Southeast Asia may profit from the artificial intelligence (AI) boom through increased demand for testing and packaging as these economies try to increase their share in the global semiconductor value chain, according to Manila-based lender Asian Development Bank (ADB).
In its Asian Development Outlook (ADO) April 2024 report, the ADB said the AI boom is driving the rebound in Asia’s semiconductor industry, with some variation across economies depending on their specialization.
It said the share of memory chips and microprocessors directly manufactured in the Philippines, Malaysia, Thailand and Vietnam is small.
Citing an earlier report, the ADB said these economies, however, may still benefit from the AI-driven demand for specific microchips given their specialization in downstream services such as assembly, testing, and packaging.
This is critical to the global semiconductor value chain, it added.
The report said the Republic of Korea is seeing rapidly growing AI-related demand for memory chips; while Taipei, China, another key global semiconductor manufacturer, has so far been less affected by AI-driven shifts in demand given its specialization in more diverse semiconductor applications.
Other East Asian economies are aiming to boost production of advanced microchips, it said.
High-income and developing economies in East Asia and Southeast Asia together account for more than 80 percent of global semiconductor manufacturing.
“This makes the world dependent on the region’s semiconductor exports, and the region’s economic prospects dependent on the health of global semiconductor demand. Semiconductors are the fundamental building block of modern electronics,” the ADO report said.
The ADB said semiconductor exports from Asia are rising, driven by increasing global demand for microprocessors and memory chips.
After contracting sharply at the end of 2022, exports from Asia’s main semiconductor manufacturing economies picked up over 2023 and were about 15 percent higher in the last quarter of the year relative to the first quarter.
The ADB forecasts developing economies in Asia and the Pacific to expand by 4.9 percent on average this year as the region continues its resilient growth amid improving semiconductor exports, robust domestic demand, and recovering tourism.
“The end of interest rate hiking cycles in most economies as well as continued recovery in goods exports from an upturn in the semiconductor cycle will support growth,” said ADB chief economist Albert Park.
