Malaysia stands to benefit from robust chip potential amid US-China tensions
13 Jan 2025
The US-China tech war continues to have a significant impact on the global semiconductor market, resulting in semiconductor chip companies rethinking their global supply chain strategies amid trade restrictions and sanctions on China.
As companies look to diversify their production away from China, Malaysia stands to benefit from increased investment and business opportunities.
US-based Micron Technology Inc. is among chipmakers betting on Southeast Asia, aiming to tap into new markets and reduce their reliance on China and Taiwan in response to US-China tensions.
It recently announced a US$7 billion (RM31.5 billion) investment over the next several years to expand its manufacturing footprint in Singapore, driven by the growing demand for advanced memory chips fuelled by AI.
Micron Technology also has a significant presence in Malaysia, having started in Muar in 2010 before expanding with two facilities in Penang.
Meanwhile, global GPU design tech giant Nvidia’s RM20 billion investments, in collaboration with YTL Group, is expected to strengthen Malaysia’s position in the global chip supply chain.
Prof. Dr. Chris Miller, a professor of international history at The Fletcher School, Tufts University, said that the trend and growing focus on chip design is highly relevant for Malaysia as it seeks to diversify its position in the chip supply chain and take on an even bigger role in the future.
He said major tech firms like Nvidia, which specialise in special-purpose chips solely for AI, are where the advancements are occurring most rapidly.
“This is why the world’s biggest technology companies are becoming chip designers. Microsoft, Alibaba, Baidu, and Facebook are all designing their own chips, realising that having chips tailored to their exact needs makes them more capable of running the AI workloads they require,” he said at the Malaysia Economic Forum 2025 here, recently.
The global semiconductor industry, a cornerstone of modern technology, has witnessed remarkable growth alongside notable challenges in recent years.
Fueled by rising demand for chips driven by advancements in artificial intelligence (AI), 5G, automotive electronics, and consumer devices, Malaysia is positioned at a critical point within the global semiconductor supply chain, according to industry experts.
Data from the US-based Semiconductor Industry Association (SIA) shows that global chip sales soared to a record US$57.8 billion in November 2024, reflecting a 21 per cent year-on-year increase.
Projections from the World Semiconductor Trade Statistics (WSTS) indicate continued robust growth, forecasting a 12.5 per cent rise in 2025, with the industry’s valuation expected to reach US$687 billion.
While potential new US restrictions on AI chip exports have raised concerns, analysts anticipate minimal impact on Malaysia’s semiconductor sector.
CHIPPING AWAY AT THE IMPACT
Malaysia has long been a key player in the global semiconductor sector, serving as a vital hub for chip assembly, testing, and packaging.
The country’s well-established electronics industry and its advanced infrastructure make it an attractive destination for global semiconductor companies, a home to some of the world’s leading chipmakers, including Intel, Texas Instruments, and Infineon, which rely on local facilities for manufacturing and assembly.
As of November 2024, electrical and electronics (E&E) products valued at RM51.03 billion and accounted for 40.3 per cent of total exports increased by 12.2 per cent from the same month in 2023.
Despite the US plan to tighten export restrictions on AI chips, analysts believe that Malaysian technology firms will experience only a limited impact.
Bloomberg reported that the Biden administration is preparing to impose a new round of export restrictions on AI chips, specifically targeting Nvidia’s graphics processing units (GPUs), in a final effort to limit the spread of advanced technology to adversarial nations like China and Russia.
However, Kenanga Investment Bank Bhd analysts Cheow Ming Liang and Peter Kong do not foresee any obstacles to the operations of local tech businesses.
They noted that NationGate Holdings Bhd, the sole original equipment manufacturer (OEM) partner of Nvidia in Malaysia and a smaller OEM partner in the Asean region, anticipates minimal impact from the GPU export quotas.
“A significant portion of its business stems from Singapore, with deliveries made according to client requests. Moreover, NationGate supplies AI servers to Nvidia-approved cloud partners, which are likely already cleared by US authorities,” they added.
Cheow and Kong also expect minimal impact for YTL Power International Bhd, given its priority access to Nvidia’s chips as a cloud partner.
RHB Investment Bank Bhd analyst Lee Meng Horng said that while the indirect impact is difficult to measure, local tech supply chains are insignificant in the global AI supply chain.
He remained optimistic of a stronger 2025 on the back of a sector recovery, fuelled by firmer, broad-based demand and the replacement cycle.
He said that the new restriction could affect supply chains that are in the ecosystem of GPU and central processing unit (CPU) servers but only a few local companies are directly affected, such as NationGate and PIE Industrial Bhd, given their businesses in the AI-server/switches assembly businesses.
“The potential indirect impact on other outsourced semiconductor assembly and test (OSAT) players, such as Malaysian Pacific Industries Bhd and Unisem (M) Bhd, is expected to be minimal.
“This impact is primarily limited to their exposure to certain power management chips used in the server and industrial segments, which could experience slower output due to reduced server production,” Lee added.
GOVERNMENT’S MISSION
Economy minister Rafizi Ramli recently said that Malaysia plans to produce its own GPU chips in 5-10 years time amid the growth of data centre investments in the country.
He stated that the country is expected to be a global powerhouse in data centres in the years to come.
“If we are able to realise the potential to downstream our semiconductors instead of doing back end, we are hoping that we can start producing ‘Made by Malaysia’ GPUs and chips in the next five to ten years.
“Then not only do we create a new high economic value sector that serves our own demand, we can also become a global player,” he said during a fireside chat at Forum Ekonomi Malaysia.
Meanwhile, Khazanah Research Institute (KRI) said the country needs more local chip manufacturers like Silterra Malaysia Sdn Bhd to address the presently high rates of skill-related underemployment.
Loss-making Silterra, which was created in 1995, was sold by Khazanah Nasional Bhd to Dagang NeXchange Bhd (DNeX) and Beijing Integrated Circuit Advanced Manufacturing and High-End Equipment Equity Investment Fund Centre (Limited Partnership) for RM273 million in 2021.
KRI research associates Azfar Hanif Azizi and Yin Shao Loong, in a report entitled “Building a Sustainable Industrial Base: Malaysia’s Green Transition,” highlighted the importance of modernising state-owned enterprises or incentivising firms to transition into tech-centric sectors to create skilled jobs.
In addressing the shortage of talent for high-value, knowledge-intensive jobs and the current underemployment of Science, Technology, Engineering, and Mathematics (STEM) graduates, KRI said Malaysia needs to create companies that can employ these graduates.
“If current prospects for employment are dim, students will avoid studying STEM in university, shrinking the talent supply. This can be addressed through state-owned firms, which have been tried before in the electrical and electronics (E&E) industry (Silterra).
“However, it failed to expand and upgrade due to a lack of capital and ambition and thus could not continuously absorb talent. Any future attempts at such a venture require a greater willingness by the state to take risks,” KRI said in the report.
Source: NST
