Annual 7% Growth Expected Through 2030, Investment Attractiveness of Semiconductor Back-End Manufacturing Assessed in 30 Countries/Regions [A.T. Kearney]

A.T. Kearney Inc. (Minato-ku, Tokyo; Representative for Japan: Takefumi Harigaya) has released an analysis titled "Attractiveness Index for Back-End Semiconductor Manufacturing Locations."

This paper evaluates the suitability of 30 countries and regions as locations for establishing back-end semiconductor manufacturing facilities, targeting companies considering such investments.

The evaluation comprises 28 parameters across three categories: business environment, capital incentives, and operating costs and incentives. Taiwan ranked first overall, followed by Malaysia and India. Semiconductor demand is projected to grow at an annual rate of 7% through 2030, increasing the importance of location selection for companies.

30 Countries/Regions Evaluated; Back-End Offers Opportunities in Wider Regions Than Front-End

This paper presents the Attractiveness Index for Back-End Semiconductor Manufacturing Locations as a follow-up to the recent Attractiveness Index for Front-End Semiconductor Manufacturing Locations. While the front-end study covered 21 countries and regions, the back-end study expanded to 30 countries and regions due to relatively less stringent technical and capital requirements.

Back-end manufacturing involves testing and packaging individual dies cut from wafers produced in the front-end. While chiplets, 2.5D and 3D packaging, and lights-out manufacturing are advancing, back-end manufacturing is characterized by lower capital intensity and a higher proportion of operating costs compared to the front-end.

The index is composed of three categories: business environment (30%), capital incentives (20%), and operating costs and incentives (50%), with standardized scores for each country and region calculated using 28 parameters.

Figure 1: Attractiveness Index for Back-End Semiconductor Manufacturing Locations Comprises 3 Categories and 28 Parameters

Taiwan Leads, Followed by Malaysia and India; Emerging Regions Emerge at the Forefront

This paper points out that many developed countries and regions attractive for front-end manufacturing are not necessarily strong options for back-end manufacturing. Meanwhile, emerging countries and regions are emerging as front-runners, offering favorable environments for attracting back-end semiconductor manufacturing companies.

In terms of overall scores, Taiwan ranked first with 6.0, followed by Malaysia in second place with 5.7, and India in third place with 5.5. Mainland China, Poland, Hungary, UAE, Thailand, South Korea, and Vietnam also ranked highly, with the breakdown of business environment, capital incentives, and operating costs reflecting country-specific characteristics.

Taiwan and Mainland China together dominate over 60% of the global outsourced semiconductor assembly and test (OSAT) market, with 6 of the top 10 global OSAT companies based in Taiwan and 3 in Mainland China. This existing presence and business environment support Taiwan's top ranking.

Figure 2: Attractiveness Index for Back-End Semiconductor Manufacturing Locations Shows Taiwan First Overall, Followed by Malaysia and India

Diversification and Rising Geopolitical Risks Drive Consideration of Alternative Locations

As the world moves towards supply chain diversification, Malaysia is positioned as a strong candidate after Taiwan. The country accounts for approximately 13% of the global assembly and test market, and its stable business environment, affordable skilled labor, and incentives such as 5-year income tax exemptions and import duty exemptions are highly regarded.

India is increasing its presence, backed by relatively low operating costs and the availability of skilled labor, along with a total chip fund of $10 billion and a scheme that can cover up to 50% of total investment costs per project. In May 2024, deals for two assembly, test, and packaging facilities were announced, with a combined production capacity of approximately 63 million units per day.

Furthermore, Hungary has emerged as a strong candidate with subsidies of up to 34% for labor costs and capital investment, while Saudi Arabia and the UAE have entered the top 15 due to favorable operating costs and business environments. It is important to utilize country and regional scores in conjunction with project-specific strategic factors such as regional industrial base and facility type.

- About the Analysis

Analysis Title: "Attractiveness Index for Back-End Semiconductor Manufacturing Locations"

URL: https://www.jp.kearney.com/issue-papers-perspectives/back-end-semiconductor-manufacturing-attractiveness-index

- Supervisors

Kakuya Nishikawa, Senior Partner

Graduated from the Faculty of Engineering, The University of Tokyo. After working at a patent firm, joined A.T. Kearney. Supports M&A strategy that creates new demand by adding new technological axes to current ones, and the creation of new value (business models, operational models) leveraging IoT.

Kiyoshi Takei, Principal

Completed MBA at MIT Sloan School of Management. Worked in the corporate planning department of Toshiba's (now Kioxia) semiconductor business, engaging in business strategy formulation and partnership negotiations with overseas companies, before joining KEARNEY. Handles themes such as corporate strategy, business portfolio transformation, new business development, and M&A strategy, primarily in the telecommunications and high-tech fields. Capable of leading cross-border projects. Member of the Ministry of Economy, Trade and Industry's JAXA Committee.

About A.T. Kearney

A.T. Kearney (global brand name: Kearney) has been a trusted partner for over 100 years to more than three-quarters of the Fortune Global 500 companies and government agencies worldwide as a leading global management consulting firm. With offices in over 40 countries, our greatest strength lies in our people. Upholding "Impact, First," we tackle our clients' most difficult challenges with original ideas and execution capabilities, driving transformation together. We entered Japan in 1972 and have provided consistent support from strategy formulation to transformation execution for leading companies in all major industries. For more information, please visit our website. www.jp.kearney.com