As reported by TechNews, a media partner of TrendForce, Southeast Asia and India, equipped with the advantages of demographic dividends, strategic geographic positioning, manufacturing capabilities, and rapidly growing economic markets, have undoubtedly emerged as the preferred destinations for the technology industry amidst the global supply chain transition prompted by geopolitical factors.

As supply chains actively seek production bases beyond China and governments introduce incentive programs and policy restrictions for localized supply, various Southeast Asian countries have become key hubs for different sectors. Vietnam has become a focal point for consumer electronics manufacturing such as laptops, watches, and headphones, while Thailand has become a preferred choice for automotive-related supply chains. Thailand and Malaysia host assembly bases for servers, and India is set to become a crucial hub for mobile phone production.

Apart from the movement of end-product assembling, the shift in the semiconductor supply chain has also garnered attention. With TSMC, Samsung, and Intel relocating wafer fabrication plants to the United States, Europe, and other regions, a significant cluster of semiconductor backend testing and packaging has been forming in Malaysia.

What Advantages Does Malaysia Offer to Attract Multinational Semiconductor Companies’ Investment, and What Is the Current Industry Landscape?

Firstly, Malaysia boasts higher education standards than neighboring countries. Among ASEAN nations, only Singapore and Malaysia employ the British legal system, providing a competitive edge for many companies’ location choices. Secondly, in terms of language proficiency, Malaysian citizens predominantly use English, Mandarin, and Malay, facilitating smooth communication with global enterprises.

Thirdly, Malaysia is home to two major ports—Port Klang and Port of Tanjung Pelepas—both ranked among the world’s top 15 ports, with substantial container handling capacity and global reach.

Lastly, the state of Penang stands as a semiconductor hub for Malaysia, having nurtured the semiconductor industry for several decades and holding a technological lead. Often referred to as the “Silicon Valley of the East,” Penang has primarily focused on producing chips for electronics, computers, and mobile phones. However, with the growing adoption of electric vehicles, the demand for automotive chips has surged. Concurrently, the green energy trend has propelled the need for solar panels and renewable energy sources. This optimistic outlook for the semiconductor industry has once again attracted numerous companies to establish facilities and expand production capacity.

Current State of Malaysia’s Semiconductor Industry

Looking at the recent dynamics of corporations over the past two years, the trend is evident that Malaysia is evolving into a center for semiconductor backend testing and packaging. Major global players have announced plans to establish or expand operations in Penang. Intel, for example, announced a $6.46 billion investment in Malaysia in 2021, focusing on advanced packaging capabilities in Penang and Kedah.

Texas Instruments declared its intent to construct semiconductor testing and packaging plants in Kuala Lumpur and Malacca, with a total investment of up to $2.7 billion. Infineon is investing $5.45 billion to expand existing facilities, producing silicon carbide and entering the electric vehicle sector. Bosch Group is investing $358 million in stages to strengthen its semiconductor supply chain position in Penang. ASE Technology Holding, also began construction on a new testing facility in Penang at the end of last year.

With the influx of semiconductor giants, Malaysia’s position in the semiconductor industry has become increasingly critical. The distinct production base trends, aligned with the strengths of various Southeast Asian countries, have become clear. The restructuring of supply chains and the transformation of production centers undoubtedly remain the focus and challenge for global companies.

(Photo credit: ASE)

Dell, a major server brand, placed a substantial order for AI servers just before NVIDIA’s Q2 financial report. This move is reshaping Taiwan’s supply chain dynamics, favoring companies like Wistron and Lite-On.

Dell is aggressively entering the AI server market, ordering NVIDIA’s top-tier H100 chips and components. The order’s value this year is estimated in hundreds of billions of Taiwanese dollars, projected to double in the next year. Wistron and Lite-On are poised to benefit, securing vital assembly and power supply orders. EMC and Chenbro are also joining the supply chain.

Dell’s AI server order, which includes assembly (including complete machines, motherboards, GPU boards, etc.) and power supply components, stands out with its staggering value. The competition was most intense in the assembly sector, ultimately won by Wistron. In the power supply domain, industry leaders like Delta, Lite-On, secured a notable share, with Lite-On emerging as a winner, sparking significant industry discussions.

According to Dell’s supply chain data, AI server inventory will reach 20,000 units this year and increase next year. The inventory primarily features the highest-end H100 chips from NVIDIA, with a few units integrating the A100 chips. With each H100 unit priced at $300,000 and A100 units exceeding $100,000, even with a seemingly modest 20,000 units, the total value remains in the billions of New Taiwan Dollars.

Wistron is a standout winner in Dell’s AI server assembly order, including complete machines, motherboards, and GPU boards. Wistron has existing H100 server orders and will supply new B100 baseboard orders. Their AI server baseboard plant in Hsinchu, Taiwan will expand by Q3 this year. Wistron anticipates year-round growth in the AI server business.

Following Saudi Arabia’s $13 billion investment, the UK government is dedicating £100 million (about $130 million) to acquire thousands of NVIDIA AI chips, aiming to establish a strong global AI foothold. Potential beneficiaries include Wistron, GIGABYTE, Asia Vital Components, and Supermicro.

Projections foresee a $150 billion AI application opportunity within 3-5 years, propelling the semiconductor market to $1 trillion by 2030. Taiwan covers the full industry value chain. Players like TSMC, Alchip, GUC, Auras, Asia Vital Components, SUNON, EMC, Unimicron, Delta, and Lite-On are poised to gain.

Reports suggest the UK is in advanced talks with NVIDIA for up to 5,000 GPU chips, but models remain undisclosed. The UK government recently engaged with chip giants NVIDIA, Supermicro, Intel, and others through the UK Research and Innovation (UKRI) to swiftly acquire necessary resources for Prime Minister Sunak’s AI development initiative. Critics question the adequacy of the £100 million investment in NVIDIA chips, urging Chancellor Jeremy Hunt to allocate more funds to support the AI project.

NVIDIA’s high-performance GPU chips have gained widespread use in AI fields. Notably, the AI chatbot ChatGPT relies heavily on NVIDIA chips to meet substantial computational demands. The latest iteration of AI language model, GPT-4, requires a whopping 25,000 NVIDIA chips for training. Consequently, experts contend that the quantity of chips procured by the UK government is notably insufficient.

Of the UK’s £1 billion investment in supercomputing and AI, £900 million is for traditional supercomputers, leaving £50 million for AI chip procurement. The budget recently increased from £70 million to £100 million due to global chip demand.

Saudi Arabia and the UAE also ordered thousands of NVIDIA AI chips, and Saudi Arabia’s order includes at least 3,000 of the latest H100 chips. Prime Minister Sunak’s AI initiative begins next summer, aiming for a UK AI chatbot like ChatGPT and AI tools for healthcare and public services.

As emerging AI applications proliferate, countries are actively competing in the race to bolster AI data centers, turning the acquisition of AI-related chips into an alternative arms race. Compal said, “An anticipate significant growth in the AI server sector in 2024, primarily within hyperscale data centers, with a focus on European expansion in the first half of the year and a shift toward the US market in the latter half.”

In response to the demands of high-performance computing, AI, 5G, and other applications, the shift towards chiplet and the incorporation of HBM memory has become inevitable for advanced chips. As a result, packaging has transitioned from 2D to 2.5D and 3D formats.

With chip manufacturing advancing towards more advanced process nodes, the model of directly packaging chips using advanced packaging technology from wafer foundries has emerged. However, this approach also signifies that wafer foundries will encroach upon certain aspects of traditional assembly and testing, leading to ongoing discussions about the ‘threat’ to traditional assembly and test firms since TSMC’s entry into advanced packaging in 2011.

But is this perspective accurate?

In fact, traditional assembly and test firms remain competitively positioned. Firstly, numerous electronic products still rely on their diverse traditional packaging techniques. Particularly, with the rapid growth of AIoT, electric vehicles, and drones, the required electronic components often still adopt traditional packaging methods. Secondly, faced with wafer foundries actively entering the advanced packaging domain, traditional assembly and test firms have not been idle, presenting concrete solutions to the challenge.

Advanced Packaging Innovations by Traditional Assembly and Test Firms

Since 2023, AI and AI server trends have rapidly emerged, driving the demand for AI chips. TSMC’s 2.5D advanced packaging technology, known as CoWoS, has played a pivotal role. However, the sudden surge in demand stretched TSMC’s capacity. In response, major traditional assembly and test firms such as ASE and Amkor have demonstrated their technical prowess and have no intention of being absent from this field.

For instance, ASE’s FOCoS technology enables the integration of HBM and ASIC. It restructures multiple chips into a fan-out module, which is then placed on the substrate, achieving the integration of multiple chips. Their FOCoS-Bridge technology, unveiled in May this year, utilizes silicon bridges (Si Bridge) to accomplish 2.5D packaging, bolstering the creation of advanced chips required for applications like AI, data centers, and servers.

Additionally, SPIL, a subsidiary of ASE, offers the FO-EB technology, a powerful integration of logic IC and HBM. As depicted below, this technology eschews silicon interposers, utilizing silicon bridges and redistribution layers (RDL) for connections, similarly capable of 2.5D packaging.

Another major player, Amkor, has not only collaborated with Samsung to develop the H-Cube advanced packaging solution but has also long been involved in ‘CoWoS-like technology.’ Through intermediary layers and through-silicon via (TSV) technology, Amkor can interconnect different chips, also possessing 2.5D advanced packaging capabilities.

China’s major assembly and test firm, Jiangsu Changjiang Electronics Technology (JCET), employs the XDFOI technology, integrating logic ICs with HBM through TSV, RDL, and microbump techniques, aimed at high-performance computing.

Given the recent surge in demand for high-end GPU chips, TSMC’s CoWoS capacity has fallen short, and NVIDIA is actively seeking support from second or even third suppliers. The ASE Group and Amkor have secured partial orders through their packaging technologies. This clearly illustrates that traditional assembly and test firms, even when faced with the entry of wafer foundries into the advanced packaging domain, still possess the capability to compete.

In terms of product types, wafer foundries focus on advanced packaging technology for major players like NVIDIA and AMD. Meanwhile, other products not in the highest-end category still opt for traditional assembly and test firms like ASE, Amkor, and JCET for manufacturing. Overall, with their presence in advanced packaging, as well as a hold on the expanding existing packaging market, traditional assembly and test firms continue to maintain their market competitiveness.

(Photo credit: Amkor)

According to Taiwan’s Economic Daily, the consumer market is experiencing starkly low demand, causing IC design firms primarily relying on mature processes, such as those in driver ICs, power management ICs, CMOS image sensors (CIS), and microcontrollers (MCUs), to adopt a notably cautious approach in placing orders. Some manufacturers are hesitating to place orders due to persistently high inventory levels.

The industry consensus is that IC design companies are expected to increase their orders in mature processes, with the earliest effects possibly emerging by 2024, implying that the mature process market conditions might not improve significantly until the end of this year.

The consumer market entered a period of economic downturn in the latter half of last year, which in turn affected industries such as PCs, smartphones, and networking. This not only led to a surge in inventory levels for IC design firms but also significantly curtailed the momentum for chip tape-out. Looking ahead to the second half of this year, while inventory levels across various sectors have largely returned to normal, chip tape-out for Q3 have notably declined compared to Q2.

In particular, demand for high-speed I/O in the PC sector and Board Management Controller for data centers remains notably weak. The supply chain indicates that PC demand for the second quarter, driven by advanced stocking, has dampened the typical peak season effect for the latter half of the year. This trend is evident across desktop PCs, laptops, and Chromebooks.”

As for the smartphone sector, after various research institutions revised down this year’s smartphone market size, the supply chain’s chip tape-out momentum has cooled down significantly. Only Qualcomm has increased its tape-out momentum to semiconductor foundries in the first half of the year, while MediaTek continues to adhere to a conservative strategy as of now.

(Photo credit: SMIC)