China Turns to Malaysia for Assembling Amid US Restrictions

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Malaysia aims to increase its global market share in semiconductor packaging, assembly, and testing from 13% to 15% by 2030. 

An increasing number of Chinese semiconductor design companies are turning to Malaysian firms for assembling high-end chips like graphics processing units (GPUs). The move aims to mitigate risks in the event of expanded U.S. sanctions against China’s chip industry. These companies are focusing solely on the assembly part of the chip-making process, which doesn’t violate any U.S. restrictions, as opposed to the fabrication of the chip wafers. Some contracts have already been secured, although specific company names remain confidential.

As U.S. sanctions start to impact and the demand for AI grows, smaller Chinese semiconductor firms find it challenging to obtain advanced packaging services domestically. Advanced chip packaging is becoming increasingly important in the semiconductor industry. It often involves constructing chiplets that work together cohesively. While not currently restricted by U.S. export controls, there are concerns that such sophisticated technology might eventually be targeted with export restrictions to China.

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Malaysia, a significant player in the global semiconductor supply chain, is well-positioned to capture more business as Chinese chip firms look beyond China for their assembly needs. Firms like Unisem, with China’s Huatian Technology as its largest shareholder, and other Malaysian chip packaging companies have reportedly seen a rise in business and inquiries from Chinese clients. Unisem’s Chairman, John Chia, acknowledges an increase in Chinese chip houses seeking additional supply sources outside China due to trade sanctions and supply chain issues.

Malaysia is an attractive option for Chinese chip design firms because of its favourable relations with China, cost-effectiveness, skilled workforce, and advanced equipment. Unisem’s business activities are deemed fully legitimate and compliant, with most of its customers in Malaysia being from the United States.

Malaysia aims to increase its global market share in semiconductor packaging, assembly, and testing from 13% to 15% by 2030. Chinese chip firms expanding in Malaysia include Xfusion, StarFive, and TongFu Microelectronics. Additionally, countries like Vietnam and India are also looking to grow their chip manufacturing services, attracting clients seeking to minimise geopolitical risks between the U.S. and China.

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