This article first appeared in The Edge Malaysia Weekly on May 25, 2020 - May 31, 2020
TAIWAN Semiconductor Manufacturing Co Ltd (TSMC), the world’s biggest contract chipmaker, unveiled on May 15 its plan to build a US$12 billion (RM52.2 billion) chip manufacturing plant in Arizona, a Southwest state in the US.
Interestingly, the announcement was made just hours before Washington outlined a proposal to amend tech export rules that could restrict TSMC’s chip sales to China’s Huawei Technologies Co Ltd, which is the Taiwanese semiconductor foundry’s second largest client behind only the US tech giant Apple Inc.
Meanwhile, China will invest an estimated RMB10 trillion (RM6.1 trillion) over six years to 2025 as part of efforts to overtake the US in tech. Beijing is calling on urban governments and private hi-tech giants such as Huawei to help lay 5G wireless networks, install cameras and sensors, and develop artificial intelligence software that will underpin technologies ranging from autonomous driving to automated factories and mass surveillance.
It has been reported that the new infrastructure initiative is expected to give local giants such as Alibaba Group Holding, Huawei and Chinese AI giant SenseTime a boost at the expense of American companies, as China ups the ante in its standoff with the US for the global leadership in key technologies.
Given the intensified trade war and accelerated decoupling between the US and China, Electrical and Electronics Productivity Nexus (EEPN) chairman Datuk Seri Wong Siew Hai believes globalisation is likely to be a thing of the past. In the years to come, it will all be about regionalisation or localisation.
“The way I see it, the world is going to be divided into two. Soon, we will no longer have a global supply chain. All businesses will have to find their own new supply chains in the region or in their respective countries,” he tells The Edge.
While some companies from certain regions may need to choose between the US or China, Wong says Malaysian companies will continue to benefit from the trade war due to the relocation of factories outside China.
“Factory relocation will continue to happen and Malaysia has to capture these opportunities. But we need to re-strategise our position carefully, and we have to strike a balance between the US and China because both countries are equally important to us,” he stresses.
Globetronics Technology Bhd CEO Datuk Heng Huck Lee believes the China-US decoupling will have minimal impact on Malaysian semiconductor and electrical and electronics (E&E) players.
“I think some Malaysian companies may actually benefit, as the Chinese may start to explore the possibilities of working with our companies for certain tools that they used to purchase from the US,” he says.
As far as the local outsourced semiconductor assembly and test (OSAT) players are concerned, Heng says the impact to each company will vary as it will depend on the type of product they are producing now.
“We (Globetronics) only have one new customer supplying to Huawei and when we asked for an update on Monday, we were told that there is no change to them as they already received the first-round clearance from the US government,” he explains.
Capture the growing segment
EEPN’s Wong points out that there has been a major shift in the market due to the Covid-19 pandemic and the Movement Control Order (MCO) in Malaysia, which is estimated to have caused cumulative losses — in the E&E industry alone — of RM7.28 billion to the country’s gross domestic product (GDP) and RM29.12 billion to total exports.
“People are working from home and practising social distancing. Everything needs to go digital and contactless. The less you meet people, the better. These are changes that are happening,” he says.
Overall, the medical and healthcare-related sector is booming, hence the higher demand for medical equipment, test equipment and ventilators. Meanwhile, due to the new way of working, cloud applications, memory and bandwidth will take off faster than ever. “Anything that has something to do with these areas will see an increase in volume. Automotive and aerospace will be affected, so we will probably see less demand for electronics, entertainment and car management systems; it will take some time to recover,” he says.
Wong highlights that tech companies that are supporting the booming industries under the new normal will do well. Although the demand for smartphones and smart devices is likely to be impacted this year, it will rebound quickly as we enter the new era of a touchless and cashless economy.
“Overall, the trend for the semiconductor industry is down, but the question is, can we capture the market share of the segment that is still growing? If you can switch your focus to the booming sector, then you can at least mitigate the impact of your exposure to other sectors that are not doing well. It will make a lot of difference,” he says.
Therefore, Wong urges industry players to re-evaluate and rethink their business models.
“If you are affected by the Covid-19 outbreak, you need to think faster. If you are not affected, you can try to gain more business. You have to be innovative. You need to reposition yourself. The opportunities are going to be there. You need to be ready and not miss the boat. Don’t cry now. Prepare yourself, get ready for next year,” he says.
Invest-in-Penang Bhd (InvestPenang) CEO Datuk Loo Lee Lian concurs that Covid-19 has prompted corporates to rethink strategies for their operations’ geographical footprints due to the structural shifts in consumer behaviour, industrial needs and geopolitics. For instance, Covid-19 has created new norms and key changes include a surge in the adoption of e-commerce and broader acceptance of the work-from-home model.
“The outlook within the tech and semiconductor sub-segments is expected to be varied. The growth quantum among the sub-segments will be significantly different this year as a result of the Covid-19 pandemic that created a different set of demands,” she says.
Over the past 50 years, says Loo, Penang’s industrialisation has been sustained and grown despite recessions and crises. Nevertheless, companies’ ability to weather the storm is only possible through continuous evolvement, adaptation and agility.
“InvestPenang had been advocating that the industry increase the level of automation, adopt Industry 4.0 in their operations and upgrade IT infrastructure over the years. The current pandemic has further strengthened the importance of companies embracing digitalisation,” she says.
Going forward, says Loo, Penang will continue to focus on attracting investments in its niche areas — medical technology, high-value E&E and equipment manufacturing — with emphasis on sustainability, the right technology and products that are in line with global technology megatrends.
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