#techAsia

August 3, 2023

Greetings from Taipei! This is Lauly.

For the past month I've been working on a Big Story on Apple's supply chain in India with my dear colleagues Annie Cheng Ting-fang in Taipei and Sayan Chakraborty in Bengaluru. Together the three of us talked to nearly 20 people, including supply chain sources, industry experts and geopolitical analysts, to help us understand Apple's ambitions in the country.

As some of you might know, Annie and I have been closely tracking supply chain movements for years, particularly since the start of the U.S.-China trade war. In that time, we have noticed that establishing an electronics supply chain in India has progressed more slowly than in Vietnam and Thailand. This week's Big Story grew out of our desire to find out why that was. We hope you enjoy reading it!

Meanwhile, the tech earnings season has started recently. A common theme among suppliers is again the boom in generative artificial intelligence, which has sparked demand for graphic processing unit (GPU) chips, AI servers and data centers, power supply technologies and more. Demand for electric vehicles is another growth pillar for suppliers. Delta Electronics, which serves Tesla and General Motors among others, is in the middle of a global expansion push to keep up with its clients' demands.

And while most suppliers said they see inventories of consumer electronics returning to a healthier level, none has been confident enough to say demand is actually recovering.

Making it in India

Apple is accelerating its iPhone manufacturing shift to India, with an ambitious goal of moving 20% of total iPhone production to the country, Nikkei Asia's Lauly Li, Cheng Ting-Fang, and Sayan Chakraborty write. There are also plans for a new iPhone co-designed in India.

The twin crises of the pandemic and geopolitical tensions have challenged Apple's longtime formula of "designed in California, assembled in China" like never before.

The iPhone maker's shift to India comes alongside U.S. diplomatic overtures to New Delhi, in which technology plays a key role, while at the same time India's relationship with China is deteriorating.

Unrest at an iPhone production hub in Zhengzhou, China, last October -- the result of a COVID-19 outbreak -- played a key role in Apple's decision to speed up its India shift, according to several executives with knowledge of the company's thinking. Production at Zhengzhou, the world's biggest iPhone manufacturing hub, was disrupted for more than a month at the most critical time of the year -- the shopping season leading up to Christmas -- and no alternative production locations were immediately available.

India, meanwhile, is seizing the opportunity to elevate its electronics manufacturing capability. In addition to welcoming Apple's shift, which could help create a new supply chain ecosystem, the country is also attempting to woo chipmakers.

Japanese chip equipment supplier Disco plans to build a center in India to provide customer support and serve as a base for marketing to the country's budding semiconductor industry, Disco Executive Vice President Noboru Yoshinaga told Nikkei's Ryosuke Hanada and Nami Matsuura.

Disco's plans come as U.S. memory chip giant Micron Technology announced a new chip packaging and testing plant in India. Applied Materials, also of the U.S., plans to open a collaborative engineering center in Bengaluru.

The right chips at the right time

South Korean chipmakers SK Hynix and Samsung Electronics control 90% of the global market in "high-bandwidth memory" chips, crucial components in the systems needed to train AI systems such as OpenAI's ChatGPT, write the Financial Times' Christian Davies and Jung-a Song in Seoul.

Initially used for high-end gaming graphics cards, HBM chips still account for a small share of the global dynamic random access memory (DRAM) market. They use stacking technology to improve the bandwidth and performance of graphic processing units (GPUs) in high-speed computers.

Now, investor excitement is building over the Korean companies' dominance of this niche technology due to its importance in the generative AI boom.

"HBM chips are a critical component for AI servers," said Daniel Kim, an analyst at Macquarie. "You can't make large language models without them."

Both companies announced plans last week to double their HBM chip production next year, even as they scale back elsewhere in the memory sector amid a supply glut that has slashed operating profits.

SK Hynix last year became the first to mass produce cutting-edge fourth-generation HBM3 chips used in Nvidia's H100 GPUs -- demand for which pushed the U.S. chipmaker's market capitalization above $1 trillion in May.

"This is the first time that SK Hynix is ahead of Samsung in the memory technology race," Kim said. "SK Hynix bet on HBM chips early on and it worked out well."

Mario vs. the mouse

Nintendo is hoping Mario and its cast of other world-famous characters can help the Kyoto-based company reduce its reliance on video game console sales, writes Nikkei Asia's Natsumi Kawasaki.

For nearly 10 years, Nintendo has been working -- with hits and misses -- on an intellectual property-based transformation. It is a shift designed to leverage its brand and shield its earnings from the new-hit-to-fading-star cycle of the video games business.

The strategy involves everything from theme parks to convenience store snacks. One sign of success is "The Super Mario Bros. Movie," a computer-animated feature that has reaped $1.35 billion at the box office globally since its April 5 release. That makes it the biggest movie so far this year.

Shigeru Miyamoto, the game creator who brought Mario to life, said in 2019 he hoped to one day develop Mario into a character that could rival Mickey Mouse.

But console sales still account for around 90% of Nintendo's revenue, underscoring how far the company has to go to realize its IP ambition.

A hire order

Vietnamese Prime Minister Pham Minh Chinh is calling on South Korea's Samsung Electronics, the world's biggest smartphone maker by shipments, to nurture more local managerial talents in its operation in the country, writes Nikkei Asia's Lien Hoang.

Vietnam is a key smartphone manufacturing hub for Samsung outside of its home market, following the company's gradual exit from handset manufacturing in China. Samsung has been investing in Vietnam for 15 years and produces half of its devices in the Southeast Asian country.

The prime minister toured the electronics giant's "strategic production base" in Bac Ninh province in northern Vietnam and conveyed his "wish" for "training and developing Vietnamese managers and leaders at Samsung." Samsung Vietnam exports to 128 markets and accounts for 17.4% of exports from the Southeast Asian nation, the Bac Ninh government said.

Yet Vietnam has struggled to gain the skills, technology and supplier ecosystem that analysts say are needed to follow countries like South Korea up the tech manufacturing value chain. More high-level local hires, the government hopes, could help rectify that situation.