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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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Saudi Arabia Eyes Chipmakers for Diversification

  • Digital technology is a major focus of the Saudi Vision 2030 program led by Crown Prince Mohammed.
  • This week saw the third edition of the Saudi Future Semiconductors Forum, the aim of which is to promote Saudi Arabia as a chip manufacturing destination.
  • The National Semiconductor Center aims to have 50 semiconductor makers active in Saudi Arabia by 2030.
Chip machine

Saudi Arabia is taking its economic diversification seriously. With oil prices increasingly unpredictable and disconnected from its energy policies, the Kingdom is looking for fresh growth opportunities elsewhere—including in semiconductors.

This week saw the third edition of the Saudi Future Semiconductors Forum, the aim of which is to promote Saudi Arabia as a chip manufacturing destination and help it build a digital economy. At the event, the Saudi state announced the establishment of an investment fund worth some 1 billion riyals, or about $266 million, to support companies that choose to set up shop in the Kingdom.

The National Semiconductor Center aims to have 50 semiconductor makers active in Saudi Arabia by 2030 with a focus on simple, rather than highly specialized and, as Bloomberg put it, politically sensitive, semiconductors.

“We’re not trying to replace Nvidia or challenge Intel,” Naveed Sherwani, head of the National Semiconductor Center, told Bloomberg. “We want to do humble beginnings. Once we have built a base, then we can talk.”

Digital technology is a major focus of the Saudi Vision 2030 program led by Crown Prince Mohammed. It features the smart-city, futuristic project Neom featuring The Line neighborhood, which could end up costing as much as a trillion together with Riyadh’s other diversification efforts. Neom’s price tag alone has been pegged at $500 billion.

Related: Trafigura Profit Drops 73% As Oil Price Boom Fades

Aramco, the state oil major, is also investing in digital tech. The company spent $3.5 billion on research and development last year, according to a GlobalData report, which noted that Aramco was active in as many as 250 areas of innovation including, besides AI, drone technology, robotics, and electric vehicles. Now, Aramco’s owner is adding microchips to the mix.

Earlier this year, the Public Investment Fund, Saudi Arabia’s sovereign wealth fund, set up a company dubbed Alat, with a capital of $100 billion and the purpose of building manufacturing hubs to attract businesses, Bloomberg noted in its report on the Future of Semiconductors Forum.

The company is already spending the money allocated by the state to further Saudi interests in digital technology. Earlier this week, Alat closed a strategic partnership deal with China’s Lenovo, granting it a $2-billion investment in the form of a zero-coupon, convertible bond issue. This, however, could lead to problems with the United States: Washington, per Bloomberg, has warned Riyadh that it would have to make a choice between Chinese chips and American chips. Also, according to Bloomberg, the head of Alat said the company would exit China if the U.S. told it to.

For now, there seems no danger of this, with the Lenovo announcement also including the news of the Chinese company planning to set up an office in Saudi Arabia. “As Lenovo establishes its regional headquarters in Riyadh and a clean energy manufacturing base in Saudi Arabia, we expect its growth to accelerate in the MEA region,” the chief executive of Alat, Amit Midha, said as quoted by TechNode last week. And it has another $92 billion to allocate in investments until 2030.

Some of the money would go towards building a $150-million factory for industrial robots, regional publication Waya reported in February this year. Alat is also eyeing investments in emission reduction research and development capacities, as well as smart mobility and intelligent city solutions, the report noted. The company’s early partners include Softbank Group, U.S. Carrier Corporation, Chinese Dahua Technology, and local Tahakom, a smart mobility technology developer.

Saudi Arabia is trying to do with digital tech what the UAE did with real estate. It may be a little late to the diversification party, but if it succeeds with the balancing act between China and the U.S., it may just make it work, which would boost its resilience to volatile oil prices over the longer term.

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By Charles Kennedy for Oilprice.com

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