Malaysia chip crunch triggers new era in supply deals

KUALA LUMPUR - Malaysian electronics firms central to the supply of basic chips that drive the world's cars, smartphones and home devices say big-name customers are beating on their doors to lock in take-or-pay, longer-term deals - and happy to pay more if need be.

But Malaysia's chip assembly industry, accounting for more than a tenth of a global trade worth over $20 billion, warns that shortages - exacerbated by years of under-investment in basic chip production, while high-end semiconductors were favoured - will last at least two years. Chia declined to provide names of clients requesting as much supply as they can get their hands on. Unisem's customers include suppliers to global carmakers and electronics firms like Apple.

Taiwan is the biggest service provider with more than 50 percent of market share, followed by China, the United States and then Malaysia. The latter is home to suppliers and factories serving chipmakers such as STMicroelectronics and Infineon , and carmakers including Toyota Motor Corp, Ford Motor Co and General Motors.

While 98 percent of its staff are now fully vaccinated, it has been forced to temporarily shut down its Ipoh plant, in northwestern Malaysia, twice since June due to an outbreak in the factory and a national lockdown order. Several automakers and semiconductor companies have said pandemic-related disruption in Malaysia has hit supply chains.

The Malaysian government's stringent workplace rules, requiring frequent swab tests and limits on staff numbers, for example, have also added cost pressure, she said.Investors and analysts say the shortage is also the fruit of under-investment in technology to make older-generation chips that can cost less than $1, widely used in auto industry, as heavyweights such as Samsung and TSMC plowed billions into developing more powerful, high-end chips.

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