From the Missed Investment Opportunity with Intel to the Valuable Partnership with FPT: What Truly Lies Ahead for Vietnam's Semiconductor Market?

Setting the Stage

Let's begin by examining recent developments in Vietnam's semiconductor market. In late 2023, Intel – one of the world’s leading semiconductor manufacturers – made the decision to halt its multi-billion-dollar investment in Vietnam. At first glance, this appears to be a significant setback for Vietnam’s semiconductor industry. However, soon after, another striking event unfolded. Nvidia, a globally renowned semiconductor giant, announced a partnership with FPT, an Information Technology service company in Vietnam, to develop an AI chip ecosystem. So, what’s really going on here? Is Vietnam’s semiconductor market losing its appeal? Or could this be a calculated move to align with emerging trends in the country's semiconductor landscape? Today’s blog article will offer fresh insights into this intriguing issue.

Intel's Setback

In recent years, Intel’s dominance in the semiconductor market has faltered. Once holding a 50-70% market share, Intel saw its lead diminish starting in Q1 2020 as the gap with AMD began to close. Experts now predict AMD will soon overtake Intel and become the market leader, surpassing its long-time rival.

Intel's revenue dropped from $79 billion in 2021 to $55 billion by June 2024, driven by weak CPU demand. In 2023, Intel experienced a 31% revenue decline dropping to $18.9 billion, which is largely attributed to challenges in its foundry business.  Following the submission of its financials to the US Securities and Exchange Commission (SEC), Intel's stock declined by 4.3%.

In 2024, Intel's CEO, Pat Gelsinger, announced a Q2 net loss of $1.61 billion, with further losses expected. Intel has also  delayed the construction of two major chip plants in Germany and Poland, citing reduced demand—a considerable setback for both the company and the respective governments.. Meanwhile, Asia continues to dominate as the global semiconductor hub, housing over 80% of production capacity. Taiwan, Japan, and China lead the region, with China alone contributing 27%.

Intel’s decision to withdraw investment from Vietnam and redirect it to European countries has raised questions about its effectiveness. However, is this truly the primary reason for Intel’s current challenges?

What Are the Real Causes?

Intel is facing significant challenges due to emerging trends in the global semiconductor market, particularly the rapid advancement of AI chip technology. The AI chip industry, valued at $45.5 billion in 2021, is expected to grow substantially, with the market projected to reach $311.58 billion by 2029, reflecting a compound annual growth rate (CAGR) of 20.4%. Meanwhile, global investment in AI is skyrocketing, with major contributions from India, South Korea, China, and Saudi Arabia, amounting to a total of $380 billion. This boom is driving semiconductor growth, with companies like Nvidia and TSMC demonstrating strong performance.

This is likely the main reason behind Intel’s recent decline, rooted in a critical misstep by its leadership. About seven years ago, Intel had the opportunity to acquire shares in OpenAI. However, then-CEO Bob Swan believed that generative AI would not emerge in the consumer and enterprise markets anytime soon and would be unlikely to generate profits. As a result, Intel declined the investment, and today, OpenAI's market valuation is estimated at $80 billion.

This marks yet another strategic miscalculation by Intel. In the 1990s and 2000s, Intel dominated the semiconductor chip market. However, their decision to stick with DUV lithography technology while TSMC and Samsung Foundry shifted to EUV caused Intel to lose its competitive edge. Now, once again, they have missed a major opportunity, ceding ground to Nvidia, Google, and Microsoft in the AI era.

Vietnam in the New Wave and Promising Partnerships

In recent years, Vietnam has solidified its position in the global semiconductor market, playing  a crucial role in the global semiconductor manufacturing supply chain. Vietnam became the third-largest semiconductor partner of the United States in Asia and accounted for over 10% of U.S. chip imports for seven consecutive months. Between 2016 and 2021, Vietnam's semiconductor market grew by 7.1%, reaching a valuation of $18.2 billion in 2022. The country is home to approximately 40 to 50 companies in the chip design sector, supported by over 5,000 design engineers, positioning itself for future industry expansion.

Vietnam has surpassed the global average in the Government Artificial Intelligence (AI) Readiness Index for three consecutive years. The country currently ranks 5th out of 10 in the ASEAN region and has moved up three places to rank 59th out of 193 countries, according to the assessment by Oxford Insights.

Vietnam has also successfully attracted major electronics companies to invest in AI chip packaging and substrates, such as Intel ($1.5 billion), Samsung (nearly $2 billion), Amkor ($1.6 billion), and Hana Micron ($1 billion). These companies will not only enhance the quality of the workforce in AI chip production in Vietnam, but also contribute to the development of the AI chip supply chain.

Recently, NVIDIA partnered with FPT, a leading Vietnamese technology group and one of Asia's Top 50 IT service companies, to invest up to $200 million in an AI Chip Factory. This facility aims to boost the economy and advance Vietnam's semiconductor and AI chip industries. At the signing ceremony, Keith Strier, Vice President of NVIDIA's Global AI Initiative, highlighted their commitment to collaborate with Vietnamese businesses to accelerate digital transformation and establish Vietnam as a powerhouse in AI chip development.

From a business perspective, this partnership represents a successful investment attraction from a major foreign name for FPT, showcasing the company's credibility in the eyes of its partners. On a larger scale, this deal, along with other international investments, demonstrates the potential and capabilities of Vietnamese companies as well as the Vietnamese government. It underscores that Vietnam has established strategic directions and sound policies to embrace and adapt to the new trends of the era, including the decision to "decline" investments from Intel.

Opportunities and Challenges for Investor

Vietnam has a multitude of factors that can positively influence foreign investment, instilling a significant level of confidence for companies looking to establish operations in the country.

In terms of policy: The government has identified opportunities and is committed to enacting supportive measures, while various provinces are working to improve their infrastructure. Leaders are actively working to attract Vietnam's semiconductor companies and factories, as evidenced by Resolution No. 136/2024/QH15 from the National Assembly, which outlines specific initiatives for Da Nang:

• Vietnam's semiconductor sector is a key focus, drawing investment for projects related to semiconductor technology, integrated circuits, electronic components, flexible electronics, new technology batteries, advanced materials, defense industries, and high-tech products. These initiatives are backed by capital investments of at least 4 trillion VND (approximately $170 million).
• The government will offer land leases to strategic investors in Vietnam's semiconductor industry without requiring a bidding process and will provide a five-year income tax exemption on profits generated from innovative startups and local support initiatives related to Vietnam's semiconductor growth.

Regarding High-Tech Workforce Development: Vietnam aims to develop 50,000 semiconductor specialists by 2030, a strategic move that will greatly benefit high-tech firms like Intel. Nonetheless, this target may fall short, as certain industries could demand an even larger talent pool than originally anticipated.

Open Market and Strong Diplomatic Strategy: Vietnam boasts an open market and an effective diplomatic approach, collaborating with nations on the United Nations Security Council and leading semiconductor countries. Its geographic proximity to Japan, Taiwan, and China is advantageous for participation in the global supply chain, which greatly benefits Vietnam's semiconductor industry. Vietnam has entered into free trade agreements with Japan (VJEPA) and South Korea (VKFTA), enhancing technological collaboration within Vietnam's semiconductor sector. Furthermore, companies such as Samsung and Intel have made significant investments in the country, reinforcing Vietnam's semiconductor standing in the global market.

Additionally, the Vietnamese semiconductor market will face numerous new challenges, with competition being the most significant. Although various factors continue to present opportunities for Vietnam's semiconductor sector, becoming a leading global hub in semiconductor technology requires patience and long-term strategies. Furthermore, the government must intensify efforts to refine policies that support foreign investment, enhance the quality of the workforce, and comprehensively enhance infrastructure to  create the optimum conditions for rapid growth.

Conclusion

In summary, it can be affirmed that Vietnam has taken the right steps in its development within the semiconductor technology market. While initial challenges emerged, they have showcased Vietnam's adaptability and ability to navigate industry trends, paving the way for a promising entry into this new wave of opportunities. Objectively speaking, this is indeed a dynamic and promising environment for the future. Data and market trends clearly indicate that Vietnam’s semiconductor chip has the potential to become one of the leading semiconductor technology hubs in the world.