Kuala lumpur: Asia will maintain its leadership in chip manufacturing over the next five years, driven by cost advantages, established ecosystems, and technical expertise, Moody’s Ratings announced today.

According to BERNAMA News Agency, Moody’s Ratings highlighted that geopolitical tensions and economic uncertainties are encouraging Asian semiconductor companies to expand geographically. Asia currently holds over 75% of global chipmaking capacity, which includes wafer fabrication for logic, memory, and DAO chips, along with essential material supplies.

The report noted that while South and Southeast Asian economies are emerging as back-end hubs, technical limitations are hindering their potential to capture more economic value. Malaysia is leading in assembly, testing, and packaging, while India is making strides in fabrication and design. However, the advancement into higher-value segments is being held back by weak research and development, intellectual property, talent, and infrastructure in most countries. Progress will hinge on state support, innovation, and global partnerships.

Moody’s Ratings emphasized that Taiwan, Korea, and Japan will retain their leadership in advanced chipmaking despite increasing overseas investments and China’s growth. Although China’s shift towards domestic suppliers is redirecting some demand, the geographical diversification of exports and investments into emerging Asian economies is expected to mitigate the impact.

The report also addressed the vulnerabilities exposed by pandemic-era shortages in the region’s concentrated supply chain, with ongoing geopolitical tensions, particularly between the United States and China, intensifying calls for diversification. Asia’s competitive edge lies in cost advantages, deep ecosystem integration, and skilled labor, with labor costs in the US being significantly higher than in Asia.

Furthermore, Moody’s Ratings noted that Asian fabrication plants benefit from significantly lower utility and infrastructure costs, with Taiwan and China offering substantial subsidies for utilities. The report concluded that scaling semiconductor operations outside Asia remains commercially challenging due to high capital intensity and less competitive cost structures, with Boston Consulting Group estimating a required US$1 trillion investment to replicate a self-sufficient local supply chain outside Asia. This could potentially raise chip prices by 35%-65%, with costs ultimately passed on to consumers.