Chinese Companies Eye Malaysia for Chip Assembly: Report

Reports have surfaced that Chinese chip design firms are turning to Malaysian companies for their high-end chip assembly to mitigate risks should the US further tighten restrictions on China’s chip industry.

Three sources said the firms are in talks with Malaysian chip packaging firms to assemble graphics processing units (GPUs).

The requests solely focus on assembly, which is still in compliance with any US prohibitions and does not involve chip wafer fabrications, with several contracts already established, two of the sources added.

Washington has gradually imposed sanctions on China’s sales and advanced chip-making equipment to curb the country’s access to high-end GPUs used in artificial intelligence (AI), supercomputers, and military applications.

According to analysts, the impact of the restrictions and strong demand due to AI success has led smaller Chinese semiconductor designers to face challenges securing enough advanced packaging services domestically.

The two sources stated that certain Chinese companies have looked at advanced chip packaging services.

Advanced chip packaging, which can enhance chip performance, is becoming a vital technology in the semiconductor industry.

Such a method can, at times, involve building chiplets where chips are tightly packaged to function as one mind, creating a potent integrated unit for increased processing capabilities.

Sources noted that while the US does not restrict the export of advanced chip packaging, companies are concerned about its need for sophisticated technology, which may face export restrictions to China in the future.

As Chinese chip companies look beyond their home for their assembly needs, Malaysia, a key hub in the semiconductor supply chain, is expected to obtain more business.

Unisem, primarily owned by China’s Huatian Technology, along with other Malaysian chip packaging firms, has observed a rise in business and inquiries from Chinese customers.

Malaysia: A Major Semiconductor Hub

Malaysia currently represents 13% of the global market for semiconductor packaging, assembly, and testing, and it is looking to increase that number to 15% by 2030.

Chinese chip companies, like former Huawei business Xfusion, plan to expand in Malaysia. The firm said in September it would join forces with NationGate to produce GPU servers used for data centers and AI, as well as high-performance computing.

StarFive is also establishing a design center in Penang, while TongFu Microelectronics announced in 2022 that it would partner with Advance Micro Devices (AMD) to expand its Malaysia facility.

Malaysia’s offering of a suite of incentives has drawn multi-billion-dollar chip investments. German chipmaker Infineon declared in August a €5 billion ($5.4 billion) investment to expand its semiconductor plant.

In 2021, US chip giant Intel disclosed plans for a $7 billion advanced chip packaging facility in Malaysia.

Chinese firms are also focusing beyond Malaysia. In the same year, Jiangsu Changjiang Electronics Tech Co (JCET) Group, the third-largest chip assembly and testing company globally, acquired an advanced testing facility in Singapore.

Furthermore, Vietnam and India, among other nations, aim to expand further into chip manufacturing services to attract customers seeking to mitigate US-Sino geopolitical risks.