Semiconductor services market growth accelerates in Southeast Asia

The semiconductor services market, which forms the essence of the semiconductor value chain, is experiencing rapid growth across all segments with newer tools, technologies and processes being introduced in very short spans of time. Semiconductor services largely constitute integrated circuit (IC) design and development services, IC design tool services, intellectual property market, assembly, packaging, testing activities, and chip distribution. The market in Southeast Asia is largely driven by the demand from various end-user segments such as telecommunications, electronics, and automotive for advanced technologies and the trend in outsourcing, which have left a significant impact. The market is expected to experience growth in the future with an increasing number of participants and very strong competition in all its segments.



The semiconductor market has evolved into new business models highlighting the following changes in the semiconductor services business:

• Shift to a customer pull model from a supplier push model

• Move to a design-based relationship from a purchasebased relationship

• Market influenced by many emerging companies from a single monopoly • Web-based support from component-level innovation and supportKEY CHALLENGES

Following the trend in the semiconductor industry, companies in the semiconductor services markets are faced with tremendous volatility, including shorter product life cycles, increased design complexity, and complex supply chains. Some of the key challenges faced by the semiconductor services markets include the ability to effectively manage product transitions, increasing customer expectations for timely delivery, as well as upside flexibility in the case of chip distributors and the increasing complexity of supply chains with respect to outsourcing and qualification constraints. Southeast Asia is one of the largest investment locations and is the fastest growing in global markets, offering huge potential and effective service capabilities with high quality, low cost, and efficiency. The information and communication technology (ICT) sector is the major revenue contributor to the semiconductor services market in the region. In order to add more value to outsourcing activities, the governments in these countries have developed policies of technological self-sufficiency, and are adopting methodologies for technology development and migration.







HIGHER CAGR

The semiconductor market in Southeast Asia is likely to experience a CAGR of 6.2 percent. The semiconductor services markets is approximately 20 percent of the semiconductor market in Southeast Asia and is likely to follow a similar trend as the semiconductor market in Southeast Asia but with a higher CAGR of 10 percent as compared to the CAGR of 6.2 percent for the semiconductor market.



Electronic design automation (EDA) is included under the purview of IC design tools which is used for designing and producing a wide range of electronic products such as printed circuit boards and ICs. The EDA market has been facing changes in design methodologies and EDA tool development. This change could be attributed to the increasing complexity of semiconductor products in the market and the need for miniaturization, which in turn requires improved design capabilities and design tools. The degree of technical change in this market is high because it follows the trend in the semiconductor market, which keeps changing constantly.



Rapid developments in the IC design industry have driven design firms into a situation where they need to differentiate their products from competition. Apart from this, shorter product life cycles and a competitive market structure act as challenges for the semiconductor services market.



Chip design has increasingly moved to Southeast Asia, especially Singapore and Malaysia, and the market is expected to follow the growth path of the semiconductor market. There has been substantial progress in the complexity of Southeast Asian chip design projects in terms of line width of process technology measured in nanometers, increasing complexity of analog and mixed-signal design as compared to digital design, and the number of logic gates used in the design.



Apart from designing, semiconductor packaging, assembly and testing is one of the growing segments of the semiconductor services value chain in Southeast Asia. A large number of integrated device manufacturers (IDM), wafer companies, and fabless companies are outsourcing their activities to outsourced semiconductor assembly and test (OSAT) companies such as STATS ChipPAC Ltd, Carsem, United Test and Assembly Center (UTAC) Ltd, Unisem [M] Berhad, PSi Technologies Inc., Globetronics Technology Bhd, Advanced Interconnect Technologies (AIT) and others in Southeast Asia. Many IDMs and original equipment manufacturers (OEMs) are outsourcing most of their assembly and testing requirements in Southeast Asia in order to limit their capital expenditure and meet market requirements. With further growth in technology, the outsourcing business is expected to ramp-up showing greater return to growth and profitability in the OSAT market.



BUSINESS MODEL

One of the most significant challenges for semiconductor companies in Southeast Asia would be moving up the value chain. Companies need to offer unique solutions and services in order to differentiate them from the competition, at the same time justifying prices to achieve satisfactory profits. Due to the accelerating technology trend, semiconductor companies have been driven to fasten processes as well as new product development schedules in order to remain competitive in the market. The pace at which the demand for semiconductor components is growing in the market is likely to be lesser than the pace of increasing capacity overhang. Apart from this, margins in the business are shrinking due to demanding customers. Hard bargaining by clients on price and increasing competition are the main reasons for the shrinking margins.



FACTORS DRIVING GROWTH

Liberal tax policies, deregulation of international trade, incentives for locally conducted R&D, infrastructure and human resource development programs, and political stability are the political factors favoring the growth of the semiconductor services markets in Southeast Asia.



A growing economy, low-cost labor, lower transportation costs, increase in government spending, and improved customer confidence are the economic factors that boost semiconductor services markets in Southeast Asia.



The social factors that contribute to the growth of the market are improved living standards, better living conditions of the society, high literacy rates, enhanced income distribution, and increased use of electronic gadgets.



Apart from being the hub for technological innovation and improved services, the technological factors impacting the growth of the market are increase in government research spending, highly skilled labor force, direct R&D funding and support, easy access to information and communication channels, and faster adaptation to technological changes.



There is nothing hindering the growth of value chain activities. Improved communication and access to information are increasing the scope of outsourcing, which in turn is helping the growth of the semiconductor services market in Southeast Asia. Large foundries will continue to grow, or acquire smaller ones. Demand is likely to continue for consumer products such as digital cameras and MP3 players. The increasing usage of automobiles in China and Southeast Asia is also likely to drive the growth of the semiconductor services market in the automotive electronics segment in the future.