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Asian companies in GenAI race for competitive edge
Taiwan and South Korea stand to gain most from rising demand for high-end chips
Yuki Li 29 Nov 2023

A growing number of companies in Asia are looking at opportunities presented by generative artificial intelligence (GenAI), which is expected to become a game changer in many industries.

Globally, the market size for GenAI software and services is forecast to grow to US$151.9 billion in 2032, from US$13.9 billion this year. Asia-Pacific investors intend to increase their investment in AI, which in turn is driving the growth of the entire AI supply chain.

Global GenAI market

Source: Eastspring Investments

Use cases for GenAI include content creation for games, movies, music, virtual reality (VR), augmented reality (AR), etc., as well as the development of cloud computing and edge computing. It also promises to reshape a wide array of industries, including transport (driverless cars), healthcare (virtual doctors), education (personalized learning), and retail (inventory management).

Asian gaming companies, electric vehicle manufacturers, e-commerce players, and cloud providers are embracing GenAI to enhance their offerings and improve their competitive edge, Eastspring Investments says in its 2024 Market Outlook.

Clear beneficiaries

Advancements in AI are highly dependent on high-end semiconductor chips, which have the power to process and analyze data. In Asia, the clear beneficiaries are Taiwan and Korea, according to the report.

Taiwan has a complete industrial supply chain to support current and future AI industry trends. This is particularly true in the case of companies that manufacture key components such as thermal/power/printed circuit boards. Taiwan Semiconductor Manufacturing Company (TSMC), one of the largest makers of these components, reported a net revenue growth of 13.7% and net income growth of 16% in the third quarter of 2023, compared with the previous three months.

Taiwanese fabless chipmaker MediaTek has seen demand for electronic devices recover slowly, particularly in China, its largest market. The company’s stock price has grown over 40% year-to-date, largely driven by AI chips designed for smartphones. Its inventory has fallen for five straight quarters, although inventory days reached a healthy level of 90 at the end of the third quarter 2023, MediaTek says in an earnings call.

Korean fabs that are developing the next generation of high bandwidth memory (HBM) chips will also benefit from the widespread adoption of AI. “For our system semiconductor businesses, results remain subdued with a delayed demand recovery in major applications. However, in the foundry, new backlog from design wins reached a new quarterly high,” says Ben Suh, head of investor relations at Samsung Electronics, at the company’s Q3 2023 earnings call.

Samsung Electronics will supply high-performance DRAM chips, HMB3, to Nvidia Corp from Q4 2023. Previously, SK Hynix had been Nvidia’s sole provider of high-bandwidth memory for AI accelerators.

“Within the supply chain, what seems to be currently the bottleneck is the HBM and the 2.5D package,” Gibong Jeong, executive vice-president of business development at Samsung Foundry, says in the same earnings call. “Given the situation, we are focusing on quickly increasing the supply ability around the key bottlenecks at the HBM and the 2.5D packaging. We continue to monitor the supply situation to plan out further investments and increases if necessary.”

Other Asian companies within the semiconductor supply chain, such as advanced packaging and testing players in Malaysia, should also benefit from the huge demand, says the Eastspring report.

Conservative approach

The rapid development of AI technology has greatly impacted companies’ strategies and decisions. A recent report from EY, the Asia-Pacific CEO Outlook on AI Strategy, shows that 71% of Asia-Pacific CEOs agree that their organizations must act now on GenAI to avoid giving competitors a strategic advantage.

At the same time, CEOs in the region are relatively conservative about AI investment. While almost a quarter (23%) of global CEOs prefer raising new capital for their AI investments, only 15% of Asia-Pacific chief executives share this approach. Instead, 42% of corporate leaders in the region will reallocate capital from other investment budgets, and another 32% plan to draw from their existing technology budgets.

The differing approaches to funding could be due to the more mature capital markets globally, where venture capital is more readily available. In fact, a higher percentage of global CEOs (70%) plan to increase spending on corporate venture capital in 2024, compared with 63% of their peers in Asia-Pacific.

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