Sources said that an increasing number of Chinese semiconductor design companies are using Malaysian companies to assemble some high-end chips to hedge against the risk of the United States expanding sanctions on China's chip industry. The companies are asking Malaysian chip packaging companies to assemble a chip called a graphics processing unit (GPU), according to three people familiar with the matter.
They said the requirements only concern assembly (which does not violate any U.S. restrictions) and not the manufacturing of chip wafers. Two people familiar with the matter added that some contracts have already been agreed.
People familiar with the matter declined to name the company involved or the unidentified company, citing confidentiality agreements.
To limit China's access to high-end GPUs that could drive breakthroughs in artificial intelligence or power supercomputers and military applications, Washington has increasingly imposed restrictions on their sales as well as advanced chip-making equipment.
Analysts say China's smaller semiconductor design companies are struggling to secure enough advanced packaging services at home as the impact of those sanctions and a boom in artificial intelligence spur demand.
Two people said that some Chinese companies are interested in advanced chip packaging services. Advanced chip packaging can significantly improve chip performance and is becoming a key technology in the semiconductor industry. This sometimes involves the construction of chiplets, where the chips are tightly packed to work together as a powerful brain.
Two people familiar with the matter added that although not subject to U.S. export restrictions, the field may require advanced technology and companies worry that they may one day be targeted by export restrictions to China.
As Chinese chip companies diversify their assembly needs outside China, Malaysia, a major hub for the semiconductor supply chain, is seen as well-positioned to capture more business.
Unisem (UNSM.KL), which is controlled by China Huatian Technology (002185.SZ), and other Malaysian chip packaging companies have experienced an increase in business and inquiries from Chinese customers, a source with knowledge of the situation said.
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 design companies have come to Malaysia to establish additional supply sources offshore to support their businesses at home and abroad."
Chinese chip design companies also view Malaysia as a good option because the country is considered to have good relations with China, has cheap services, has an experienced workforce and advanced equipment, two sources said.
Asked whether accepting an order from a Chinese company to assemble GPUs might draw the ire of the United States, Chia said Unisem's business dealings are "completely legal and compliant" and the company doesn't have time to worry about "too many possibilities."
He pointed out that most of Unisem's customers in Malaysia are from the United States.
The Commerce Department did not respond to a request for comment.
The country's other large chip packaging companies include Malaysia Pacific Industries (MPIM.KL) and Inari Amertron (INAR.KL). They did not respond to Reuters' request for comment.
Chinese companies are also interested in assembling chips outside China because it would also make their products easier to sell in non-Chinese markets, a source who is an investor in two Chinese chip startups said.
Malaysia currently accounts for 13% of the global semiconductor packaging, assembly and testing market and plans to increase this proportion to 15% by 2030.
Chinese chip companies that have announced plans to expand in Malaysia include former Huawei (HWT.UL) subsidiary Xfusion, which said in September it would work with Malaysia's NationGate (NATI.KL) to produce GPU servers - servers designed for use in data centers and data centres. For artificial intelligence and high-performance computing.
Shanghai-based StarFive has also established a design center in Penang, and chip packaging and testing company Tongfu Microelectronics (002156.SZ) said last year it would expand its Malaysian factory - a joint venture with U.S. chipmaker AMD (AMD.O).
Malaysia offers a range of incentives that have attracted billions of dollars in chip investment. Germany's Infineon (IFXGn.DE) said in August it would invest 5 billion euros ($5.4 billion) to expand its power chip factory there.
U.S. chipmaker Intel (INTC.O) announced in 2021 that it will invest US$7 billion to build an advanced chip packaging factory in Malaysia.
Chinese companies don’t just choose Malaysia. In 2021, Changdian Technology Group, the world's third largest chip packaging and testing company, completed the acquisition of advanced testing facilities in Singapore.
Other countries such as Vietnam and India are also looking to further expand chip manufacturing services, hoping to attract customers keen on minimizing geopolitical risks between China and the United States.