Malaysia emerges as a hotspot for chip firms amid U.S.-China tech war

Malaysia is rising as a hotspot for semiconductor factories as U.S.-China tensions immediate firms to diversify operations.

“Malaysia has well-established infrastructure with round 5 many years of expertise within the ‘again finish’ of the semiconductor manufacturing course of, notably in meeting, testing and packaging,” mentioned Kenddrick Chan, head of the digital worldwide relations challenge at LSE IDEAS, the international coverage think-tank of the London Faculty of Economics and Political Science.

Semiconductors – vital parts present in all the pieces from smartphones to vehicles – have been on the heart of a U.S.-China know-how battle.

American chip big Intel in December 2021 mentioned it’s going to make investments greater than $7 billion to construct a chip packaging and testing manufacturing facility in Malaysia, with manufacturing anticipated to start in 2024.

“Our choice to spend money on Malaysia is rooted in its numerous expertise pool, well-established infrastructure, and strong provide chain,” Aik Kean Chong, Intel Malaysia’s managing director, advised CNBC.

Intel’s first abroad manufacturing facility was an meeting website in Penang launched in 1972 with a $1.6 million funding. The corporate went on so as to add a full take a look at facility in addition to a growth and design heart in Malaysia.

One other U.S. chip big, GlobalFoundries, in September opened a hub in Penang to “help world manufacturing operations” alongside its vegetation in Singapore, the U.S. and Europe.

“The forward-thinking insurance policies and powerful help from the regional authorities along with companions like InvestPenang have constructed a robust ecosystem for the business to thrive,” mentioned Tan Yew Kong, senior vp and normal supervisor of GlobalFoundries Singapore.

Germany’s high chipmaker Infineon in July 2022 mentioned it’s going to construct a 3rd wafer fabrication module in Kulim whereas Neways, a key provider to Dutch chip tools maker ASML, mentioned final month it’s going to assemble a brand new manufacturing facility in Klang.

“Malaysia’s edge has at all times been its expert labor in packaging, meeting and testing, and decrease comparative working prices, making exports extra aggressive globally,” mentioned Yinglan Tan, founding managing accomplice at Insignia Ventures Companions. He added that the ringgit’s present place makes the nation an “engaging location for international gamers.”

Malaysia holds 13% of the worldwide marketplace for chip packaging, meeting and testing providers, mentioned the Malaysian Funding Improvement Authority in a Feb. 18 report. Exports of semiconductor gadgets and built-in circuits elevated by 0.03% to 387.45 billion Malaysian ringgit ($81.4 billion) in 2023, amid world chip demand weak point.

Malaysia Semiconductor Trade Affiliation president Datuk Seri Wong Siew Hai mentioned many Chinese language corporations diversified a few of their manufacturing to Malaysia, calling the nation China’s “plus one.”

Zafrul Aziz, Malaysia’s funding, commerce and business minister, advised CNBC in January that Malaysia goals to concentrate on the “entrance finish” of the chip manufacturing course of, as a substitute of simply the “again finish.” Entrance finish processes contain wafer fabrication and photolithography, whereas again finish processes focuses on packaging and meeting.

In a bid to develop the nation’s semiconductor ecosystem and appeal to investments, Malaysia in January arrange a nationwide semiconductor strategic taskforce, native media reported.

Equally, nations like India and Japan have been courting international corporations to arrange operations on native soil as they goal to develop into main chip hubs alongside the U.S., Taiwan and South Korea.

India in February accredited the development of three semiconductor vegetation with investments of greater than $15 billion. India in June accredited U.S. reminiscence chip big Micron’s plans to arrange a semiconductor unit.

In the identical month, the world’s largest contract chip maker TSMC opened its first Japan manufacturing facility because it diversifies away from Taiwan amid U.S.-China tensions.

Washington launched sweeping guidelines in October 2022 geared toward proscribing China’s entry to superior chip know-how amid issues that China may use them for navy functions. Final yr, the U.S. introduced new laws stopping U.S. chip designer Nvidia from promoting superior AI chips to China.

“Malaysia and Asia usually is poised to learn from the China-U.S. tech battle, the place entry to superior semiconductor chips are being weaponised as a instrument to ascertain world technological supremacy,” mentioned Might-Ann Lim, director of the info governance apply at public coverage consultancy Entry Partnership.

Whereas Malaysia stands to learn from the U.S.-China chip battle, its mind drain poses challenges as staff go away the nation for higher job prospects and better salaries.

“This could be the case if firms spend money on upskilling the workforce in Malaysia, solely to lose them to different rivals across the area as soon as they’ve the abilities,” mentioned Lim.

An official examine carried out in 2022 revealed that 3 out of 4 Malaysian staff in Singapore are expert or semi-skilled, highlighting the nation’s mind drain drawback.

“Whether or not this demand generated by provide chain diversification will probably be met with sufficient provide of expert expertise within the nation continues to be an ongoing operational problem,” mentioned Tan of Insignia Ventures Companions.

Malaysian Prime Minister Anwar Ibrahim in September mentioned the federal government is trying to draw expert Malaysians to return and contribute to the nation.