(June 5): NXP Semiconductors NV is teaming up with a company partly owned by Taiwan Semiconductor Manufacturing Co (TSMC) to build a US$7.8 billion chip wafer plant in Singapore, marking a boost for the island nation’s tech ambitions.

TSMC-backed Vanguard International Semiconductor Corp and NXP will begin constructing the facility in the second half of this year, with production starting in 2027, the two companies said on Wednesday in a statement. Taiwan-based Vanguard will own 60% of the joint venture and the Netherlands-based NXP the rest.

The outlay is the latest win for Southeast Asia as global tech firms try and avoid overreliance on specific regions such as Taiwan and China by diversifying the locations of their manufacturing bases. Chip customers are demanding this diversification as insurance against potential geopolitical risks such as escalating tensions between the US and China disrupting operations in Taiwan, which dominates in semiconductor manufacturing.

“NXP continues to take proactive actions to ensure it has a manufacturing base which provides competitive cost, supply control, and geographic resilience to support our long-term growth objectives,” NXP chief executive officer Kurt Sievers said in the statement.

Southeast Asia is emerging as a force in technology manufacturing, helped by relatively low labour costs, ample technology talent and its proximity to major Asian consumer markets. Amazon.com Inc, Microsoft Corp and Nvidia Corp are among the companies spending billions of dollars in the region of nearly 700 million people, as China turns more hostile to US firms and India remains practically and politically challenging to navigate.

The new factory will make silicon wafers with a 12-inch diameter, which are more advanced than the 8-inch ones fabricated at Vanguard’s existing facility in Singapore. Most new chip plants globally use 12-inch wafers because that gives a higher chip output per wafer.

The wafers from the new facility will form the basis of relatively mature 130-nanometre (nm) to 40nm chips that aren’t as cutting-edge as those made by TSMC in Taiwan. They will be used for functions such as power control in automotive, industrial, consumer and mobile products.

Vanguard will inject US$2.4 billion into the joint venture and NXP US$1.6 billion, and the firms have agreed to contribute an additional US$1.9 billion later on. The remaining funding includes loans by third parties to the joint venture. Vanguard will operate the facility, which is set to create 1,500 jobs in Singapore.

That’s a potential boon for Singapore’s newly appointed prime minister Lawrence Wong, whose tiny but wealthy country is navigating challenges including rising regional competition. Southeast Asian countries from Vietnam to Thailand are attracting more tech investment, and neighbouring Malaysia last week pledged more than US$5 billion in fiscal support to lure chipmakers into the country.

NXP and Vanguard join companies such as United Microelectronics Corp (UMC) in expanding in Singapore. UMC, Taiwan’s biggest chipmaker after TSMC, is building a US$5 billion wafer fabrication plant in the equatorial city-state.

Vanguard acquired its existing Singapore facility from GlobalFoundries Inc in 2019. NXP also has a foothold in the country through a manufacturing partnership with TSMC, called Systems on Silicon Manufacturing Co. Other chipmakers with a presence in Singapore include GlobalFoundries, Micron Technology Inc and Infineon Technologies AG.

Vanguard and NXP’s latest global expansion tracks TSMC’s own growing global footprint. The chipmaker is planning new facilities in Arizona, Japan and Germany.

TSMC owns about 28% of Vanguard and Taiwan’s National Development Fund owns nearly 17%, as of February. The fund is also the biggest shareholder of TSMC with a holding of more than 6%.