India’s iPhone hopes and South Korea’s EV concerns

Hi everyone! This is Cheng Ting-Fang saying hello from Taipei.

In early August, I had the unique opportunity to visit Infineon’s silicon carbide power semiconductor plant in Kulim, Malaysia. Dressed in full clean-room attire, including a suit, boots, head covering, mask and gloves, I toured the facility and learned about several key chipmaking processes.

One of the most striking aspects of the tour was the high-temperature furnaces, which operate at up to 2,000C. One of the chip experts described them as like “rice cookers cooking rice”. I also observed wet stations, where chemicals are applied to wafers.

The hourlong tour was extremely educational, but I began to feel dizzy near the end because the head-to-toe outfit was hard to breathe in. The experience reminded me of how demanding semiconductor manufacturing is, where strict protocols must be followed to prevent even the smallest particles from contaminating the production environment. It was hard to imagine engineers and technicians working here up to eight hours a day, taking day and night shifts to keep the plant up and running 24/7.

Last week, a friend shared photos of the baroque Frauenkirche church, the Royal Palace and gorgeous gardens taken during his visit to Dresden for TSMC’s groundbreaking ceremony for its first European chip plant. The picturesque riverside city along the Elbe, with its clear blue skies and relaxing atmosphere, made him wonder why anyone would choose to work in a chip factory there. “I’d rather be having a picnic than be stuck in a cleanroom. This serene environment could be a threat to competitiveness,” he joked.

Whoever I speak with in the tech supply chain lists the same factors for success in this, or any, industry: culture, talent and infrastructure. For example, I heard that at TSMC’s Arizona plant, high-priority meetings are often conducted in Mandarin, with only Taiwanese staff present to facilitate communication. This demonstrates the challenges of integrating into a new culture and becoming more international.

A conversation with executives from ASE Technology Holding, the world’s largest chip packaging and testing company, highlighted the importance of infrastructure. The company has been investing in the US and recently acquired land in Kitakyushu for its Japan expansion.

In Asia, ASE has operations in the Philippines, Malaysia, Singapore, South Korea, Taiwan and China. A company executive said that because chip packaging typically has lower profit margins and a lower level of automation compared to chip manufacturing, it is one of the most challenging parts of the supply chain for the US and Europe to onshore.

“The necessary technical infrastructure for advanced chip packaging is simply not as developed in the US and Europe,” the executive said. So even if chip production increases in these regions, the majority of packaging will likely continue to be done in Asia.

iPhone keywords: India and AI

Apple has begun assembling its latest iPhone 16 series, including the premium Pro models, in India, Nikkei Asia’s Lauly Li and Cheng Ting-Fang write. This marks a significant milestone, as India is now producing Apple’s highest-end iPhones almost simultaneously with China, the company’s primary manufacturing hub.

In the past, India focused on assembling older iPhone models, lagging behind China. However, this gap has narrowed significantly over the past year. While India has made progress, its capability to produce more valuable components remains limited. Most of the electronic components are still manufactured in China and assembled into modules before being shipped to India for final assembly.

Apple has also placed substantial orders with its suppliers for the iPhone 16 series, hinting that it expects strong sales, particularly for the premium models with new Apple Intelligence features. The company has forecast production orders for between 88mn and 90mn units, with some suppliers receiving even higher estimates.

Doubling down

China’s top tech players are going all-in on AI, doubling their capital spending to $7bn in the first half of 2023, according to the Financial Times’ Ryan McMorrow and Eleanor Olcott.

Companies including Alibaba, Tencent, ByteDance and Baidu are pouring cash into buying processors and infrastructure to power advanced AI models, despite US sanctions that aim to stymie China’s efforts in the field.

Alibaba alone boosted its spending by 123 per cent from a year earlier. Its business renting AI GPUs to start-ups is finally starting to reinvigorate its cloud arm.

TikTok parent ByteDance is also investing heavily, leveraging its $50bn cash pile to build AI infrastructure in China and Malaysia. The company is a major buyer of Nvidia’s throttled for-China chip called the H20.

However, Chinese tech groups’ spending still pales in comparison to US tech giants, which collectively shelled out $106bn in the first half of the year.

A chilling blaze

A fire sparked by a Mercedes-Benz electric car in the port city of Incheon has sent shockwaves through South Korea’s auto market. The country has been a leader in EV adoption, driven by government incentives and a strong battery and car industry. The incident could also have global implications and ripple effects for EV and battery manufacturers, Nikkei Asia’s Kim Jaewon writes.

Mercedes-Benz and South Korea’s Hyundai Motor were both in the global top 10 for EV shipments in the first half of 2024.

In response to the fire, South Korean policymakers moved to require all EV makers to disclose their battery suppliers. Mercedes-Benz’s EQE 350+ model, the one involved in the incident, used a battery from China’s Farasis Energy, while Hyundai’s primary supplier is SK On, a South Korean company. LG Energy Solutions and China’s CATL are also major suppliers for Hyundai.

While the fire has led to some negative press for EVs, some battery makers, such as LG Energy Solutions, have used the opportunity to highlight their own safety records and battery management systems with an eye towards expanding their market share.

Good, but not quite good enough

Nvidia reported another blockbuster quarterly earnings on strong demand for AI computing. Even its sales to the China market — where it must offer downgraded versions of some chips to comply with US export controls — increased on the year, Yifan Yu of Nikkei Asia writes.

But investors, who have become used to expecting the incredible from Nvidia, were less than impressed. Many are now sceptical of how long the AI demand boom will continue, as most tech companies are still struggling to monetise the new technology. Nvidia’s share price tumbled in after-hours trading, dragging down stocks in Asia’s morning trading.

The company reported $3.7bn in revenue from China, a 33.8 per cent year-over-year increase and a 47.2 per cent increase from the previous quarter. China accounted for up to 25 per cent of data centre revenue, primarily driven by AI computing. Nvidia CFO Colette Kress acknowledged China’s significant contribution to the company’s data centre business for the quarter but also noted that it was below pre-export control levels and competition in the market was growing.

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4. China’s export curbs on semiconductor materials stoke chip output fears (FT)

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