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US Chips Act won’t hurt Malaysian semiconductor sector

US Chips Act won’t hurt Malaysian semiconductor sector

23 Jul 2022

Malaysia’s semiconductor sector would be impacted positively by the United States’ US$52bil (RM231.5bil) Chips Act.

The bill, which would provide about US$52bil (RM231.63bil) in subsidies and tax breaks to companies investing in semiconductor manufacturing in the United States, is designed to boost semiconductor supply security and enhance competitiveness.

Malaysia Semiconductor Industry Association president Datuk Seri Wong Siew Hai said Malaysian supply chain participants will likely need to expand back-end assembly test plants to package products as more companies move to build front-end new wafer fabrication (fab) plants in the United States.

“This new bill passed will encourage more fab plants to be built in the United States. As such, the capacity and the supply for the front-end fab would increase.

“Hence, the back-end assembly plant capacity has to increase as well to support the front-end fab capacity. So we have to expand our back-end assembly test plants for packaging to support the volume growth coming from the United States.

Echoeing similar views, Malaysian Institute of Economic Research economist Shankaran Nambiar believes there would not be an immediate fall in the foreign direct investment coming into Malaysia’s semiconductor sector as the country has an “excellent ecosystem” comprising of reliable local subcontractors.

“The semiconductor assembly test factories and the outsourced semiconductor assembly and test (OSAT) vendors that provide integrated circuit-packaging and test services would be the main beneficiaries in Malaysia,” he added.

It is worthy to note that most Malaysian firms in the semiconductor space are in the business of assembly, packing and testing of the chips.

On the flip side, Wong believes Malaysia would not be impacted negatively from the new bill as the United States is expected to build cutting-edge front-end fabs that are below seven- nanometer (nm) technologies which Malaysia does not produce.

“We are not affected with immediate effect because the Chip Act is to encourage front-end fabs to be built in the United States that we are not producing,” he said.

Echoeing similar views, Malaysian Institute of Economic Research economist Shankaran Nambiar believes there would not be an immediate fall in the foreign direct investment coming into Malaysia’s semiconductor sector as the country has an “excellent ecosystem” comprising of reliable local subcontractors.

“The class of investment that depends on labour intensive operations will also not be keen to shift back to the United States. In that sense, the new legislation will not turn the clock back,” he pointed out.

The new bill, Nambiar said, would raise competition for countries that are more research and development-focused and depend on high quality labour.

He reckons the bill would not affect exports of the semiconductor sector in Malaysia as demand and production would continue.

“Apart from the good ecosystem in Malaysia, there are strategic reasons why production facilities will continue to be in the country,” noted Nambiar.

For Malaysia to stay competitive and relevant with the changing dynamics of global businesses, AmBank Group chief economist Anthony Dass said the country needs to build a solid semiconductor ecosystem that can convince global businesses on the issues of supply chain disruptions, among others.

“We need to develop an advanced semiconductor research tax credit, extend the investment tax credit to materials suppliers, and others to show our seriousness,” he added.

Source: The Star

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