April 24, 2024

Malaysian companies are rapidly becoming the priority spot for many Chinese semiconductor design firms, as revealed in a Reuters reportThis is a crucial step that will help Chinese firms escape the growing concerns about possible United States sanctions on China’s chip industry.

Sources reveal that these Chinese companies are specifically seeking Malaysian chip packaging firms to assemble graphics processing units (GPUs), a move aimed at diversifying assembly operations and mitigating risks.

Chinese Semiconductor Firms Switch Focus to Malaysia

According to the report by Reuters, the requests focus solely on assembly, avoiding any violation of U.S. restrictions and excluding the fabrication of chip wafers.

Some contracts have already been finalized, though the names of the involved companies remain hidden due to confidentiality agreements.

The suspicions of escalating U.S. restrictions on high-end GPUs have prompted Chinese semiconductor design firms to explore options beyond domestic sources for advanced packaging services.

These suspected restrictions are mainly driven by concerns over China’s access to technology with applications in artificial intelligence, supercomputing, and military uses.

Notably, the appeal of Malaysia, a significant player in the semiconductor supply chain, stems from its perceived diplomatic rapport with China, cost-effectiveness, skilled workforce, and advanced equipment.

A prominent Malaysian chip packaging company, Unisem, is a testimony to this fact.

The same has witnessed increased business from Chinese clients, emphasizing the necessity for additional supply sources outside China amid trade sanctions and supply chain challenges.

Despite potential concerns about provoking U.S. objections, industry players like Unisem maintain the legitimacy and compliance of their business dealings, underlining the difficulty of navigating global trade dynamics.

The move toward Malaysia is not aimed at just Chinese companies, as the country aims to better its share in the global assembly, semiconductor packaging, and testing market, with several major chip players announcing plans for expansion in the region.

As geopolitical uncertainties between the U.S. and China persist, other nations, including Vietnam and India, are also positioning themselves to attract clients looking to minimize geopolitical risks in chip manufacturing services.

Malaysia’s Position in the Semiconductor Sector

Over the past half-century, Malaysia has strategically positioned itself as a crucial player in the worldwide semiconductor supply chain. Currently meeting approximately 13% of the global demand for packaging and testing, Malaysia has cultivated a robust local semiconductor industry and ecosystem.

Recent years have witnessed substantial investments in the country. For instance, a leading semiconductor producer globally and a pioneer in Malaysia’s semiconductor sector, Intel Corp, unveiled plans in 2021 to inject 30 billion ringgit (US$6.8 billion) over a decade to expand its chip packaging and testing operations.

But despite these strides, concerns linger about whether Malaysia is adjusting its share of the semiconductor market, especially with the rising competition posed by countries like Vietnam. 

President and CEO of BowerGroupAsia (BGA), Ernest Bower, responding to these concerns, emphasized the need for Malaysia to capitalize on its strengths, urging the country to assert dominance in the back end, foster innovation, and guard against potential competitors.

This sentiment resonates within Malaysia’s industry, with key players recognizing the necessity to enhance the nation’s packaging and testing capabilities. Noteworthy initiatives include investments by companies such as TF-AMD alongside Intel.

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