Chinese Semiconductor Design Firms Turn to Malaysia to Mitigate US Sanction Risks

According to a recent Reuters report, in response to escalating US sanctions on China's chip industry, an increasing number of Chinese semiconductor design companies are forging partnerships with Malaysian firms to assemble high-end chips, particularly graphics processing units (GPUs). 

The collaborations are strategically focused on the assembly phase, sidestepping US restrictions, and contracts have already been finalized in some instances. Washington's heightened restrictions, aimed at limiting China's access to advanced GPUs crucial for artificial intelligence and military applications, have left smaller Chinese semiconductor design firms grappling to secure adequate advanced packaging services domestically. 

Concerns among Chinese firms about potential future restrictions on exports to China in the advanced chip packaging services domain have prompted a shift towards Malaysia, a key player in the semiconductor supply chain, as an alternative assembly location. 

Unisem, majority-owned by China's Huatian Technology, has reported an uptick in business and inquiries from Chinese clients. Chairman John Chia emphasized the legitimacy and compliance of Unisem's business dealings, despite potential concerns over US reactions. 

Malaysia, contributing 13% to the global semiconductor packaging, assembly, and testing market, aims to increase its share to 15% by 2030. Chinese chip design firms, such as Xfusion and StarFive, have announced plans to expand in Malaysia, drawn by the country's perceived positive relationship with China, affordability, skilled workforce, and advanced equipment. Chia noted that most of Unisem's customers in Malaysia are from the US. 

Despite potential geopolitical risks, Malaysia's attractiveness extends beyond Chinese firms. The country's incentives and established infrastructure have attracted interest from other nations seeking to minimize uncertainties in the US-China relationship. Countries like Vietnam and India are actively expanding their presence in chip manufacturing services, providing alternative options for clients navigating the geopolitical landscape. 

As the semiconductor industry continues to navigate complex geopolitical challenges, the evolving landscape of international collaborations underscores the importance of strategic diversification for companies seeking to ensure a stable supply chain amid shifting global dynamics.