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Chipmakers seeking 'China Plus 1' discover Malaysia

Construction cranes still surround the brand new factory located in Malaysia's Kulim Industrial Park. But inside, legions of workers hired by Austrian tech giant AT&S are already preparing to produce at full capacity by the end of the year.

Outfitted in head-to-toe jumpsuits, oversized safety glasses and hard hats, they're reminiscent of the worker bees from the movie “Minions,” but color-coded by function: blue for maintenance. Green for sellers. Pink for the janitors. Blank for operators.

AT&S is just one of many European and American companies that have recently decided to set up operations or expand their operations in Malaysia. electrical and electronic Mecca of manufacturing.

American chip giant Intel and German Infineon are each investing $7 billion. Nvidia, the world's leading maker of chips powering artificial intelligence, is teaming up with the country's utility conglomerate to develop a $4.3 billion artificial intelligence cloud and supercomputer center. Texas Instruments, Ericsson, Bosch and Lam Research are all expanding in Malaysia.

This boom testifies to the extent of geopolitical frictions and competition are reshaping the global economic landscape and making multi-billion dollar investment decisions. As rivalries between the United States and China over advanced technologies multiply and trade increases. restrictions piling up, companies – particularly those in crucial sectors like semiconductors and electric vehicles – are looking to strengthen their supply chains and production capabilities.

AT&S had production sites in Austria, India, South Korea and China – its largest factory – when it began looking for a new location.

“After 20 years of investing in China, it was clear that we needed to diversify our presence,” said Andreas Gerstenmayer, chief executive officer of AT&S. The company manufactures high-end printed circuit boards and substrates, which serve as the basis for advanced electronic components that power artificial intelligence and supercomputers.

Research on the company's site began in early 2020, just as warnings began to spread about a dangerous new coronavirus in China. AT&S explored 30 different countries across three continents before settling in Malaysia.

Southeast Asia's strategic position in the South China Sea and its long-standing economic ties with China and the United States make the region an attractive place to do business. Nations like Thailand And Vietnamsecond choice AT&S, is also aggressively courting semiconductor companies to expand, offering them tax incentives and other lures.

But Malaysia has the advantage of having a head start.

The country has been riding the technology wave since the 1970s, when it aggressively courted some of the world's superstars in electricity and electronics, like Intel and Litronix (now Osram, headquartered in Austria and Germany). He created a free trade zone on the island of Penang, offered tax exemptions and built industrial parks, warehouses and roads. Cheap labor was an added attraction, as was the large English-speaking population and the stability of the government.

Malaysia's history in semiconductor manufacturing is one of the main attractions, Mr Gerstenmayer said.

“They are very aware of the needs of the semiconductor industry,” he said. “And they have a well-developed ecosystem in universities, in education, in the workforce, in the supply chain” and more. Government support was another attraction, he said.

Tengku Zafrul Aziz, Malaysia's Minister of Investment, Trade and Industry, said foreign investment began to pick up in 2019, driven by the growing use of semiconductors in everything from automobiles to medical devices. “There are 5,000 chips in a car,” he said.

After the Covid-19 pandemic exposed devastating weaknesses in global supply chains, interest in Malaysia as an additional source exploded.

This trend accelerated as conflicts between great powers erupted.

China and the United States have decided to forge their own reliable semiconductor supply chains, in addition to supporting other critical sectors like renewable energy and electric vehicles.

“American and European companies, and even Chinese companies, wanted to diversify outside of China,” Mr. Zafrul Aziz said. China, too, is locating its production facilities outside the continent, in part, some say, to circumvent U.S. sanctions. This is a “China plus one” strategy.

Concerns over Taiwan, the world's largest semiconductor producer, have further fueled investment in Malaysia, he said. The island is a source of growing friction between China, which maintains Taiwan is part of its territory, and the United States, which supports it politically.

Malaysia is already the world's sixth-largest semiconductor exporter and packages 23% of all U.S. chips.

“For a country of this size to have such a significant impact on the global semiconductor market is absolutely fantastic,” said David Lacey, director of advanced development and services at Osram, one of the largest companies lighting in the world.

Sitting at a large conference table at the University of Science Malaysia in Penang, he quickly showed off the technology in the room. “There’s a television, there’s lights, there’s a projector, there’s phones,” he said. “You can pretty much guarantee there’s a Malaysian component somewhere.”

The proximity of so many tech companies also exerts a gravitational pull. In Penang and Kulim, connected by two long, snaking bridges, there are more than 300 businesses.

“Everything is here,” said Eric Chan, vice president and general manager of Intel Malaysia. After half a century, this network and infrastructure are not easy to replicate.

Mr Chan also mentioned the government's crucial cooperation during the pandemic to keep factories open.

Foreign direct investment has been almost 40 billion dollars last year, more than double the total generated in 2019.

Mario Lorenz, Malaysia managing director of German logistics company DHL Supply Chain, said “most of our big investments have taken place in the last two years.”

During this period, the semiconductor sector grew to dominate the company's operations in Malaysia. “We followed the trend,” he said.

Inside DHL Supply Chain's newest global distribution center, Penang Logistics Hub No. 4, are custom-made orange and blue shelves specially designed to handle the heavy, oversized crates used by a semiconductor company .

Four new supply chain facilities are in the pipeline in Malaysia.

Malaysia's track record is primarily in the downstream semiconductor supply chain – which includes the packaging, assembly and testing of components – activities traditionally considered less complex and lower value.

But today the industry is focusing on packaging Smaller chips – chiplets – more closely assembled to increase computing power increase the value and technical complexity of these activities.

Intel is building its first overseas facility for advanced 3D chip packaging in Malaysia. When you introduce cutting-edge technology, there's a “ripple effect,” said AK Chong, Intel vice president and general manager. in Malaysia. This development will attract dozens of new businesses and help advance the skill set of the workforce.

Although such progress will require a significant expansion of public services such as green energy, sanitation, water and 5G digital infrastructure, several business leaders expressed confidence in the Malaysian government's commitment.

“They have plans to provide green energy by building large solar farms,” said Mr. Gerstenmayer of AT&S. “Malaysia is well on its way to becoming a global electronics industry hotspot. »

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