Brazil’s semiconductor industry expecting big hikes in capex, revenues

Amid a worsening shortage of chipsets in global markets, semiconductor manufacturers in Brazil are expected to end 2021 having made investments of 250mn reais (US$45mn) and collecting over 4bn reais (US$720mn) in revenues, according to industry association Abisemi.

That would be a significant increase from the 3bn-real annual revenues seen in the last three years, Abisemi president Rogério Nunes (pictured) told BNamericas.

Meanwhile, the global semiconductor market is expected to end the year having generated US$478bn in revenues. A third of this total involves memory boards, a technology which is produced in Brazil.

Of the total investments expected to be made in the sector in Brazil this year, 150mn reais would go on machinery and equipment and 100mn reais on research and development, according to the executive.

“Brazil is going through one of the best periods in history in terms of its semiconductor industry, in my opinion,” said Nunes, who is also president of Brazilian memory solutions developer Smart, the largest Brazilian semiconductor company.

Founded in 1988, Smart entered the Brazilian memory market in 2002 and in 2005 produced an advanced encapsulation and testing process. “Several other companies came along with us and this sector developed,” Nunes said.

The country currently has 14 companies dedicated to the semiconductor segment, making it the second largest industrial park in the sector outside Asia, Nune claimed.

In the 1980s, the country had as many as 23 multinational companies that developed and manufactured semiconductors domestically, he explained. However, for various reasons that figure declined to almost zero in the 1990s and early 2000s.

The number of these companies began to grow again in the wake of Industrial policies focused on tax incentives that began to be implemented in the 1990s, such as the Lei da Informática (IT law), and particularly in the late 2000s, such as the Padis tax break program, in addition to greater participation on the part of national development bank BNDES and a national microelectronics policy.

Of all the companies in the semiconductor sector operating in Brazil, five produce chips and use the highly advanced encapsulation technique, mainly for memory, said Nunes.

Abisemi members alone, which include multinational chipset makers such as Qualcomm, employ some 2,500 people in Brazil. 

The total number of workers in the sector, however, is greater when including the association’s 35 partner research and development institutes, such as CPQD and Inatel, among others.

Nonetheless, these groups are still unable to meet domestic demand. As a result, Brazil imports 90% of all semiconductors used in phones, cars and other electronics.

According to Nunes, of the 45m cell phones produced annually in Brazil, around 50-55% are supplied with memory units produced in the country. For computers, including laptops, desktops and servers and storage equipment, 78-80% of all memory used in products sold in Brazil is manufactured domestically.

“This generates a very interesting and very competitive market,” said Nunes.

Nevertheless, there are several obstacles for the sector moving forward.

CHALLENGES

Abisemi is currently lobbying congress to try to renew the Padis program, the core benefits of which expire in January 2022. The association’s proposal is to match the program with the new term of the IT law, which was renewed until the year 2029.

Together, these two policies are deemed to be the cornerstones of the electronics industry in the country. In addition to semiconductors and chipsets, Padis also grants tax breaks to companies in the photovoltaic solar panel sector.

Padis was already reformulated after Brazil suffered a defeat in the WTO, which considered some of its terms illegal on protectionist grounds.

The bill 3042/2021, which will renew Padis, is under discussion in congress. Abisemi expects that the bill be granted urgent status, allowing it to be voted through more rapidly in the coming weeks, Nunes said.

Bolsonaro's economy ministry is opposed to tax break policies like Padis, but Nunes believes that most lawmakers are sympathetic to the program.

“Padis makes domestic products more competitive. It seeks to foster the industry, as do other countries in the world such as Korea, China, Taiwan, the US. All offer significant incentives, albeit in different ways.”

All leading semiconductor players, such as Intel, Samsung, Micron and Qualcomm, receive incentives from their countries and their governments, in some cases representing up to 7% of their current revenue, according to Nunes.

Meanwhile, the Bolsonaro government also intends to liquidate Ceitec, the only state-owned semiconductor company in Brazil. 

In Nunes' view, Ceitec was successful in helping to develop the sector and creating specialized technology, but ended up struggling when it tried to operate as a private company.

NEW POLICY

In parallel with the discussion on Padis, Abisemi has created a working group to outline a broader industrial policy for the sector, covering the next 5-10 years.

The group includes Abisemi, the automotive industry, research financing entity Finep and BNDES, in addition to the science and technology ministry and "even economy ministry officials."

The group has produced a 42-page document outlining investments, training of the workforce and the relationship between the different links in the semiconductor industry.

Nunes, however, is skeptical about whether this policy can be enacted in the short term due to macroeconomic, fiscal and political conditions.

The global semiconductor shortage, which has been building for years and has come to a head due largely to manufacturing complexities, changes to the market with new technology and the coronavirus pandemic, means that products such as cars cannot be manufactured. Nunes said, for example, that some 7.5mn cars will not be produced in the world this year due to the lack of components. In Brazil, estimates are now that some 250,000 vehicles will not be produced because of the bottlenecks, up from 150,000 previously, he said.

The executive does not expect the semiconductor production chain to normalize before the end of 2022. 

“The production chain is gradually rebalancing, but the fact is that we’re seeing an explosive increase in consumption [of components]," he added.

“Even if the chain stabilizes, we’ll still have a big shortage because certain industries and segments have also started to use state-of-the-art products.”

SMARTPHONES

In addition to cars, the lack of chipsets is already hampering the delivery of cell phones in Brazil.

Brazilian operator TIM reported having had problems with the delivery of some Samsung cell phones in the third quarter. However, the operator claims that it had been notified in advance by the South Korean manufacturer and was able to get around the problem with its stock.

In Q2, TIM also faced issues with the delivery of LG phones, although CEO Pietro Labriola said that these problems were more related to LG's decision to pull out of the Brazilian market.

Hélio Rotenberg, CEO of Positivo Tecnologia, the largest Brazilian manufacturer of handsets and computers, said in a press conference that for the time being his company has not had any problems with components, but that it continues to assess the market.

This week, Positivo announced a partnership with China’s Transsion Holdings for the exclusive manufacture, sale and technical assistance of Transsion's Infinix smartphones throughout Brazil. The investment in local manufacturing is around 50mn reais

Infinix is deemed one of the fastest growing brands in the global smartphone segment, having a presence in more than 70 countries. The partnership outlines local production of the Infinix Note 10 Pro smartphone.

In the press conference, Rotenberg assured that Infinix manufacturing will not be affected by chipset shortages.