Taiwan-based OSATs, many of which are involved with TSMC and other chipmakers, are considering Mexico as their regional base of operations to assist partners looking to expand into the US, according to industry sources.
TSMC founder Morris Chang recently expressed support for US policies helping to delay the development of Chinese semiconductor technology.
In a discussion with Chip War author Chris Miller, Chang disagreed with the US's repeated emphasis that Taiwan is a "dangerous place" and hopes Taiwan will continue to increase its global semiconductor industry market share.
USI, a subsidiary of packaging and testing leader ASE Group, already has a factory in Mexico. ASE's ISE Labs also has a facility in the US' Silicon Valley.
King Yuan Electronics (KYEC) chairman C. K. Lee previously stated that he agrees with Chang. Lee acknowledged that the semiconductor supply chain is complex, adding that returning production and manufacturing to the US is not a good fit since production costs are higher. If OSATs set up factories in the US, Lee said gross margins could turn negative, making it difficult to make a profit and could even lead to loss.
While the gross margin for wafer fabs can reach 50-60%, KYEC pointed out that 30% is already considered good for OSATS.
Powertech Technology Group (PTI) chairman D. K. Tsai stated before that the industry is moving away from the China Plus One strategy and that tensions between Taiwan and China have the industry also talking about Taiwan Plus One.
PTI is relatively cautious about geopolitical issues, but Tsai noted that PTI's previous investments in Japan and Singapore failed due to customer and cost issues.
Setting up a factory in a new location is determined by customer needs and requires careful consideration of local costs, product quality, and technological capabilities, Tsai said. Preferential conditions from the local government and tax subsidies are not the main considerations.
Taiwan-based OSATs considered several points back when TSMC was first considering building in the US, of which was that backend packaging and testing should be close to system assembly ODM/OEMs.
At present, most major ODMs are still in China and Southeast Asia; however, following investments from major system manufacturers such as Quanta Computer, Hon Hai Precision Industry (Foxconn), and Pegatron, sources believe Mexico could become a stronghold for OSATs.
Sources pointed out that the transportation costs differ for pure wafers and finished IC products that have been packaged. Based on manpower and transportation costs, industry players believe Mexico could be a good option for backend firms amid ongoing US-China competition.
On the other hand, the Mexican government does not have any clear semiconductor policies or subsidies, leaving backend firms, whose manpower requirements are vastly different from wafer fabs, with a lot to consider.
Based on 2023-2024 demand, leading IDMs and OSATs are still more inclined to expand in Malaysia first, sources said.
Major automotive IDMs are optimistic about the next few years, but Taiwanese and Chinese OSATs focused on the packaging and testing of consumer chips are more conservative.
