Malaysia chip crunch

Malaysia chip crunch triggers new era in supply deals

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Key Highlights:

  • The chip scarcity has hampered business manufacturing and continues to disrupt supply chains.
  • Malaysia’s chip assembly sector predicts that chip shortages would persist at least two years.
  • According to market research company Yole Development, the world’s outsourced chip assembly and test business was projected to be valued approximately $23 billion prior to the pandemic

Chip shortage hampering businesses

Malaysian electronics businesses essential to the supply of fundamental chips that power the world’s automobiles, cellphones, and home gadgets say big-name clients are pounding on their doors to lock in longer-term take-or-pay arrangements – and are willing to pay more if necessary.

Manufacturers are scrambling to refill chip inventories depleted during the coronavirus pandemic manufacturing shutdowns, including automakers that had already canceled orders due to low demand. The chip scarcity has hampered business manufacturing and continues to disrupt supply chains, precisely as consumer demand rises in tandem with a global relaxation of COVID-19 limitations in everyday life.

At Malaysian factories, operators such as chip packaging firm Unisem say that drive is causing buyers who sell chips to auto and electronics manufacturers to be willing to sign up for significant price increases, with some even demanding as many assembled chips as plants can produce – whatever the cost.

However, Malaysia’s chip assembly sector, which accounts for more than a tenth of world commerce worth more than $20 billion, predicts that shortages would persist at least two years, compounded by years of underinvestment in fundamental chip production while high-end semiconductors were preferred.

Firms must balance the need to scale up production with the need to avoid COVID-19 infections in factories, which might result in factory shutdowns.

Chia refused to disclose names of clients who had requested as much supply as they can get their hands on. Customers of Unisem include multinational automakers and electronics companies such as Apple.

He claims that demand is so strong that its Chengdu factory in China is fully booked for the rest of the year – and that clearing backlogs for some car components would take months.

Shortage to persist for two years

According to market research company Yole Development, the world’s outsourced chip assembly and test business were projected to be valued at approximately $23 billion prior to the pandemic, and it is expected to increase to $30 billion by 2022.

Taiwan is the largest service provider, accounting for more than half of the market, followed by China, the United States, and Malaysia. The latter is home to suppliers and facilities that serve chipmakers such as STMicroelectronics and Infineon, as well as automakers such as Toyota Motor Corp, Ford Motor Co., and General Motors.

The Malaysia Semiconductor Industry Association’s President, Wong Siew Hai, warns that the shortage would likely persist for years. According to Wong, some clients are purchasing more than they need to lock in supply, while long-term contracts ranging from one to three years have now become the new industry norm.

Also Read: Digi Telecommunications Supporting VR Tourism at Malaysian Airport through 5G

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West has been driving the business world owing to its developed economies. The leading part of the world is straining to sustain its dominance. However, the other parts of the world, especially Asia Pacific region have been displaying escalating growth in terms of business and technological advancements.

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