In recent quarters, Malaysia has become a major importer of computing systems and computer components (such as CPUs and GPUs for AI) from Taiwan, at the same time that the U.S. government has imposed restrictions on the export of advanced GPUs for AI and high-performance computing (HPC) to Chinese companies. The surge in shipments follows increased enforcement efforts to prevent the smuggling of AI GPUs.

This is evidenced by the recent busts of multiple smuggling rings and Malaysia's promise to further strengthen enforcement. The surge raises questions about whether Malaysia is trying to enter the cloud AI data center market or has other intentions.

According to data from Taiwan's Bureau of International Trade, Taiwan's computer system exports to Malaysia totaled $1,873.89 billion in March, up 366% year-on-year from $401.92 million in March last year and up 55,117% from $3.4 million in March 2023, Lennart Heim noted.

The acceleration in purchases of AI hardware is not entirely unexpected ahead of the AI Proliferation Rule, which takes effect on May 15. Big Asian companies, including from China, may use Malaysia as a hub to stockpile restricted hardware.

In fact, according to Taiwan's Information Technology Agency, Taiwan's computer system exports to Malaysia soared in December 2023, shortly after the US government restricted the sale of advanced CPUs and GPUs to certain countries.

However, Malaysian companies are not only importing AI servers. They have also accelerated their purchases of components from Taiwan, which may include AI accelerators such as Nvidia's H100. Taiwan's computer component exports to Malaysia increased to US$60.83 million in March, up from US$27.04 million in March 2023 and US$15 million in the same period last year.

There are a few things to note, though. Taiwan's ITA tracks exports based on HS codes. Computer systems, from laptops and tablets all the way to AI, HPC, and storage servers, are categorized under heading 8471 with different suffixes. Taiwan's ITA only allows us to track items under heading 8471 without suffixes, so Taiwan's exports of computer systems range from cheap laptops to ultra-expensive Nvidia DGX and HGX AI servers (which Nvidia categorizes as 8471.50). AI accelerators and graphics cards are categorized as part of computer systems, under heading 8473 codes, which Nvidia categorizes as 8473.30.

While we can't differentiate between AI servers and cheap laptops based on HS codes alone, it's clear that Taiwan's computer system exports to Malaysia accelerated after the U.S. imposed restrictions on exports of advanced AI GPUs to China.

Malaysia Semiconductor, Ambitions

In the competitive semiconductor industry, Malaysia seems to have carved out a niche. As a subcontractor for semiconductor chip assembly, testing and packaging, Malaysia has positioned itself as a global leader in back-end chip processing.

However, Malaysia still plays a relatively small role in the higher end of the semiconductor value chain, especially in areas such as advanced packaging technology and integrated circuit design, which are still firmly dominated by the United States, Taiwan and China. Given Malaysia's ambitions to move up the value chain as outlined in its National Semiconductor Strategy 2024 and its recent plans to acquire the chip design blueprints of UK-based ARM, a key question emerges: Can Malaysia's semiconductor industry overcome its dependence on downstream and carve out a path to move upstream?

Malaysia's New Industrial Master Plan 2030

Malaysia's New Industrial Master Plan 2030 outlines a strategy to strengthen the country's industrial base and promote innovation-driven growth, but its influence in the higher end of the value chain, especially in the manufacturing of electronic components, consumer electronics and computer equipment, remains relatively limited. In the field of integrated circuit design, Malaysia's influence is at a medium-low level, indicating that its capabilities are still in the development stage. Meanwhile, R&D activities are marginal in areas such as electronic components, consumer electronics and electrical equipment, highlighting critical gaps in upstream innovation.

To address this, Malaysia has developed a National Semiconductor Strategy that aims to propel it to the next level in the value chain through a comprehensive, long-term plan. Central to the strategy is the government's commitment to invest RM25 billion over the next decade in capital grants, workforce training and development, construction of dedicated semiconductor industrial parks, and the establishment of advanced packaging facilities. While the blueprint outlines an ambitious and necessary roadmap to strengthen Malaysia's semiconductor ecosystem, its implementation has been slow to date.

Major bottlenecks

Major bottlenecks include a severe shortage of skilled workers and domestic technology limitations. Although the strategy set a target of training 60,000 engineers to meet industry needs, actual progress has been minimal. The country continues to grapple with a persistent mismatch between education output and industry needs, as many university curricula and technical and vocational education and training programs remain outdated and difficult to keep pace with the rapidly evolving needs of the industry.

This challenge is further exacerbated by the ongoing outflow of talent, which stems primarily from wage disparities and more attractive career prospects overseas, particularly in neighboring Singapore, which offers significantly higher salaries and a more mature advanced semiconductor ecosystem. In addition to the talent gap, Malaysia also faces inadequate R&D infrastructure and a lack of advanced design tools.

Malaysia's recent acquisition of ARM chip design blueprints is critical to breaking down Malaysia's long-standing downstream industry barriers. There is growing optimism that Malaysia may eventually be able to move up the semiconductor value chain, an encouraging sign that the government is ready to support this strategic transformation of the industry.

However, persistent structural challenges continue to hinder the industry's development. Although ARM's agreement includes plans to train 10,000 engineers for the integrated circuit design industry, there is no clear roadmap on how to achieve this goal.

Even if Malaysia succeeds in producing its own chips, finding a stable and competitive export market will remain a challenge.

External pressures, with rising protectionism around the world, have also exacerbated the challenge. The United States, Malaysia's largest semiconductor export market, is increasing domestic production under the CHIPS Act, while Taiwan's TSMC is investing $100 billion to build advanced manufacturing plants in the United States. At the same time, China is doubling down on its domestic integrated circuit design capabilities. These developments could weaken Malaysia's position in the global semiconductor supply chain.

Nvidia, Qualcomm and AMD

At the same time, global giants such as Nvidia, Qualcomm and AMD dominate the market with significant technological and financial advantages. Therefore, even if Malaysia successfully produces its own chips, finding a stable and competitive export market will remain a challenge. In addition, even if the design blueprints of ARM chips can be obtained, integrated circuit design itself is complex and resource-intensive, requiring deep expertise in engineering, physics and mathematics. The question is whether local companies have the technical capabilities and human capital required to transform these blueprints into commercially viable and cost-effective products.

Ultimately, two outcomes are possible. One scenario is that a small number of local companies successfully use ARM blueprints to develop locally manufactured circuits or chips to meet the needs of niche or low-end markets in the global supply chain. Alternatively, the industry struggles to develop designs that are both competitive and economically viable, thus having a limited impact on Malaysia's position in the semiconductor ecosystem.

Malaysia's foray into IC design is a bold and necessary move that demonstrates its ambition and desire to elevate its position in the global semiconductor industry. But ambition alone is not enough. The country risks failure if deep-rooted structural issues are not addressed. The next few years will be critical to whether Malaysia can break the downstream curse.

Source: Content from tomshardware

Reference link https://www.tomshardware.com/tech-industry/artificial-intelligence/massive-366-percent-chip-shipment-surge-to-malaysia-amid-increased-nvidia-ai-gpu-smuggling-curbs-ahead-of-looming-sectoral-tariffs

View more at EASELINK