Chinese company seeks Malaysia to assemble high-end chips.

VTC News•18/12/2023

Measures aimed at mitigating risks should the US expand sanctions against China's chip industry.

According to three informed sources, Chinese companies are requesting Malaysian chip packaging companies to assemble a type of chip known as a graphics processing unit (GPU).

They said the requirements only covered assembly – which does not violate any U.S. restrictions – and did not include the fabrication of the chip itself. Several contracts have been agreed upon, the two sources added.

These individuals declined to disclose the names of the companies involved or to be identified, citing confidentiality agreements.

In an effort to limit China's access to high-end GPUs—which could fuel breakthroughs in artificial intelligence (AI) or power supercomputers and military applications—Washington is increasingly placing restrictions on the sale of its sophisticated chip manufacturing equipment.

Analysts say that as those sanctions take effect and demand for AI explodes, smaller Chinese semiconductor design companies are struggling to secure advanced packaging services at home.

Advanced chip packaging can significantly improve chip performance and is emerging as a key technology in the semiconductor industry. This sometimes involves building chiplets (a collection of small microchips) where the chips are tightly packed to work together as a powerful "brain".

The two sources added that, while not yet subject to U.S. restrictions, this is an area that could require sophisticated technology that Chinese companies fear could one day become a target.

Malaysia, a major hub in the semiconductor supply chain, is considered well-positioned to attract more business as Chinese chip companies diversify their assembly needs overseas.

Unisem, a company largely owned by China's Huatian Technology, and other Malaysian chip packaging companies have seen increasing demand from Chinese customers.

Unisem chairman John Chia declined to comment on the company's customers but said: "Due to trade sanctions and supply chain issues, many Chinese chip designers have come to Malaysia to establish additional supply sources outside of China to support their business operations."

According to two sources, Chinese chip design companies also consider Malaysia a good option because the country is seen as having good relations with China, affordable prices, an experienced workforce, and sophisticated equipment.

When asked whether accepting GPU assembly orders from Chinese companies could potentially provoke a backlash in the U.S., Chia stated that Unisem's business dealings were "completely legal and compliant" and that the company didn't have time to worry about "too many possibilities."

He noted that most of Unisem's customers in Malaysia are from the United States.

The U.S. Commerce Department and other major chip-packaging companies in Malaysia, including Malaysia Pacific Industries and Inari Amertron, did not respond to Reuters' requests for comment.

A source who is an investor in two Chinese chip startups said that Chinese companies are also interested in assembling their chips outside of China because it could also make it easier to sell their products in markets outside of China.

Malaysia currently holds 13% of the global market for semiconductor packaging, assembly, and testing. They are aiming to increase this share to 15% by 2030.

Chinese chip companies have announced expansion plans in Malaysia, including Xfusion, a former Huawei unit. In September, the company said it would partner with Malaysia's NationGate to manufacture GPU servers – servers designed for data centers and used in AI and high-performance computing.

StarFive, based in Shanghai, is also building a design center in Penang, and chip testing and packaging company TongFu Microelectronics said last year it would expand its facilities in Malaysia – a joint venture with US chipmaker AMD.

Through various incentives, Malaysia has attracted billions of dollars in investment in chips. Germany's Infineon announced in August that it would invest 5 billion euros ($5.4 billion) to expand its electronic chip manufacturing plant there.

In 2021, American chipmaker Intel announced that it would build a state-of-the-art chip packaging plant worth $7 billion in Malaysia.

According to Reuters, other countries such as Vietnam and India are also looking to further expand their chip manufacturing services.

Phuong Anh (Source: Reuters)

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