An increasing number of Chinese semiconductor design firms are exploring partnerships with Malaysian counterparts to assemble segments of their high-end chips. The move is seen as a precautionary measure amid concerns about potential US sanctions on China's chip industry.

Specifically, these Chinese companies are engaging Malaysian chip packaging firms to assemble graphics processing units (GPUs). These discussions, according to knowledgeable sources, strictly involve assembly processes, adhering to US regulations, and excluding the fabrication of chip wafers. Some agreements have reportedly already been finalised.

The identities of the involved companies remain confidential due to nondisclosure agreements.

Washington's recent restrictions on sales of high-end GPUs, crucial for artificial intelligence breakthroughs, supercomputing, and military applications, have prompted Chinese semiconductor design firms to seek advanced packaging services outside China. This trend emerges as smaller Chinese firms struggle to secure these specialised services domestically.

Advanced chip packaging significantly enhances chip performance and is considered a pivotal technology in the semiconductor industry. However, concerns persist among these firms about potential future export restrictions on sophisticated packaging technologies to China.

Malaysia, recognised as a prominent hub in the semiconductor supply chain, stands to benefit from this shift as Chinese chip firms diversify their assembly operations beyond China.

Unisem, majority-owned by China's Huatian Technology, along with other Malaysian chip packaging companies, has observed increased business and inquiries from Chinese clients. Unisem's Chairman, John Chia, refrained from commenting on specific clients but acknowledged the trend, citing trade sanctions and supply chain issues as drivers behind Chinese firms seeking alternative assembly sources.

Chinese chip design firms view Malaysia favourably due to the country's perceived good relations with China, cost-effectiveness, skilled workforce, and advanced equipment.

Despite potential concerns over provoking US scrutiny by handling GPU assembly orders from Chinese firms, Chia emphasised Unisem's compliance with regulations, stating that their business dealings are legitimate. He also noted that the majority of Unisem's customers in Malaysia are from the United States.

While Malaysia accounts for 13 per cent of the global semiconductor packaging, assembly, and testing market, it aims to increase this share to 15 per cent by 2030. Several Chinese chip firms have announced plans to expand operations in Malaysia, signalling continued growth and investments in the country's semiconductor industry.

(With Reuters inputs)