Week of 2024-12-02

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  1. New focus of chip manufacturing: Malaysia under the "Trump effect"

New focus of chip manufacturing: Malaysia under the "Trump effect"

Near the airport in Penang, a federal state in the northwest of Malaysia, the air is thick with the smell of gasoline. One DHL truck after another delivers semiconductor products to the airport.

Penang, located in the tropics, enjoys year-round natural beauty, with coconut groves, lush greenery, turquoise seas, and blue skies. Covering an area of just 1,000 square kilometers and with a population of approximately 1.77 million (45.1% Malay and 44.2% Chinese), Penang boasts the largest number of integrated circuit (IC) design and R&D companies in Malaysia, earning it the nickname “Silicon Valley of the East.”

Penang's semiconductor packaging and testing industry began in the early 1970s, slightly earlier than South Korea and Taiwan. The Bayan Lepas Free Industrial Zone near Penang International Airport (Bayan Lepas means “Flying Parrot” in Malay) was Malaysia’s first free trade industrial zone, established to attract foreign investments, particularly in electronics and semiconductors. The airport’s expansion in the 1970s was largely aimed at supporting this industrial development.

The area is now lined with factories. The TF-AMD factory, a joint venture between China and the U.S., is located here. Across a narrow street is Japanese electronic component developer and manufacturer Kyocera, with towering chimneys neatly numbered. Opposite Kyocera is U.S.-based hard drive manufacturer Western Digital.

Bayan Lepas is also home to American companies like Intel and Micron, German and Japanese firms like Infineon, Bosch, and Renesas, Chinese and Taiwanese semiconductor giants like Tongfu Microelectronics and ASE Group, as well as Malaysian firms such as Inari and ViTrox.

The office of InvestPenang, the state government’s investment bureau, is nestled among these international giants. “One of our major initiatives is the ‘Silicon Design @ 5km+’ plan, aimed at creating a comprehensive IC design and technology hub within a 5-kilometer radius of Bayan Lepas,” said InvestPenang CEO Loo Lee Lian in an interview. Over 350 foreign companies have set up factories in Penang, with the majority in the semiconductor and electronics sectors, including over 50 Chinese firms.

Currently, Malaysia ranks as the world’s sixth-largest semiconductor exporter and the tenth-largest exporter of electrical and electronic products. Approximately 23% of U.S. chips are produced in Malaysia. The Malaysian Semiconductor Industry Association (MSIA) reported that from 2021 to 2023, Malaysia’s electronics and electrical sector, including semiconductors, attracted RM262 billion (approximately RMB 426.7 billion) in investments—exceeding the total RM216 billion (approximately RMB 351.8 billion) invested from 2000 to 2020.

Malaysia’s Prime Minister Anwar Ibrahim, a native of Penang, has prioritized economic development since taking office in 2022, with a particular focus on the semiconductor industry. In May 2023, Malaysia unveiled its National Semiconductor Strategy (NSS), allocating over RM25 billion (approximately RMB 40.7 billion) in fiscal support. The plan includes targeted incentives to drive semiconductor development and attract foreign tech companies. Anwar stated his ambition for Malaysia to become a global leader in semiconductor technology and production. From November 4 to 7, during the critical period around the U.S. presidential election, Anwar made his third visit to China as Prime Minister, meeting with Chinese semiconductor firms and visiting Huawei’s Beijing research facility.

From Malaysia’s perspective, revitalizing the semiconductor industry involves not only industrial foundations and global trends but also geopolitics as a key variable. The U.S. technology blockade against China is reminiscent of the U.S.-Japan semiconductor trade war of the 1980s, which catalyzed the rise of South Korea and Taiwan’s tech industries. Malaysia, having started early but lagged behind by focusing on lower-value backend processing like packaging and testing, is now eager to seize this historic opportunity for a second leap in the semiconductor industry.

Malaysia's Deputy Minister of Investment, Trade, and Industry, Liew Chin Tong, recently expressed unabashed optimism about Malaysia's "golden opportunity." He highlighted that Penang and the nearby Kulim area in Kedah state, with their semiconductor industries, are poised to become one of Malaysia's economic engines.

“In recent months, my colleagues and I have been hosting delegations from China almost weekly, including industry and government groups. These range from private meetings to group visits—one after another,” said Wong Siew Hai, Chairman of the Malaysian Semiconductor Industry Association, during an interview in Penang. "Just this week, representatives from the Shenzhen municipal government are visiting," he added.

The 72-year-old Wong Siew Hai is a leading figure in Malaysia's semiconductor industry. He worked at Intel in Penang for 27 years, and 20 years ago, as Vice President of Intel's Technology and Manufacturing Group and General Manager of the Assembly and Testing Department, he participated in the establishment of Intel's assembly and testing facility in Chengdu, China.

“Some of our association members are shifting from Singapore to Malaysia,” noted a representative from the Shenzhen Semiconductor Association in an interview. Among the Southeast Asian semiconductor "big three"—Singapore, Vietnam, and Malaysia—Singapore and Vietnam initially captured most of the Chinese capital and industry transfers triggered by the U.S.-China tech competition. However, a growing trend now sees China’s semiconductor sector increasingly engaging in two-way collaboration with Malaysia.

For example, HanSingTek, a Chinese chip design service company, registered a new entity in Singapore in 2022. During a forum on Chinese chip companies going global, held in Zhuhai on November 8, HanSingTek’s General Manager, Sun Zhilin, shared that Southeast Asia has been increasingly influenced by the rising demand from China's semiconductor boom since 2018. Many chip design companies chose Singapore as their initial entry point into Southeast Asia but later expanded to Vietnam, Malaysia, and other regions as Singapore's market reached capacity. While initial entrants were primarily design companies, the historical strength of Southeast Asia in assembly and testing has attracted a growing number of such firms in recent years.

The global semiconductor industry is currently experiencing an upcycle, driven primarily by the explosive demand for computing power associated with artificial intelligence (AI). The semiconductor value chain consists of three core segments: design, manufacturing, and assembly/testing. Design, as a talent- and intellect-intensive segment, offers the highest added value; manufacturing, being the most capital-intensive, provides the largest industry value, but is constrained by advancements in chip processes. Even as China has become a major chip manufacturing power, it faces significant pressure due to U.S. export restrictions. Assembly and testing, positioned at the downstream end, have traditionally been outsourced to regions with labor cost advantages. However, "advanced packaging" has now become a critical factor in improving computing power, emerging as a key weapon in the post-Moore's Law era, unlocking the potential of a previously overlooked segment.

Over the past seven to eight years, China's semiconductor sales have grown from $100 billion in 2016 to $150 billion in 2023, accounting for nearly 30% of the global market. China has also accelerated its technological advancement and domestic substitution in areas such as chip design and materials. However, as many industry leaders acknowledge, China's semiconductor journey is still in its early stages. A senior executive from a leading Chinese chip design company remarked, "We have already established a presence in Malaysia, but going global is no easy task—it’s like preparing for the ‘Four Crossings of the Red River.’” For many in the industry, the push to go global is driven by two factors: trade barriers and intense domestic competition. Yet, as a strategic high-tech sector entangled with geopolitical complexities, the path to globalization is bound to be challenging.

With the conclusion of the U.S. presidential election, further containment of China's high-tech and economic growth has become a bipartisan consensus in the U.S. Unlike the Democratic Party’s selective strategy of "choking" China's access to advanced chip technologies, newly elected President Donald Trump’s unpredictable leadership style raises concerns about indiscriminate sanctions. He has previously suggested imposing a 60% tariff on Chinese goods, potentially impacting the entire semiconductor supply chain in China. This has heightened the urgency for Chinese companies to expand overseas.

As the geopolitical window before Trump’s return to the White House narrows, Southeast Asia's appeal continues to surge. Both Chinese and U.S. tech firms are increasingly recognizing the strategic significance of the region. It is now clear that the global semiconductor supply chain is moving toward greater globalization and decentralization—an irreversible trend.

NVIDIA CEO Jensen Huang, speaking at a press conference in Tokyo on November 13, emphasized the need to "strengthen the supply chain" and highlighted the necessity of diversifying production bases.

Southeast Asia has become a critical gateway for China's semiconductor industry to connect with the world. However, while Western semiconductor giants have long been established in the region and are now ramping up investments, Chinese companies are relatively latecomers. Malaysia eagerly seeks Chinese capital, technology, talent, and capacity transfers but also strives to balance the opportunities and risks amid the tense U.S.-China relationship. Penang serves as a rapidly evolving testing ground for these dynamics.

“Western semiconductor companies in Malaysia remain cautious, depending on whether their products attract U.S. scrutiny in the future,” noted Wong Siew Hai.

“Don’t underestimate the resilience of Chinese companies,” said an executive from a Shanghai-based chip design firm. “Beyond Malaysia, Singapore, and Vietnam, Chinese semiconductor firms are working hard to expand globally, establishing roots in the Middle East, Mexico, and even the U.S. and Canada.”

Multinational Competition for "China + 1"

“I need to visit Vietnam as soon as possible to understand their (semiconductor industry) development progress and assess how quickly Malaysia needs to advance,” said Wong Siew Hai on November 5, during an interview at the International Semiconductor Executive Summit (I.S.E.S) in Penang.

The interview coincided with the U.S. election day, and semiconductor executives from the U.S., Europe, Malaysia, China, and other countries were actively discussing the potential direction of the industry post-election. Most attendees agreed that Trump's return to office would bring new opportunities for Southeast Asia.

Southeast Asia is a diverse region of multiple nations, not a homogeneous market. Countries in the region pay close attention to analyzing the complex geopolitical dynamics at play. The "Big Three" of Southeast Asia's semiconductor industry—Singapore, Malaysia, and Vietnam—maintain a delicate relationship. While their industrial ecosystems are complementary and interdependent, competition among them is intensifying.

“Previously, we viewed Singapore as a competitor, but our mindset is shifting—we now lean toward fostering a complementary and cooperative relationship,” said Vinothan Tulisinathzan, head of the Malaysian Investment Development Authority (MIDA) office in Singapore. He joked that he has "Happy Hour" every Friday with friends from Singapore’s Economic Development Board (EDB).

In the U.S.-China tech competition, Singapore, as a global financial and shipping hub, and Vietnam, with its proximity to China, were quicker to seize the "golden opportunity" of Chinese capital and industrial transfers. Together with Malaysia, they form Southeast Asia's semiconductor "Big Three."

Lin Sihan, partner and co-president of HOPU Investments, told that many Chinese chip companies are strategizing to maximize commercial opportunities by leveraging Southeast Asia's diversified economies. He pointed out that Singapore offers world-class infrastructure, a robust legal framework, and access to international talent; Malaysia boasts a mature and large-scale semiconductor industry with abundant engineering resources, and its government actively promotes upgrading the industrial value chain; Vietnam, meanwhile, has a growing pool of young software engineering talent and is attracting multinational companies to establish R&D centers. Despite competition for investment and talent within and between these countries, they also cooperate extensively.

On a more granular level, Wu Zheng, the supervisory chairman of the Shenzhen Chip Industry Association, explained the varying considerations for choosing among these countries. Design companies often favor Singapore for its talent and business environment. Malaysia is attractive for its well-established semiconductor supply chain, which includes not only its longstanding strengths in assembly and testing but also growing capabilities in design, wafer fabrication, and equipment materials. Vietnam, on the other hand, appeals to companies "following their customers," as end clients like Samsung, Foxconn, and BYD expand their investments there, pulling upstream suppliers along to explore new markets.

Trump’s return to the White House in January 2025 introduces further uncertainty to the already volatile global semiconductor industry. Even before his inauguration, the U.S. has maintained its technological blockade against China. In late October, several Chinese chip design companies received notices from TSMC that their AI chips with processes at 7nm and below would soon be barred from production at the Taiwanese foundry. According to multiple Chinese semiconductor compliance experts, the U.S. presidential election has delayed the introduction of new regulatory measures, but these could be announced at any time. The urgency for Chinese companies to "go global" is growing.

"Companies need a global layout," said Yvonne Keil, Senior Director of Operations for India and Malaysia at U.S.-based foundry GlobalFoundries (NASDAQ: GFS). She highlighted that the semiconductor industry is facing rising costs across materials, production, and factory construction. Moreover, geopolitical factors are driving trends like onshore outsourcing, offshore outsourcing, and friend-shoring. Companies must embrace global strategies to ensure business continuity and stability.

As geopolitical tensions mount and the U.S.-China tech decoupling intensifies, Southeast Asia is increasingly seen as a vital alternative. The region’s unique mix of talent, industrial ecosystems, and proximity to major markets positions it as a critical player in the reshaping of global semiconductor supply chains. Amid this evolving landscape, Penang and Malaysia at large are working hard to solidify their role in this "China + 1" strategy, ensuring they are not only a participant but a leader in the new semiconductor era.

In recent years, the U.S. has focused on reshoring manufacturing while promoting "friend-shoring" as a supplementary strategy—dispersing supply chains to like-minded and aligned countries to balance safety, cost, and efficiency. This approach has benefited countries such as Vietnam, Mexico, Malaysia, Singapore, Thailand, and India.

Chinese companies have also ramped up overseas investments. In the first half of 2024, China’s outbound direct investment across all sectors reached $85.3 billion, a 13.2% year-on-year increase. Non-financial outbound direct investment alone accounted for $72.62 billion, up 16.6%.

A representative of a Shanghai-based semiconductor company operating in Malaysia noted that under the “Trump factor,” Chinese firms must devise strategies addressing technology, tariffs, and markets.

Zhang Qian, founding partner of Sky Horizon Capital and an investor in several semiconductor companies, stated in Penang that China’s IC industry has accelerated its development over the past five or six years, with leading players emerging in many sub-sectors. Two years ago, the semiconductor industry began observing the “China +1” trend, where many suppliers sought to establish supply chains outside China. This trend is expected to accelerate during the “Trump 2.0 era” (Trump's second presidential term). Zhang believes regions with large Chinese communities are better positioned to serve as bridges for building "China +1" supply chains. Future globalization will need to leverage supply chain segmentation to mitigate investment risks.

In the first half of 2024, China's exports increased in both volume and value, with integrated circuit-related product exports reaching RMB 542.74 billion (approximately $76.41 billion), a 25.6% year-on-year increase. Analysts suggest that in anticipation of heightened U.S. technological restrictions, some Chinese firms are expediting the "export" of production capacity and investments.

“I’m currently helping portfolio companies evaluate overseas markets, including Malaysia and the Middle East. Due to geopolitical factors, Qatar is actively courting the Chinese chip industry,” said a semiconductor industry investor. The "going global" strategy is not limited to semiconductor firms but also involves related investments, financing, and talent. These decisions are primarily guided by three factors: clients, capital, and compliance.

At the International Financial Leaders Investment Summit in Hong Kong on November 18, Noel Quinn, CEO of HSBC (00005.HK), remarked that the “China +1” strategy has evolved into a broader phenomenon across Asia, with examples such as “Singapore +1,” “Indonesia +1,” and “Thailand +1.” He noted that HSBC, as a financial institution, sees many opportunities arising from this trend.

Bill Winters, CEO of Standard Chartered Group (02888.HK), speaking at the same event, dismissed the notion that "globalization is dead" as “rubbish.” He argued that globalization is manifesting in different ways: “If one country imposes a 60% tariff on another, it won’t reduce global trade levels but will redirect flows. Of course, there will be frictional costs in this process, which we will all bear, but the market will quickly rebalance around these costs, allowing the economy to continue thriving.”

Despite these optimistic views from financial institutions, the lessons from the trade wars between the U.S. and Japan in the mid-to-late 20th century are frequently referenced. Following the signing of the Plaza Accord in September 1985—an agreement to appreciate the yen and other non-dollar currencies for a "soft landing" of the U.S. dollar—Japan surpassed the U.S. in 1986 to become the largest supplier in the global semiconductor market. However, by 1992, U.S. companies regained the lead. Japan’s semiconductor industry had a brief peak of five to six years, during which it replaced the auto industry as the focus of U.S. trade pressures, ultimately losing its competitive edge in wafer manufacturing and retreating to supplying semiconductor equipment and materials.

A study by Tsinghua University's School of Social Sciences highlights lessons from Japan’s automotive and semiconductor industries for China: on one hand, enhancing R&D capabilities and technological innovation is critical, especially in maintaining a presence in end-user markets; on the other, investing abroad and integrating into global value chains are equally important for embedding within the international industrial system.

The study further contrasts the strategic differences in the U.S.-Japan trade war. The U.S. segmented the supply chain, involving allies while retaining the most valuable and highest-margin components. In contrast, Japan sought to dominate the entire supply chain, falling into a “closed-door development” trap.

Japan's post-World War II economic policies, often referred to as the "1940 system," were initially successful in driving rapid growth in the semiconductor industry under a nationalized framework and trade protectionism. However, this approach eventually triggered severe trade frictions with Western countries. Japan’s lack of market-oriented adaptability during subsequent transitions led to its decline in comprehensive competitiveness. Today, it remains a key supplier in semiconductor equipment and materials rather than a market leader.

The Tsinghua study warns that while government support is crucial, policymakers must also carefully decide when to advance or retreat, adhering to the principles of industrial innovation.

Malaysia's Ambitious Semiconductor Push

On November 8, during a visit to the Bayan Lepas Industrial Zone in Penang, workers from Western Digital taking a break outside the factory, smoking and basking in the sun. Among them was Kanagesswary Shanmuganathan, a Yield Integration Engineer at TF-AMD Penang, who focuses on improving product yields. She shared that she has been working at this semiconductor company with Chinese mainland ties for over two years, having previously worked for eight years at ASE Group, a Taiwanese semiconductor packaging and testing company.

TF-AMD is a joint venture between China’s leading packaging and testing company Tongfu Microelectronics (TFME) and U.S. microprocessor giant AMD. In April 2016, TFME invested $371 million to acquire 85% of AMD’s factories in Suzhou, China, and Penang, Malaysia, establishing a “joint venture + collaboration” model.

AMD is one of the main competitors of NVIDIA (NASDAQ: NVDA), the artificial intelligence chip giant known for its GPUs. Through its joint venture model, TF-AMD has successfully integrated into the global advanced semiconductor supply chain, securing packaging and testing orders for CPUs and GPUs.

Nearby, Intel is constructing a new facility in Penang, focusing on its proprietary 3D IC packaging technology. A local foreman mentioned that the construction has been ongoing for more than three years and is expected to take another year to complete. In 2021, Intel announced a $7 billion investment over 10 years to build this new project in Penang.

Intel first established a factory in Penang 50 years ago, making it the company’s first manufacturing location outside the U.S. Over the years, Intel has become a training ground for the local semiconductor industry, with many of Penang’s core talents having worked there. Intel now employs more than 10,000 people in Penang.

Another prominent player, ASE Group, which entered Penang in 1993, is expanding its local semiconductor packaging and testing facilities (plants 4 and 5), scheduled for completion by 2025.

German semiconductor giant Infineon is investing €7 billion to build a wafer fabrication plant in Kulim, Kedah, adjacent to Penang. The first phase of the project, focusing on silicon carbide (SiC) power semiconductors, began in August 2023, with an initial investment of €2 billion. According to Infineon President Jochen Hanebeck, these semiconductors improve the efficiency of electric vehicles, fast-charging stations, trains, renewable energy systems, and AI data centers. The second phase, with a €5 billion investment, aims to create the world’s largest and most efficient 200mm SiC power chip manufacturing facility.

Chen Yawen, Deputy General Manager of Zhuhai-based Oceanus Sensor Technology, explained at a forum on Chinese chip companies going global that her company’s customers are concentrated in North America, including Apple, Google, and Meta. Oceanus specializes in testing equipment for semiconductors and consumer electronics. In response to customer demands, the company achieved 100% localization in India, taking advantage of its demographic dividend and low labor costs. However, India’s manufacturing sector faces challenges in balancing cost and efficiency.

She noted that Vietnam, in contrast, is geographically close to China, enjoys friendly relations with the Chinese government, and is well-integrated with domestic resources. Its widespread use of Chinese and multiple free trade agreements add to its appeal. The company has also deployed production lines in the Philippines, which offers competitive wages and skilled talent, though cultural differences with China—such as limited post-work communication—pose challenges.

A senior Intel employee emphasized that, beyond cheap land and labor, Penang’s industrial foundation is a key reason for its appeal to international companies. One critical factor is its large Chinese population, which accounts for over 40% of the local demographics. This workforce is highly adaptable to “three-shift” operations, effectively bridging time zone differences with U.S. and European headquarters.

In a story highlighted by Malaysian Prime Minister Anwar Ibrahim when launching the National Semiconductor Strategy, Intel’s first investment in Penang in 1972 was made despite logistical challenges. Andy Grove, Intel’s legendary CEO, decided to invest $1.6 million to build a factory in a muddy rice field, laying the foundation for what is now an industry powerhouse.

Penang’s industrial base, often referred to as the “Eight Samurai,” includes Intel, AMD, Osram, HP, Bosch, Hitachi (now Renesas Electronics), Clarion, and National Semiconductor. These companies established Penang as a center for the electronics industry.

While Malaysia benefited from earlier waves of industrial transfer driven by U.S.-Japan competition and rising labor costs in South Korea and Taiwan, it faced competition from China and Vietnam after their market liberalizations in the early 1990s. Malaysia regained investor interest after 2018, spurred by geopolitical shifts like the U.S.-China trade war initiated under then-President Donald Trump.

Malaysia has been accelerating its efforts to support the domestic semiconductor industry. In 2023, the government introduced several policies, including the New Industrial Master Plan 2030 (NIMP 2030), which prioritizes the electrical and electronics (E&E) sector. The plan emphasizes developing the upstream semiconductor supply chain, including IC design, wafer fabrication, and semiconductor equipment manufacturing, to enhance competitiveness and secure Malaysia’s place in the global semiconductor ecosystem.

“The global geopolitical landscape has prompted companies to consider Southeast Asia as a ‘+1’ destination to ensure economic security and supply chain resilience. This offers Malaysia a unique opportunity to further integrate into global value chains,” said Malaysian Prime Minister Anwar Ibrahim, emphasizing that Malaysia aims to expand its semiconductor industry into upstream segments of the value chain.

In May 2024, Malaysia unveiled its National Semiconductor Strategy (NSS). Alongside a planned government investment of RM 25 billion (approximately $4.07 billion), the strategy aims to attract at least RM 500 billion (approximately $81.55 billion) in local and foreign private investments. Key focus areas include chip design, advanced packaging, and wafer manufacturing equipment, coupled with the development of 60,000 local skilled workers.

Unlike Malaysia's 1970s and 1980s industrial policies that primarily focused on attracting foreign investment, the new strategy emphasizes "upstream expansion" and fostering the growth of local companies.

The NSS outlines several measures, including:

Among the local semiconductor companies highlighted by Anwar is Inari Amertron Berhad (KL: INARI), founded in 2006. Its Vice President of Technology, Noorzahidi, said, “To climb up the value chain, local firms need substantial R&D investment to transition into product ownership, which is no easy feat.” Inari operates 11 factories across Malaysia, the Philippines, and China, serving major clients like Broadcom and Osram. Notably, Broadcom’s CEO Hock Tan is a Penang-born Malaysian-American.

Penang-based IC design company Skyechip, often referred to as a "mini Intel," is another Anwar-endorsed local firm. Founded in 2019, the company specializes in memory and interconnect IP solutions. Its founder, Kuang Swee Keong, is a Malaysian Chinese engineer who joined Intel Malaysia in 1993 as a chip design engineer, eventually becoming Director of Chip Design, overseeing Intel’s largest design center outside the U.S. with over 1,200 employees.

Kuang shared that one motivation for leaving Intel to start Skyechip was the opportunity created by the U.S.-China trade war, which provided third-party countries a chance to develop their supply chains. Another pivotal moment came in 2019, when Kuang accompanied then-Prime Minister Mahathir Mohamad on a visit to China. Malaysian officials noted China’s growing interest in Malaysia’s potential beyond packaging and testing. Encouraged by these discussions, Kuang founded Skyechip despite concerns about the local market for high-end chips.

“Ten years ago, if a Malaysian company offered to supply chips to China, procurement managers would reject the offer, preferring chips from Silicon Valley,” Kuang said. Today, Skyechip’s primary clients are in mainland China and Taiwan, and the company has grown from 30 to 300 employees in less than five years. On the day of his interview (November 8), Kuang was remotely interviewing candidates for Skyechip’s upcoming Vietnam office.

While Penang has decades of industrial clustering, newer players like Selangor are targeting upstream IC design directly. On August 6, 2023, Malaysia’s first IC design park launched in Pulau Indah, Selangor, marking a milestone in the nation’s move up the value chain. To attract global chip design firms, Selangor offers incentives such as three years of rent-free occupancy and various tax breaks.

At the park’s opening, Economic Minister Rafizi Ramli stated that Malaysia must seize this rare geopolitical opportunity to transition from "Made in Malaysia" to "Made by Malaysia."

Several firms, including Skyechip, have already set up operations in the Selangor IC Design Park. Chow Sheng Ming, Honorary President of the Shenzhen Semiconductor Association, was one of the designers of the Selangor IC Design Park. In January, Chow led a delegation of 12 representatives from Shenzhen’s semiconductor sector to Malaysia for assessments.

Chow highlighted that Penang’s rise in the 1990s was due to government policies focusing on economic growth rather than over-politicization. Now, U.S. sanctions on China provide Malaysia with another golden opportunity. However, Chow noted that competition among Malaysia, Vietnam, Cambodia, and Thailand depends heavily on political and cultural contexts.

Selangor recently announced plans to launch a second IC design park in Cyberjaya by early 2025. The new facility will include an advanced Malaysian Advanced Semiconductor Academy (ASEM), dedicated to technical support and talent development.

Nearby Johor, a state bordering Singapore, is also competing for a share of the semiconductor industry. Johor aims to leverage its geographical advantage to establish a "front-end/back-end" model with Singapore, where companies base sales centers in Singapore while locating warehouses in cost-effective Johor.

Johor’s Chairman of the Investment, Trade, and Consumer Affairs Committee, Lee Ting Han, revealed plans to attract semiconductor material and manufacturing facilities. Northern Johor hosts plants for STMicroelectronics and Micron, while the southern part of the state focuses on semiconductor material manufacturing.

Singapore remains a semiconductor powerhouse with over 300 companies, including Texas Instruments, STMicroelectronics, Infineon, and Micron. In 2023, Singapore’s semiconductor manufacturing output exceeded SGD 133 billion (approximately USD 101 billion), accounting for 7% of its GDP, contributing to over 10% of global semiconductor output, 20% of semiconductor equipment production, and 5% of global wafer manufacturing capacity.

The "Johor-Singapore Economic Zone" agreement is expected to be signed at a bilateral summit in December 2024. Johor aims to position itself as the "Shenzhen of Southeast Asia," hoping to achieve tighter supply chain integration and more dynamic talent flows with Singapore.

Lin Sihan, a prominent investor, noted that many companies from China, the U.S., and Europe now base their administrative headquarters and R&D in Singapore while establishing core R&D teams in Penang, led by global engineers who train local talent. Meanwhile, Johor serves as a cost-effective hub for data centers, providing computational power to support Singaporean tech firms across Southeast Asia.

This interdependence is often referred to as the "Singapore-Malaysia Symbiosis." Lin remarked, "The governments of both nations are highly supportive of these complementary arrangements, introducing favorable policies to foster cross-border cooperation. They recognize that leveraging complementary strengths results in a win-win situation."

"Decluttering" for Global Expansion

Although Inari Amertron, a Malaysian chip packaging and electronics manufacturing company, is a local enterprise, most of its senior executives do not speak Chinese. However, the company’s CEO recently instructed all management staff to add both Chinese and English names to their business cards.

“Currently, 70% of our customers are American, and 30% are Chinese,” Noorzahidi said. “Now, some Chinese clients or upstream and downstream companies are looking to establish new operations in Malaysia or seek collaborations. Lately, we’ve frequently hosted them.”

Others, such as Wong Siew Hai of the Malaysian Semiconductor Industry Association and the Penang Investment Office, are also busy hosting Chinese delegations. Penang, not typically a tourist destination, has seen numerous Chinese delegations—both corporate and governmental—frequenting hotels in its central George Town this year.

Founded in 2006, Inari Amertron is part of Malaysia’s broader effort to bolster its semiconductor industry through supportive policies rolled out in 2023 to enhance local competitiveness.

“Many Chinese companies have visited Penang recently to scout locations for building industrial parks,” said Lai Tak Fatt, Honorary Chairman of the Malaysia-China Silk Road Business Chamber, during a forum in Zhuhai focused on Chinese chip companies “going global.”

The word "forced" frequently arises when discussing Chinese semiconductor companies’ operations in Malaysia. Their motivation to expand globally stems from two main factors.

Product Exports

In the mid-to-low-end product segment, China’s production capacity has exploded. For example, mature process chips now face sluggish domestic demand, driving companies to seek overseas markets.

“The domestic market is oversaturated; we might as well go abroad,” said Wu Zheng. Domestic companies are competing fiercely, often with razor-thin profit margins or even at cost, while cutting costs in all possible ways. They also compete on payment terms and service offerings, leading to an excessively intense “battle.”

Xu Junfeng, founder of Future Black Technology, which specializes in automotive augmented reality solutions for clients like BMW and Li Auto, noted that three years ago, domestic companies emphasized differentiation and innovation. But by 2023 and especially in 2024, the focus has shifted entirely to cost reduction. “Some even hope their supply chains will absorb 3-5% of the margin to offer cheaper products. The market has become highly irrational.”

“Since June or July 2023, I’ve been urging portfolio companies to plan and implement ‘going global’ strategies, or they might face a lack of business in the future,” said Lu Xiaobao, an investor with ZK Star Ventures. “This isn’t alarmist; in China, you put in ten units of effort to get five units of reward, but overseas, six units of effort can yield ten units of reward. This is the ideal time to expand internationally; otherwise, it’ll be too late once others establish their footholds.” He revealed that one of his invested chip companies now serves clients like Google and Microsoft, with 70% of its revenue coming from overseas markets.

Capacity Exports

This strategy primarily aims to bypass U.S. trade barriers and sanctions. Some companies follow their clients’ relocation or seek new growth opportunities abroad.

Wang Zhilong, founder of Yihai Chuangteng, a consulting firm for businesses expanding overseas, explained, “For instance, some Chinese high-end components with fast technological iteration are recognized by foreign companies for their cost-effectiveness. Overseas markets for these products are gradually opening up.”

Wang, who has extensive experience in semiconductor component procurement, noted, “Leading, ambitious companies began expanding globally during Trump’s first term (2017–2021). However, with Trump’s return to office and the backdrop of domestic overcapacity, we expect many more companies to go abroad this time.”

A CEO from a Shenzhen-based semiconductor services company, which has explored Malaysia and Vietnam, shared that a top-three Chinese semiconductor equipment firm (with annual revenue of around RMB 1–2 billion) is currently negotiating an acquisition of a Malaysian company in the same industry.

This Chinese firm, whose operations are predominantly domestic, sees significant opportunities in Southeast Asia and aims to acquire a Malaysian company to establish a stronger foothold and rebuild its presence from scratch in the region.

A Chinese chip design company, which currently works with domestic packaging and testing facilities, is planning to establish its own packaging and testing factory in Malaysia. “The company anticipates significant shipments to U.S. and European customers in the future. Building its own facility will be more cost-effective and faster,” a source close to the company revealed.

As global political risks and business environments evolve, Chinese companies are increasingly seeking external partnerships. However, this shift also brings new challenges—beyond simply changing identities and locations, firms must also restructure and partially decouple from their original supply chains.

On the other hand, decades of accumulation, especially recent advancements driven by U.S. restrictions, have significantly strengthened China’s semiconductor industry. An increasing number of overseas clients are now adopting Chinese products. “In emerging technology areas, such as third-generation semiconductors and the silicon carbide (SiC) supply chain, Chinese companies are present at every stage and are steadily enhancing their capabilities to compete globally,” said Lu Xiaobao, a prominent investor.

“For example, silicon carbide equipment that previously cost 20 million RMB per unit overseas can now be produced domestically for one-tenth of the price after technological breakthroughs. Some of our products are genuinely competitive,” Lu added, expressing optimism that Chinese chips could gain wider recognition in global markets within 5 to 8 years.

Veteran semiconductor investor Wang Huilian noted that around 2017, Chinese companies expanded overseas through investments and acquisitions primarily to acquire talent, technology, and customers. Now, the focus has shifted to integrating into global supply chains.

“Semiconductor demand is driven by markets, and Southeast Asia has become a primary destination for Chinese companies' expansion. Many countries in the region have also formulated corresponding development strategies,” Wang explained.

“Go where the market is,” said *hi Lei, General Manager of Tongfu Microelectronics. He described the current wave of Chinese semiconductor companies going abroad as primarily driven by the ‘China +1’ strategy, following market and client demand.

Recalling Tongfu’s acquisition of its Penang factory, Shi Lei said, “In 2016, AMD decided to sell its assets in Penang and Suzhou. After evaluation, Tongfu found that the Penang facility had good systems and operations, complemented by Malaysia’s strong semiconductor foundation. Acquiring it not only enhanced Tongfu’s global competitiveness but also provided a base to expand into overseas markets.” Initially, the Penang facility covered 35,000 square meters and employed over 1,000 people. Driven by demand, Tongfu now operates two facilities in Penang with a combined area of 170,000 square meters and over 4,000 employees. In 2023, the Malaysian plants generated approximately $1.2 billion in revenue.

Companies like Tongfu Microelectronics, Huatian Technology, and Suzhou Goodark Electronics*were pioneers in Southeast Asia’s semiconductor industry before 2019, securing footholds through local acquisitions. More recent entrants include StarFive Technologyfounded in Shanghai in 2018. By 2021, StarFive had expanded into Malaysia and now has a 200-person team in Penang.

StarFive specializes in semiconductors based on the *ISC-V architecture, an open-source instruction set poised to compete with x86 and ARM as a next-generation global standard. In 2022, StarFive established Southeast Asia’s first RISC-V design center in Penang, announcing plans to invest RM 250 million (approximately 4 billion RMB) over the next five years.

Wang Huilian highlighted that while the U.S. sanctions currently target advanced manufacturing processes in China, overseas customers are taking precautionary measures. For instance, approximately half of the world’s chips are sold through intermediaries to mitigate risks associated with direct ties to manufacturing locations. Malaysia’s government has been actively supporting local companies and encouraging joint ventures, though geopolitical complexities make direct partnerships with Chinese firms sensitive for some local companies.

“Unexpected U.S. actions, such as imposing stricter secondary sanctions on Malaysia, cannot be ruled out,” warned Malaysian Foreign Minister Zambry Abdul Kadir on November 27. He advised domestic firms to monitor the end destinations of their exports to avoid potential implications from U.S. sanctions on Russia. He also disclosed that six Malaysian companies were sanctioned in early November for misreporting goods and origin information.

“Ultimately, expectations are one thing, but the market operates on commercial logic,” said an industry insider involved in overseas semiconductor expansion. “The core factor remains product competitiveness. Governments and companies worldwide will eventually favor flexible, compliant partnerships. This means Chinese firms need to refine their products domestically, enhance their skills, and ‘out-compete’ domestically. Only then can they effectively navigate challenges and seize opportunities in Southeast Asia.”