To address potential risks linked to US sanctions on China's semiconductor sector, a growing number of Chinese chip design companies are considering collaborations with Malaysian firms to handle the manufacturing of advanced chips, with a focus on graphics processing units (GPUs), as reported by Reuters.

According to the sources who spoke with Reuters, these partnerships are centered entirely on the assembly side and avoid US regulations. In certain situations, contracts have already been signed.

Washington's tighter limitations on China's access to sophisticated GPUs—essential for military and artificial intelligence applications—have made it more difficult for smaller Chinese semiconductor design companies to obtain sufficient advanced packaging services domestically. As a result, some are turning to Malaysia for these critical services.

Although US limitations do not now apply to sophisticated chip packaging services, Chinese companies are concerned about possible future export restrictions in this area to China. For Chinese chip companies seeking to expand their assembly operations outside of China, Malaysia—a major participant in the semiconductor supply chain—is seen as the perfect substitute.

Unisem, majority-owned by China's Huatian Technology, has noted a surge in business activities and inquiries from Chinese clients. Chairman John Chia emphasized the legitimacy and adherence to compliance in Unisem's business transactions.

Malaysia's affordability, skilled workforce, state-of-the-art equipment, and perceived friendly connection with China all appeal to Chinese chip design firms. Chia admitted that Americans make up most of Unisem's customers in Malaysia.

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

Currently accounting for 13% of the worldwide market in semiconductor packaging, assembly, and testing, Malaysia aims to elevate its share to 15% by 2030. Chinese chip companies like Xfusion and StarFive have disclosed intentions to expand their operations in Malaysia, drawn by the country's incentives and well-established infrastructure.

In an effort to reduce geopolitical risks, other nations, like Vietnam and India, are also actively attempting to increase their market share in chip manufacturing services, offering clients more choices as they navigate the uncertainty surrounding US-China relations.

Image source: Reuters