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

worker inspects semiconductor chips at the chip packaging firm Unisem (M) Berhad plant in Ipoh, Malaysia October 15, 2021. REUTERS/Lim Huey Teng/File Photo
worker inspects semiconductor chips at the chip packaging firm Unisem (M) Berhad plant in Ipoh, Malaysia October 15, 2021. REUTERS/Lim Huey Teng/File Photo

Sources say that Chinese firms look to Malaysia to assemble high-end chips. According to insiders, an increasing number of Chinese semiconductor design organizations are enlisting the assistance of Malaysian enterprises to construct a part of their high-end chips. These companies are eager to hedge risks if the United States increases its sanctions on China’s chip industry.

Based on the information provided by three individuals familiar with the conversations, the corporations are requesting that Malaysian chip packaging companies construct a particular sort of chip called a graphics processing unit (GPU).

The production of the chip wafers is not included in the requests, according to them; the requests solely cover assembly, which does not violate any limits imposed by the United States. Two individuals mentioned that specific contracts had already been agreed upon.

The individuals claimed that confidentiality agreements bound them and so refused to provide the names of the firms that were involved or to be identified.

To block China’s access to high-end graphics processing units (GPUs), which had the potential to drive advances in artificial intelligence, power supercomputers, and power military applications, the United States government has been strengthening the limits imposed on the sales of these GPUs as well as on advanced chip-making equipment.

Smaller Chinese semiconductor design companies are having difficulty securing adequate sophisticated packaging services at home, according to experts, due to the restrictions being implemented and the surge in demand for artificial intelligence.

Two individuals have stated that several Chinese businesses are interested in acquiring sophisticated chip packaging services.

A developing technique in the semiconductor industry, advanced packaging of chips has the potential to increase chip performance significantly and is becoming an increasingly important technology. There are instances when this requires building chipsets, which are packets of chips closely packed together to function as a single, strong brain.

Even though it is not subject to export limits in the United States, it is a sector that can require highly advanced technology, and the companies are concerned that it may one day be the focus of limitations on exports to China, according to the two individuals.

As Chinese chip companies spread their operations outside of China to meet their assembly requirements, Malaysia, a significant hub in the semiconductor supply chain, is considered in an excellent position to capture further business.

According to a source who was briefed on the topic, Unisem (UNSM.KL), which has China’s Huatian Technology (002185. SZ) as its largest shareholder, along with other Malaysian chip packaging businesses, has witnessed an increase in the amount of business and queries from Chinese customers.

Although Unisem Chairman John Chia declined to comment on the company’s clients, he said, “Many Chinese chip design houses have come to Malaysia to establish additional sources of supply outside of China to support their business in and out of China.” This was in response to trade restrictions and supply chain concerns.

According to two individuals, Chinese chip design companies consider Malaysia a suitable alternative since the nation is believed to be on good terms with China, is economical, has an experienced staff, and has advanced equipment.

In response to a question about whether or not Unisem’s business transactions were “fully legitimate and compliant,” Chia stated that the company did not have the time to worry about “too many possibilities.” Chia was asked whether or not taking orders to manufacture GPUs from Chinese companies may potentially create anger in the United States.

It came to his attention that most of Unisem’s clients in Malaysia were in the United States. Responses to requests for comment from the United States Department of Commerce were not received.

Malaysian Pacific Industries (MPIM.KL) and Inari Amertron (INAR.KL) are two further high-profile companies in the nation that are involved in chip packing. Requests for comment from Reuters were not met with a response from them.

According to one source, an investor in two Chinese semiconductor startups, Chinese firms are also interested in having their chips made outside of China since this might make it simpler for them to sell their goods in markets that are not in China.


It is now estimated that Malaysia holds 13% of the worldwide semiconductor packaging, assembly, and testing market. The country aims to increase this percentage to 15% by 2030.

Xfusion, a former Huawei (HWT.UL) unit, is one of the Chinese chip companies that has announced plans to expand in Malaysia. In September, the company announced it would partner with Malaysia’s NationGate (NATI.KL) to manufacture GPU servers. These servers are designed for data centers and are utilized in artificial intelligence and high-performance computing.

StarFive, based in Shanghai, is also constructing a design center in Penang. Additionally, TongFu Microelectronics (002156. SZ), a company that specializes in chip packaging and testing, said in the previous year that it would expand its Malaysia facility, which is a joint venture with the American chipmaker AMD (AMD.O.).

Malaysia has successfully attracted multi-billion-dollar chip investments by providing a variety of incentives. Infineon (IFXGn.DE) announced in August that it would invest 5 billion euros, or $5.4 billion, to expand its power chip factory in Germany.

Intel (INTC.O.), a chipmaker based in the United States, announced in 2021 that it will construct a $7 billion advanced chip packaging factory in Malaysia.

Malaysia is not the only country that Chinese businesses are selecting. After acquiring an advanced testing facility in Singapore in 2021, JCET Group, the world’s third-largest chip assembly and testing firm, concluded the transaction.

Other nations, such as Vietnam and India, are also looking to develop their chip manufacturing capabilities to attract customers interested in reducing the geopolitical risks associated with the United States and China.

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