapore.

As a result, the Republic is becoming an increasingly attractive hub for global semiconductor giants, reinforcing its success in capitalising on the industry’s growth.

Another competitive advantage, as pointed out by Deputy Prime Minister Lawrence Wong, is Singapore’s educated and skilled workforce, which could further drive innovation and research capabilities. Moreover, the country has obtained a niche in specialty chip production, aligning with trends in 5G, automotive and the Internet of Things.

Hence, the competitive advantages as well as substantial investments by semiconductor giants further solidify Singapore’s central role.

Also, unknown to many, Singapore has become the fourth-largest buyer of Nvidia chips as at the Q3 revenue ranking, reaffirming its status as a prominent tech hub in the era of digital advancements and AI.

However, it is worth noting that this does not equate to the nation’s domestic demand. Many tech giants are headquartered here, use Singapore as a production base and export products to other markets. Hence, a large proportion of chip demand is billed to Singapore. This suggests that companies view Singapore as a strategic gateway to South-east Asian markets.

Developments in AI are likely to further solidify Singapore’s position as a key tech hub. At the recent Singapore Conference for AI, Wong shared that the country rallied 50 tech companies, including Google and Microsoft, to form the AI Verify Foundation this year. Aimed at ethical AI development, it addresses concerns like biased databases.

Despite generative AI advancements, Wong stressed AI’s use for public good, leading to the introduction of the updated National AI Strategy (NAIS) 2.0, which focuses on nurturing talent, fostering a thriving AI industry and supporting it with leading infrastructure.

NAIS 2.0 outlines initiatives to treble Singapore’s AI practitioners to 15,000, investing in reskilling and upskilling the workforce. A collaboration with Nvidia aims to develop an AI large language model encompassing South-east Asia’s diverse cultures. Jensen Huang, Nvidia chief executive, said the company aims to build a larger supercomputer in Singapore, solidifying the country’s role as a significant purchaser of Nvidia chips.

Listed beneficiaries

Several semiconductor companies are listed on the Singapore Exchange, including AEM Holdings , Venture Corp and UMS Holdings .

They can be categorised into two segments – automated test equipment (ATE) and outsourced semiconductor assembly and test (OSAT). OSAT firms manage assembly, packaging and testing, while ATE companies play a pivotal role in automating semiconductor device testing. Both AEM Holdings and Venture Corp fall under OSAT, while UMS Holdings is classified as an ATE firm.

Given our expectations of a recovery in the semiconductor cycle and the sector’s long-term growth prospects, we think these companies will benefit.

The writer is a research analyst of the research and portfolio management team at FSMOne.com, the B2C division of iFast Financial. The latter is the Singapore subsidiary of iFast Corporation.