Malaysia emerges as a hotspot for chip companies amid U.S.-China tech battle

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 a long time of expertise within the ‘again finish’ of the semiconductor manufacturing course of, significantly in meeting, testing and packaging,” stated Kenddrick Chan, head of the digital worldwide relations mission at LSE IDEAS, the overseas coverage think-tank of the London College of Economics and Political Science.

Semiconductors – crucial elements present in every thing from smartphones to vehicles – have been on the heart of a U.S.-China expertise battle.

American chip big Intel in December 2021 stated 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 resolution to put money into Malaysia is rooted in its numerous expertise pool, well-established infrastructure, and strong provide chain,” Aik Kean Chong, Intel Malaysia’s managing director, instructed CNBC.

Intel’s first abroad manufacturing facility was an meeting web site in Penang launched in 1972 with a $1.6 million funding. The corporate went on so as to add a full check 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 “assist world manufacturing operations” alongside its crops in Singapore, the U.S. and Europe.

“The forward-thinking insurance policies and powerful assist from the regional authorities along with companions like InvestPenang have constructed a powerful ecosystem for the trade to thrive,” stated Tan Yew Kong, senior vice chairman and normal supervisor of GlobalFoundries Singapore.

Germany’s prime chipmaker Infineon in July 2022 stated it’s going to construct a 3rd wafer fabrication module in Kulim whereas Neways, a key provider to Dutch chip gear maker ASML, stated 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,” stated Yinglan Tan, founding managing companion at Insignia Ventures Companions. He added that the ringgit’s present place makes the nation an “enticing location for overseas gamers.”

Malaysia holds 13% of the worldwide marketplace for chip packaging, meeting and testing providers, stated the Malaysian Funding Improvement Authority in a Feb. 18 report. Exports of semiconductor units 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 stated many Chinese language companies diversified a few of their manufacturing to Malaysia, calling the nation China’s “plus one.”

Zafrul Aziz, Malaysia’s funding, commerce and trade minister, instructed CNBC in January that Malaysia goals to concentrate on the “entrance finish” of the chip manufacturing course of, as an alternative 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 entice investments, Malaysia in January arrange a nationwide semiconductor strategic taskforce, native media reported.

Equally, international locations like India and Japan have been courting overseas companies to arrange operations on native soil as they intention to turn out to be main chip hubs alongside the U.S., Taiwan and South Korea.

India in February accredited the development of three semiconductor crops 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 aimed toward limiting China’s entry to superior chip expertise amid considerations that China may use them for navy functions. Final 12 months, the U.S. introduced new laws stopping U.S. chip designer Nvidia from promoting superior AI chips to China.

“Malaysia and Asia generally is poised to profit from the China-U.S. tech battle, the place entry to superior semiconductor chips are being weaponised as a software to determine world technological supremacy,” stated Could-Ann Lim, director of the information governance apply at public coverage consultancy Entry Partnership.

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

“This might be the case if firms put money into upskilling the workforce in Malaysia, solely to lose them to different rivals across the area as soon as they’ve the abilities,” stated Lim.

An official research performed in 2022 revealed that 3 out of 4 Malaysian employees 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 remains to be an ongoing operational problem,” stated Tan of Insignia Ventures Companions.

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