Chinese firms look to Malaysia for assembly of high-end chips, sources say

A growing number of Chinese semiconductor design companies are turning to Malaysian firms for the assembly of high-end chips, seeking to mitigate risks in case of potential U.S. expansion of sanctions on China's chip industry, according to sources familiar with the matter.

These Chinese companies are specifically engaging Malaysian chip packaging firms to assemble graphics processing units (GPUs), a type of chip crucial for applications such as artificial intelligence breakthroughs, supercomputing, and military applications. The requests focus on assembly rather than the fabrication of chip wafers and have already resulted in some agreed-upon contracts.

Washington's restrictions on the sale of high-end GPUs and advanced chip-making equipment, driven by concerns about their use in sensitive applications, have prompted Chinese semiconductor design firms to explore alternatives for advanced packaging services. Advanced packaging is a critical technology in the semiconductor industry, enhancing chip performance through methods like constructing chiplets.

While not subject to export restrictions, Chinese firms are concerned that advanced packaging services could become a potential target for future export curbs. Malaysia, a key player in the global semiconductor supply chain, is well-positioned to benefit from this trend as chip firms seek assembly services outside their home countries.

Malaysian chip packaging companies like Unisem have reportedly witnessed increased business and inquiries from clients. Unisem Chairman John Chia mentioned that many chip design houses have come to Malaysia to establish additional supply sources due to trade sanctions and supply chain issues. Chip design firms also see Malaysia as an attractive option due to favorable relationships with their home countries, affordability, an experienced workforce, and sophisticated equipment.

While the names of companies involved were not disclosed due to confidentiality agreements, the move highlights a broader shift in the semiconductor industry as companies diversify their assembly needs outside their home countries to navigate geopolitical uncertainties and supply chain challenges.

Malaysia currently accounts for 13% of the global market for semiconductor packaging, assembly, and testing, with plans to boost that share to 15% by 2030. The country has attracted significant chip investments, and multinational companies like Infineon have announced plans to expand their operations in Malaysia, reflecting the nation's growing importance in the semiconductor landscape.