Malaysia’s chip industry largely insulated from Middle East conflict

 An analyst notes potential supply chain risks, but two industry players report minimal disruption with alternative routes and stock coverage.

Malaysia handles about 13% of global semiconductor assembly and testing, making it an important hub in the global chip supply chain. (File pic)

PETALING JAYA:

 Malaysia’s semiconductor industry remains largely insulated from the ongoing conflict in the Middle East for now, though an analyst says prolonged disruptions could eventually ripple through global chip supply chains.

Jaideep Singh of the Institute of Strategic and International Studies Malaysia (ISIS) said the country’s chip sector focuses on assembly, packaging and testing, relying on wafers produced in Taiwan and South Korea.

He said wafer makers in those countries source certain critical materials from the Middle East, including helium from Qatar.

“Major chipmakers TSMC and SK Hynix have highlighted that they have sufficient inventory of helium and can diversify to alternative partners.

“However, a long-term shutdown could test Taiwanese and South Korean resilience, and by extension, Malaysia’s chip testing activities,” he told FMT.

Jaideep said raw materials used in Malaysia, such as silicon and germanium, come mostly from China and are unlikely to face near-term disruptions.

Exports are mostly transported by air across Asia, so the closure of the Strait of Hormuz has had little immediate impact, he added.

The conflict has also pushed global oil prices higher, potentially raising electricity and logistics costs for chipmakers. Malaysia, however, may be less affected than some other countries, Jaideep said, as it is a net exporter of mineral fuels.

“There is also no strong correlation between oil prices and Malaysian producer costs, as reflected by the producer price index,” he said.

Wong Siew Hai, president of the Malaysia Semiconductor Industry Association (MSIA), said global chip prices may rise depending on demand and how the conflict evolves.

Growth in AI will drive higher demand for AI chips, which is expected to push their prices upward, he said.

“Malaysia is a neutral, non-aligned country, supporting countries across various regions. In areas affected by global conflicts, companies may look to Malaysia to shift production volumes and mitigate risk,” he said.

Industry players, on the other hand, said that they have so far avoided supply disruptions by adjusting logistics routes.

Vienna-listed AT&S Austria Technologie & Systemtechnik AG, which has a large manufacturing campus in Kulim Hi-Tech Park, said its operations remain secure.

“All our inbound and outbound air freight is routed to avoid the Middle East, and our suppliers follow the same approach,” Gerald Reischl of AT&S Austria Technologie & Systemtechnik (M) Sdn Bhd told FMT.

“Even if transit times lengthen, the additional lead time of seven to 14 days is fully covered by our existing safety stock policy.”

Meanwhile, Infineon Technologies, which operates a testing and assembly plant in Melaka and a wafer fabrication facility in Kulim, said it is closely monitoring the situation.

“So far, very limited shipping disruptions have been reported by our providers. Overall, the situation remains stable with minor impact on Infineon,” a spokesperson said.

Malaysia accounts for about 13% of global semiconductor assembly and testing, making it the sixth-largest exporter in the sector.

Semiconductors contribute roughly 6% of GDP, 26% of exports, and 40% of approved foreign direct investment. - FMT