Packaging and testing by ASE New upsurge due to the chip war: packaging and testing in Malaysia

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Economically intertwined, politically more neutral - with this mix, Malaysia is attracting more and more investments to its ATP industry. The latest example is the new ASE plant in Penang, which opened in mid-February. It is the largest packaging and testing facility that the globally leading provider from Taiwan has built abroad.

As the "chip war" between the USA and China continues under Donald Trump's second presidency in the USA, Malaysia in Southeast Asia benefits from its strategy in recent years of not siding with either party.

The ASE plant now opened in Penang was built in 1991 and has specialized in packaging for image sensors and power chips in the automotive industry. However, new fields are soon to be explored there as well. The workforce is expected to double to around 6,000 employees and the plant area to triple in the coming years, company spokespeople from ASE in Kaohsiung, Taiwan, said.

"The social and economic environment in Malaysia is stable, and the country has not really sided with either the USA or China amid the geopolitical tensions," ASE CEO Tien Wu recently told journalists. Malaysia is a location that most of his customers accept, the CEO said.

The country also benefits from its geographical location, offering relative proximity to the emerging semiconductor industries in Vietnam, India, and Singapore. From there, due to Malaysia’s modern and efficient ports along established sea routes, customers in the USA and China can also be well supplied.

Semiconductor industry in Malaysia

The government in Kuala Lumpur is vigorously promoting the development of its domestic semiconductor industry. In May of last year, it announced subsidies totaling 5.6 billion US dollars as part of its "National Semiconductor Strategy." In addition to advanced packaging, this is intended to boost sectors in Malaysia that have been relatively weakly represented, such as chip design or front-end semiconductor manufacturing.

Behind this is not only the realization that the semiconductor industry thrives best in locations with complete, well-connected supply chains, but also the thought that the currently favorable political climate could quickly change. "Malaysia must strive to diversify its export markets," said Li Li Lian, Deputy Director of an independent think tank in Malaysia, recently at a conference organized by the South China Morning Post in Hong Kong. "I believe that the windfall of foreign direct investments, where companies use Malaysia for exports to the USA, could end again, so we need to seek other opportunities."

Strong investments

The chances for such diversification are not bad for Malaysia, having already secured a global market share of 13 percent in packaging and testing — and as more and more large companies are discovering the country's semiconductor industry for other process steps as well. Intel, like ASE, operates its largest foreign factory for packaging and testing in Malaysia. The German company Infineon has opened its largest chip factory in Malaysia. LAM Research manufactures equipment and tools for chip production in Malaysia.

Building on this solid foundation, Malaysia is currently benefiting from the technological trend as Moore's Law approaches an endpoint, and more and more chip manufacturers are turning to stacking to enhance the performance of their semiconductors. This increases the strategic importance of ATP processes, as well as the strategic location advantage of countries like Malaysia or Vietnam, which are positioning themselves as complements to chip manufacturing strongholds like Taiwan and the People's Republic of China.

As the AI boom fuels the demand for increasingly powerful chips, there is no end in sight for the investments in the packaging and testing industry in Malaysia. What ASE is massively expanding is already its fifth plant in Malaysia. (sb)

*Henrik Bork, longtime China correspondent for the Süddeutsche Zeitung and the Frankfurter Rundschau, is Managing Director at Asia Waypoint, a China-specialized consulting agency based in Beijing.