The Philippines’ vital semiconductor export sector is expected to see flat-to-moderate growth this year and next, with risks weighed down by a shift in global demand and the threat of a potential one hundred percent US tariff, according to a new report from Oxford Economics.
The country’s concentration in lower-value, legacy assembly, test and packaging (ATP) chips, along with its high exposure to US demand, could make it one of the most vulnerable in Asia to any potential tariff shock, it said.
Major exporters in countries like South Korea and Taiwan are expected to qualify for carve-outs from the potential US tariff, citing their existing US manufacturing footprints. However, the report indicates that despite most semiconductor players in the Philippines also having a US presence—including Texas Instruments, Analog Devices, NXP and Onsemi—their local businesses are predominantly focused on cost-sensitive legacy ATP, where margins are thin.
A 100-percent tariff would make Philippine products less competitive, risking a shift of buyers to exempt sources. Semiconductor exports are critical to the Philippine economy, consistently accounting for around 55 percent of total manufacturing goods exports.
While regional peers have gained momentum from the Artificial Intelligence (AI) boom, which has rewarded countries with advanced nodes and advanced packaging capabilities, Philippine semiconductor exports declined by about 13 percent in value terms and roughly 25 percent in volume terms in 2024. This makes the Philippines an outlier among Asian semiconductor exporters, with the sector having almost no capacity in the AI-related advanced nodes where most growth is now concentrated.
Demand for the legacy chips in which the Philippines specializes—used in auto, industrial, and consumer markets—has remained depressed due to inventory corrections, while growth in countries like Vietnam and Malaysia has been boosted by their recently developed AI-related capacity. South Korea’s semiconductor exports, for instance, rose about 40 percent in value terms in 2024.
Oxford Economics noted that the sector could see some upside in the medium term as the global drive for resilient and diversified supply chains continues.
To capitalize on these opportunities, however, the Philippines need to upgrade its legacy-centric ATP capacity and diversify into higher-value segments, which will require significant foreign direct investments (FDIs), Oxford Economics said.
Upgrading the country’s product mix will take time and substantial FDI, which is likely to remain muted in the near term due to uncertainties surrounding the potential US tariff policy. The country also needs to address chronic issues like infrastructure bottlenecks, red tape, regulatory uncertainty, and skills gaps, the report noted.
The recently enacted CREATE MORE Act, which aims to attract FDI by lowering income tax rates and extending tax perks, marks progress, but the report stresses the need for complementary, targeted policies to address the semiconductor sector’s specific needs, given its high energy consumption and capital-intensive nature.
“FDI will be essential for the Philippines to upgrade its capacity to advanced packaging and front-end fabrication,” Oxford Economics said.
“Otherwise, the country could be trapped in slow-growth sectors: steady legacy volumes, but gradually eroding market size and bargaining power,” it said.
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