Chinese semiconductor firms turn to Malaysia for high-end chip assembly amid US sanction fears

In a move to mitigate potential risks associated with US sanctions on China’s chip industry, an increasing number of Chinese semiconductor design companies are exploring partnerships with Malaysian firms for the assembly of high-end chips, particularly graphics processing units (GPUs), Reuters reported.

The sources told Reuters that these collaborations focus solely on the assembly aspect, steering clear of US restrictions, with contracts already finalised in some cases.

The heightened restrictions by Washington to limit China’s access to advanced GPUs, crucial for artificial intelligence and military applications, have left smaller Chinese semiconductor design firms struggling to secure adequate advanced packaging services domestically. As a result, some are turning to Malaysia for these critical services.

While US restrictions do not currently apply to advanced chip packaging services, Chinese firms fear potential future curbs on exports to China in this domain. Malaysia, a key player in the semiconductor supply chain, is viewed as an ideal alternative for Chinese chip firms looking to diversify assembly locations outside China.

Unisem, majority-owned by China’s Huatian Technology, has reported increased business and inquiries from Chinese clients. The chairman, John Chia, underlined the legitimacy and compliance of Unisem’s business dealings.

Chinese chip design firms find Malaysia attractive due to its perceived positive relationship with China, affordability, skilled workforce, and advanced equipment. Chia acknowledged that most of Unisem’s customers in Malaysia are from the US.

Despite potential concerns over US reactions, Chia asserted that Unisem’s business dealings are fully legitimate and compliant.

Malaysia, currently contributing 13 per cent to the global market for semiconductor packaging, assembly, and testing, aims to increase its share to 15 per cent by 2030. Chinese chip firms, including Xfusion and StarFive, have announced plans to expand in Malaysia, attracted by the country’s incentives and established infrastructure.

In a bid to minimise geopolitical risks, other countries such as Vietnam and India are also actively seeking to expand their presence in chip manufacturing services, providing alternative options for clients looking to navigate US-Sino uncertainties.

(With inputs from Reuters)

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