• Vietnam is becoming a new hub for testing and packaging chips, as companies shift away from China due to escalating trade tensions.
• South Korean company Hana Micron and U.S.-based Amkor Technology are investing heavily in expanding their operations in Vietnam.
• Vietnam's share in global chip assembling, testing, and packaging is expected to rise from 1% to 8-9% by 2032, according to a U.S. Semiconductor Industry Association report.
• The shift in semiconductor manufacturing to Vietnam is reshaping global supply chains and investment patterns, highlighting the strategic importance of semiconductors in the global economy.

As trade tensions with the West escalate, foreign companies are expanding their capacity in Vietnam for testing and packaging chips. This shift in industrial activity away from China is gaining momentum, according to industry executives.

The semiconductor back-end manufacturing sector, which is less capital-intensive than the more strategic front-end chipmaking in foundries, is currently dominated by China and Taiwan. However, Vietnam is emerging as one of the fastest-growing countries in this $95 billion segment.

South Korean company Hana Micron is investing about 1.3 trillion won ($930.49 million) until 2026 to boost packaging operations for legacy memory chips. This expansion in the Southeast Asian country is in response to requests from industrial clients who wanted to move some production capacity away from China, according to Cho Hyung Rae, the company's vice president for Vietnam.

Similarly, U.S.-headquartered Amkor Technology announced a $1.6 billion plan last year to build a 200,000 square meter factory, which it claims will become its most extensive and advanced facility, delivering next-generation semiconductor packaging capabilities.

Vietnam's Growth and Foreign Investments

Some of the equipment installed in the new plant had been transferred from factories in China, according to a business executive with direct knowledge of Amkor's operation in Vietnam. Intel, which had a large booth at Vietnam's first international semiconductors exhibition near Hanoi, has its largest chips back-end factory in its global network in the country.

Vietnam's growth in the back-end segment of the chips industry has been encouraged by the Biden administration amid growing trade tensions between Washington and Beijing.

Thanks to investments from foreign companies, Vietnam is expected to have an 8% to 9% share of global capacity in chip assembling, testing, and packaging (ATP) by 2032, up from just 1% in 2022, according to a report published by the U.S. Semiconductor Industry Association and Boston Consulting Group.

Local companies are also expected to contribute to the sector's forecast growth. Vietnam tech firm FPT is building a testing factory close to Hanoi, with plans to start operations early next year with 10 testing machines, to be tripled by 2026, for an investment of up to $30 million.

Historical Parallels and Future Implications

The shift in semiconductor manufacturing to Vietnam is reminiscent of the Asian Tigers' rise to prominence in the tech industry two decades ago. However, the scale of China's efforts in catching up with Western nations in terms of innovation is massive. If China can combine its cost advantage with an innovation advantage, or at least innovation parity, the challenge to innovative industries in Western nations will become much more significant.

The current situation also echoes the U.S.-Soviet Union technological rivalry during the Cold War era. However, unlike the Soviet Union, China is not a communist country in the traditional sense. Its firms have considerable degrees of freedom to act, as long as they are working to achieve the goal of making China the world innovation leader.

The U.S. has also been proactive in maintaining its technological leadership. It has implemented various financial sanctions on foreign individuals and entities, and has been working to more effectively coordinate the semiconductor R&D programs being conducted across various government agencies.

The U.S. government has also invited other allied nations to co-invest in semiconductor moonshots, with resulting intellectual property (IP) and technical discoveries shared at levels proportionate to national mutual investment.