Intel backs out of planned Vietnam chip expansion, report claims
According to a Reuters report, the company expressed concerns about the country’s excessive bureaucracy and unstable power supply.
On Tuesday, Reuters reported that the U.S. chipmaker Intel has shelved a planned investment in Vietnam that would have nearly doubled the size of its operations there, a significant setback to the country’s ambitions to insert itself into the global supply chain for semiconductors.
Intel’s existing $1.5 billion manufacturing plant in Ho Chi Minh City, which opened in 2010, is its largest for the assembling, packaging, and testing of chips. The facility, which employs 2,800 people, has shipped over 3 billion product units over 15 years of operation, according to a report by VNExpress.
In February of this year, Reuters reported that Intel was considering an estimated $1 billion expansion of the factory, though nothing was ever officially announced. The report noted that the company was also considering Singapore and Malaysia as alternative destinations.
This week’s report, which cited an anonymous source who was briefed on the company’s plans, stated that Intel had decided against the Vietnam expansion plans “around July.” American officials later relayed this decision to “a select group of U.S. businessmen and experts” shortly after U.S. President Joe Biden’s state visit to Vietnam in September, which saw the two nations announce a significant upgrade in their diplomatic relationship, as well as deals aimed at upgrading Vietnam’s chip-making sector.
The reason for Intel’s decision was not immediately clear, but Reuters cited a second source who attended two separate meetings in recent weeks between U.S. companies and top Vietnamese officials. At these meetings, the source said that Intel had raised concerns “about the stability of power supplies and excessive bureaucracy,” in Reuters’ paraphrase.
Both are long-standing challenges for foreign investors in Vietnam. In recent years, Vietnam’s fast-growing economy has put severe strain on the country’s power grid. In June, unseasonably hot weather brought rolling blackouts that halted work at industrial parks in the country’s northern provinces, where leading global manufacturers such as Foxconn and Samsung have factories.
Likewise, Vietnam’s clotted bureaucracy has long been a bugbear of foreign companies operating in the country. Inherent to the country’s political system, this has been significantly worsened by the Communist Party of Vietnam’s current anti-corruption campaign, which has pushed many bureaucrats to drag their feet for fear of falling into the campaign’s furnace. As Bloomberg reported it earlier this year, “Do a lot, get in trouble for a lot. Do less, get in trouble for less. Do nothing, get in trouble for nothing.”
The news of Intel’s decision marks a significant setback to Vietnam’s ambition to present itself as an attractive alternative for companies wishing to reduce their reliance on China and Taiwan, in light of the growing Sino-American friction and increased tensions across the Taiwan Strait.
Over the past year, the Vietnamese government had been directing a full-spectrum charm offensive at foreign chip-makers, hoping to attract investments in all three of the main stages of chip-making, including the establishment of the extremely costly foundries in which chips are manufactured. Given its established presence in the country, Intel’s planned expansion was a big part of its plans, though as one Vietnam-based lawyer told Reuters, “You cannot take for granted that because Intel has already invested here it will invest more.”
The revelation demonstrates that Vietnam’s semi-conductor ambitions, which seek to build on the remarkable successes of its industrialization over the past two decades, have seemingly exceeded the limits of its capacity. The country is still advantageously positioned, but it may take some time, and some reform, before it is able to catch up with its breakneck growth of recent years.
By Sebastian Strangio – The Diplomat – November 9, 2023