In April 2025, the U.S. administration announced tariffs on all imported goods, including semiconductor chips, sending ripples through the global technology industry. These trade measures, aimed at bolstering domestic manufacturing, have reshaped the global semiconductor landscape, prompting companies to seek stable and cost-effective manufacturing hubs. At the heart of this process lies the Outsourced Semiconductor Assembly and Test (OSAT) industry, and right now, Southeast Asia (SEA) is emerging as its new frontier. With its strategic location, competitive labor costs, and robust government support, SEA is becoming a cornerstone of the semiconductor supply chain, offering resilience amid global trade uncertainties.
The global OSAT market is projected to grow from USD 47.1 billion in 2025 to USD 71.21 billion by 2030, with a CAGR of 8.62%. This growth is driven by demand for advanced packaging and testing services, fueled by innovations in artificial intelligence, 5G technology, and the Internet of Things. As geopolitical tensions reshape supply chains, SEA offers a compelling combination of advantages that make it a focal point for OSAT operations.
Imagine a single semiconductor chip, destined to power a smartphone or an electric vehicle. Its journey begins in the design labs of Silicon Valley or Cambridge, where companies like Qualcomm or ARM craft intricate blueprints for its functionality. These designs are then sent to foundries in Taiwan or South Korea, such as TSMC or Samsung, where silicon wafers are transformed into functional chips through cutting-edge fabrication techniques.
But the chip’s journey doesn’t end there. To become a reliable component, it must be packaged and rigorously tested—a process known as Assembly, Testing, and Packaging (ATP), or OSAT. This final stage ensures the chip is protected and performs flawlessly in devices ranging from laptops to medical equipment.
As depicted in Figure 1, the semiconductor ecosystem is segmented into three primary areas:
The semiconductor industry operates through a complex value chain involving design, fabrication, assembly, testing, and distribution. Key players include:
SEA plays a significant role in the backend OSAT processes, complementing design hubs in the U.S. and Europe and fabrication centers in East Asia.
OSAT providers, such as Amkor and ASE, specialize in the backend stages of semiconductor production. After foundries produce raw chips, OSAT companies cut wafers into individual chips, encase them in protective packages, and test them to ensure quality and performance. This process, often called ATP, is critical to delivering reliable components for consumer electronics, automotive systems, and industrial applications.
Why outsource something as critical as assembly and testing? The answer lies in efficiency and specialization. OSAT allows semiconductor companies to focus on their core strengths—design and fabrication—while leaving the complex, capital-intensive backend processes to experts. This model offers several advantages:
Figure 2 illustrates globalization of the smartphone processor supply chain. The journey involves multiple countries across different continents, each specializing in a specific stage of the process. For example:
In 2023, Greater China (China and Taiwan) accounted for 75.4% of global OSAT operations, underscoring its dominance (IDC). However, SEA is rapidly gaining ground, driven by global trade shifts and regional advantages.
As the semiconductor industry evolves, so does the importance of OSAT. Advanced packaging technologies—like 3D stacking and chiplets—are pushing the boundaries of what’s possible, enabling smaller, faster, and more efficient devices. OSAT providers are the unsung heroes behind these innovations, turning raw chips into the building blocks of tomorrow’s technology.
With the benefits of outsourcing clear, the question becomes: where should these critical operations be located? Enter Southeast Asia, a region that’s rapidly positioning itself as the new hub for OSAT.
Southeast Asia’s rise in the OSAT industry isn’t just a coincidence; it’s the result of a perfect storm of factors that make it an ideal location for backend semiconductor manufacturing.
As U.S.-China trade tensions and new tariffs disrupt traditional supply chains, SEA has emerged as a beacon of stability and opportunity. The region’s “China + 1” strategy—diversifying manufacturing away from China—has attracted semiconductor giants seeking resilient operations. SEA’s neutral geopolitical stance, proximity to Asia-Pacific markets, and robust infrastructure make it an ideal hub for OSAT.
Strategic Location: SEA’s central position enables seamless access to major manufacturing and consumer markets. Its proximity to China, Japan, and India enhances logistical efficiency, making it a prime location for semiconductor operations.
Cost Advantages: The region offers some of the most competitive labor costs globally. Countries such as Vietnam, Indonesia, and the Philippines allow multinational corporations to establish ATP (Assembly, Testing, Packaging) facilities that combine cost advantages with high quality. Moreover, SEA’s closeness to leading East Asian chip design hubs—China, Taiwan, South Korea, and Japan—as well as its access to global shipping routes further bolster its appeal.
Government Support: Countries across SEA are rolling out the red carpet for semiconductor investments. Vietnam offers generous tax incentives and land subsidies, while Malaysia has developed state-of-the-art industrial parks dedicated to the semiconductor industry. Singapore, meanwhile, has invested heavily in advanced manufacturing capabilities, positioning itself as a leader in next-generation packaging.
Skilled Workforce: The region is set to see a significant increase in skilled labor—from 37 million working-age individuals with postsecondary education in 2015 to a projected 65 million by 2030—positioning Southeast Asia as a prominent talent hub for both labor-intensive and technical roles in the semiconductor industry.
These advantages have transformed SEA into a magnet for OSAT investment, with Vietnam, Malaysia and Philippines at the forefront:
Vietnam: A New Semiconductor Powerhouse
Other regions including Malaysia is also leading the change.
Malaysia: Malaysia is targeting over $100 billion in semiconductor investments, with plans for Southeast Asia’s largest integrated circuit design park. Intel’s $7 billion investment in a Penang plant and ARM’s $250 million commitment for chip design underscore Malaysia’s ambitions (Reuters, ASEAN Briefing). Malaysia is also tightening regulations on chip exports due to U.S. pressure (Reuters).
Global semiconductor companies are not only investing in new facilities but also expanding their SEA presence through strategic acquisitions, capitalizing on the region’s growth potential. A notable example is ASE Technology Holding Co.’s acquisition of Infineon Technologies’ backend manufacturing facility in Cavite, Philippines, in February 2024.
Operational Integration & Potential Benefits
ASE’s acquisition of the Cavite facility was managed with a focus on seamless operational integration. By preserving the existing workforce and infrastructure, ASE minimized transition costs and maintained operational continuity. This strategic expansion offers several key benefits:
This inorganic expansion reflects a broader trend of global players leveraging mergers and acquisitions to secure a foothold in SEA’s burgeoning OSAT market. By acquiring existing operations, companies like ASE gain immediate access to established infrastructure, skilled workforces, and client relationships, accelerating their ability to meet rising demand while navigating global trade complexities.
The OSAT industry in Southeast Asia is set to grow steadily, supported by ongoing tech innovation, government support and rising market demand.
Emerging technologies, such as 3D integrated circuits and System-in-Package designs, are increasing demand for sophisticated packaging. Artificial intelligence is revolutionizing the testing and packaging processes. AI-driven systems can identify defects with unprecedented precision, improving product quality and reducing costs. Advanced packaging technologies, such as 3D ICs and System-in-Package (SiP), are crucial for meeting the demands of modern electronics, which require more functionality in smaller sizes.
Yet, challenges remain. Sustainability is a pressing concern, as semiconductor manufacturing consumes significant energy and resources. Developing a skilled workforce to keep pace with technological advancements is critical, particularly as SEA scales its operations. Geopolitical complexities, including ongoing trade tensions and tariffs, require careful navigation to maintain stability.
Southeast Asia’s rise in the OSAT industry is a story of strategic adaptation and economic opportunity. As U.S. tariffs and global trade dynamics reshape the semiconductor landscape, SEA stands as a resilient hub, offering stability, cost advantages, and innovation. For investors, companies, and policymakers, understanding these trends is essential to capitalizing on this transformative moment.
Alarar Capital Group provides expert guidance for navigating SEA’s OSAT market. With deep industry knowledge, a global investor network, and proven transaction expertise, Alarar Capital Group supports businesses in identifying opportunities, structuring deals, and forging strategic partnerships. As SEA continues to shape the future of semiconductors, Alarar Capital Group is a trusted partner for sustainable growth.
Author:
Valentin Ischer
Managing Director
Author:
Felix Chu
Vice President
Author:
Charlene Lui
Associate
Author:
David Choi
Analyst
References
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