Malaysia emerges as a hotspot for semiconductor firms amid U.S.-China chip tensions
KUALA LUMPUR, MALAYSIA – 2018/01/24: A foreigner is seen with a Malaysia flag as a background. Kuala Lumpur or commonly known as KL is the national capital for Malaysia and is the fastest growing metropolitan regions in South-East Asia. The urban city is also well known to the world for tourism and shopping. Kuala Lumpur has a great public transportation for people travel around the city. (Photo by Faris Hadziq/SOPA Images/LightRocket via Getty Images)
Faris Hadziq | Sopa Images | Lightrocket | Getty Images
Malaysia is emerging as a hotspot for semiconductor factories as U.S.-China tensions prompt companies to diversify operations.
“Malaysia has well-established infrastructure with around five decades of experience in the ‘back end’ of the semiconductor manufacturing process, particularly in assembly, testing and packaging,” said Kenddrick Chan, head of the digital international relations project at LSE IDEAS, the foreign policy think-tank of the London School of Economics and Political Science.
Semiconductors – critical components found in everything from smartphones to automobiles – have been at the center of a U.S.-China technology war.
American chip giant Intel in December 2021 said it will invest more than $7 billion to build a chip packaging and testing factory in Malaysia, with production expected to begin in 2024.
“Our decision to invest in Malaysia is rooted in its diverse talent pool, well-established infrastructure, and robust supply chain,” Aik Kean Chong, Intel Malaysia’s managing director, told CNBC.
Intel’s first overseas production facility was an assembly site in Penang launched in 1972 with a $1.6 million investment. The company went on to add a full test facility as well as a development and design center in Malaysia.
Another U.S. chip giant, GlobalFoundries, in September opened a hub in Penang to “support global manufacturing operations” alongside its plants in Singapore, the U.S. and Europe.
“The forward-thinking policies and strong support from the regional government together with partners like InvestPenang have built a strong ecosystem for the industry to thrive,” said Tan Yew Kong, senior vice president and general manager of GlobalFoundries Singapore.
Germany’s top chipmaker Infineon in July 2022 said it will build a third wafer fabrication module in Kulim while Neways, a key supplier to Dutch chip equipment maker ASML, said last month it will construct a new production facility in Klang.
“Malaysia’s edge has always been its skilled labor in packaging, assembly and testing, and lower comparative operating costs, making exports more competitive globally,” said Yinglan Tan, founding managing partner at Insignia Ventures Partners. He added that the ringgit’s current position makes the country an “attractive location for foreign players.”
Malaysia holds 13% of the global market for chip packaging, assembly and testing services, said the Malaysian Investment Development Authority in a Feb. 18 report. Exports of semiconductor devices and integrated circuits increased by 0.03% to 387.45 billion Malaysian ringgit ($81.4 billion) in 2023, amid global chip demand weakness.
Malaysia Semiconductor Industry Association president Datuk Seri Wong Siew Hai said many Chinese firms diversified some of their production to Malaysia, calling the country China’s “plus one.”
Zafrul Aziz, Malaysia’s investment, trade and industry minister, told CNBC in January that Malaysia aims to focus on the “front end” of the chip manufacturing process, instead of just the “back end.” Front end processes involve wafer fabrication and photolithography, while back end processes focuses on packaging and assembly.
In a bid to grow the country’s semiconductor ecosystem and attract investments, Malaysia in January set up a national semiconductor strategic taskforce, local media reported.
U.S.-China tensions
Similarly, countries like India and Japan have been courting foreign firms to set up operations on local soil as they aim to become major chip hubs alongside the U.S., Taiwan and South Korea.
India in February approved the construction of three semiconductor plants with investments of more than $15 billion. India in June approved U.S. memory chip giant Micron’s plans to set up a semiconductor unit.
In the same month, the world’s largest contract chip maker TSMC opened its first Japan factory as it diversifies away from Taiwan amid U.S.-China tensions.
Washington introduced sweeping rules in October 2022 aimed at restricting China’s access to advanced chip technology amid concerns that China could use them for military purposes. Last year, the U.S. announced new regulations preventing U.S. chip designer Nvidia from selling advanced AI chips to China.
“Malaysia and Asia in general is poised to benefit from the China-U.S. tech war, where access to advanced semiconductor chips are being weaponised as a tool to establish global technological supremacy,” said May-Ann Lim, director of the data governance practice at public policy consultancy Access Partnership.
Brain drain
While Malaysia stands to benefit from the U.S.-China chip war, its brain drain poses challenges as workers leave the country for better job prospects and higher salaries.
“This may well be the case if companies invest in upskilling the workforce in Malaysia, only to lose them to other competitors around the region once they have the skills,” said Lim.
An official study conducted in 2022 revealed that 3 out of 4 Malaysian workers in Singapore are skilled or semi-skilled, highlighting the country’s brain drain problem.
“Whether this demand generated by supply chain diversification will be met with enough supply of skilled talent in the country is still an ongoing operational challenge,” said Tan of Insignia Ventures Partners.
Malaysian Prime Minister Anwar Ibrahim in September said the government is looking to attract skilled Malaysians to return and contribute to the country.
Adobe CEO Shantanu Narayen speaks during an interview with CNBC on the floor at the New York Stock Exchange on Feb. 20, 2024.
Brendan Mcdermid | Reuters
Adobe shares surged 15% on Friday, the biggest gain since March 2020, after the software maker reported earnings and revenue that beat analysts’ estimates.
After the bell on Thursday, Adobe reported adjusted earnings per share of $4.48, topping the LSEG consensus estimate of $4.39 per share. Revenue increased 10% from a year earlier to $5.31 billion, exceeding analysts’ estimates of $5.29 billion.
CEO Shantanu Narayen attributed Adobe’s record revenue to its strong growth across Creative Cloud, Document Cloud and Experience Cloud and its advancements in artificial intelligence.
“Our highly differentiated approach to AI and innovative product delivery are attracting an expanding universe of customers and providing more value to existing users,” Narayen said in a press release on Thursday.
New annualized recurring revenue for the Digital Media business, which includes Creative Cloud subscriptions, came in at $487 million, beating the StreetAccount consensus of $437.4 million.
Adobe’s results provide a contrast to what software investors have seen from many industry peers of late. Salesforce shares suffered their worst plunge since 2004 late last month after the cloud software vendor posted weaker-than-expected revenue and issued disappointing guidance. That same week, MongoDB, SentinelOne, UiPath and Veeva all pulled down their full-year revenue forecasts.
However, there were positive signs in the sector this week. Oracle shares rallied after the database company announced cloud deals with Google and OpenAI, even as fourth-quarter results fell short of Wall Street expectations. CrowdStrike jumped on Monday following the announcement after the close last Friday that the cybersecurity company would be added to the S&P 500.
JMP analysts, who have the equivalent of a hold rating on Adobe, wrote in a note after the earnings report that the company’s results were uplifting despite a challenging economic environment and increased competition in design software.
“We like how Adobe is integrating AI functionality across its product portfolio,” the analysts wrote.
Meanwhile, analysts from Piper Sandler raised their revenue estimates slightly by $73 million for fiscal 2024 and by $71 million for 2025.
“Customer reactions to recent innovations were encouraging, as increasing availability of AI-powered solutions are expected to drive further user acquisition” and better average revenue per user, wrote the Piper Sandler analysts, who recommend buying the stock.
Even after Friday’s rally, Adobe shares remain down 12% for the year. The stock closed at $525.31.
Tempus AI, a health-care diagnostics company that uses AI to interpret medical tests to help physicians provide more accurate treatment for their patients, rose by as much as 15% in its Nasdaq Stock Market trading debut on Friday, after going public under the ticker symbol “TEM.”
Tempus AI priced 11.1 million shares at $37 apiece on Thursday, at the top of its initial $35 to $37 target range. The company raised $410 million at an implied valuation of just over $6 billion. Its early gains, if they hold, would place the company at a valuation of roughly $7 billion.
Tempus believes that AI can help guide therapy selection and treatment decisions, in conjunction with the patient’s doctor. It generated total revenue of $531.8 million in 2023 and a net loss of $214.1 million.
“We’re on a really good trajectory,” Tempus AI CEO Eric Lefkofsky said on CNBC’s “Squawk Box” Friday morning before shares started trading. “As revenues have been growing quickly, we’re not investing all that gross profit dollar growth back into the business. We’re generating improved leverage every quarter,” he said, adding that he expects the company to be both cash flow and EBITDA positive within the next year.
Tempus AI is applying some of the most heavily-funded technology concepts — artificial intelligence and data analysis — to building a better, more informed medical profession. The lack of diagnostic testing early in the Covid-19 outbreak was an example of how a system as mature as our health-care infrastructure can still be unprepared for the future.
The Chicago-based company said in its IPO filing, “we endeavor to unlock the true power of precision medicine by creating Intelligent Diagnostics through the practical application of artificial intelligence, or AI, in healthcare. Intelligent Diagnostics use AI, including generative AI, to make laboratory tests more accurate, tailored, and personal. We make tests intelligent by connecting laboratory results to a patient’s own clinical data, thereby personalizing the results.”
The two-time CNBC Disruptor 50 company’s at-home testing kit was quickly rolled out during the pandemic, but the problem Tempus is attacking is not Covid-specific. The Tempus idea came to Lefkofsky, also known for co-founding Groupon, during frustration with the health-care system after his wife received a breast cancer diagnosis. Oncology is a primary focus and the company’s genomic tests are designed to understand tumors at the molecular level and tailor treatment to individuals.
Morgan Stanley, J.P. Morgan and Allen & Company were the lead underwriters for Tempus AI’s offering.
Investors include Google, Baillie Gifford, Franklin Templeton, NEA and T. Rowe Price, according to PitchBook data.
— CNBC’s Bob Pisani contributed to this reporting.
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