Malaysia emerges as a hotspot for semiconductor firms amid U.S.-China chip tensions

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