“They have to pay”: Malaysian tip crunches create a new era of supply trading

File Photo: Workers inspect chips at the Unisem (M) Berhad factory in Ipoh, Malaysia, on October 15, 2021. REUTERS / Lim Huey Teng

October 20, 2021

Liz Lee

Kuala Lumpur (Reuters) – Malaysian electronics company, the center of supply of the basic chips that drive the world’s cars, smartphones and home devices, knocks on doors to contain long-term take-or-pay transactions by well-known customers Say you’re – you can pay more if you want.

Manufacturers are rushing to replenish their depleted chip inventories during the suppression of the coronavirus pandemic plant-especially automakers who previously canceled their orders in anticipation of low demand. Its chip shortage has blamed their production and is still disrupting the supply chain, just as consumer demand increases with the global relaxation of COVID restrictions in everyday life.

At factories in Malaysia, operators like chip packaging company Unisem are leading buyers for drives to sell chips to auto and electronic equipment manufacturers, demanding as many assembled chips as the factory can produce. There are even things. At any cost.

However, Malaysia’s chip assembly industry, which accounts for more than one-tenth of world trade of more than $ 20 billion, favors high-end semiconductors, but is exacerbated by years of underinvestment in basic chip production. Warns that at least two will continue. Year.

Companies need to marry the need to increase production to avoid COVID-19 infections in factories that can cause a complete shutdown.

“The shortage is very real,” said Unisem Chairman John Chia. “The (client’s) CEO escalating the problem directly to me shows that this is a serious problem … now they want to talk to me directly,” he told Reuters. ..

Chia refused to provide the name of the client requesting as much supply as possible. Unisem’s customers include suppliers to global automakers and electronics companies such as Apple.

He said China’s Chengdu plant will be booked throughout next year due to so strong demand that it will take months to close backlogs for some auto parts.

According to market research firm Yole Development, the pre-pandemic global outsourced chip assembly and testing industry is estimated to be worth about $ 23 billion and will grow to $ 30 billion by 2022.

Taiwan is the largest service provider with more than 50% of the market share, followed by China, the United States and Malaysia. The latter includes suppliers and factories servicing chip makers such as STMicroelectronics and Infineon, as well as automakers such as Toyota Motor Corp, Ford Motor Co and General Motors.

Wong Shu Hai, chairman of the Malaysian Semiconductor Industry Association, warns that the shortage is likely to continue for years. According to Wong, some customers are ordering more supplies than they need, but long-term contracts of one to three years are now the norm in the new industry.

“It will take at least two to three years to meet demand,” Wong told Reuters.

Shutdown of the generator

Companies like Unisem are on the rise. However, with a market value of approximately $ 1.6 billion, Unisem is still operating only 80% of its capacity to reduce the risk of outbreaks on the factory floor, which could lead to a factory-wide shutdown.

Currently, 98% of staff are fully vaccinated, but factory outbreaks and national blockade orders have forced the temporary closure of the Ipoh factory in northwestern Malaysia twice from June. .. Some automakers and semiconductor companies say the pandemic-related turmoil in Malaysia has hit the supply chain.

GM CEO Mary Barra explained to Fox Business earlier this month. In Malaysia, it was greatly influenced by COVID. “

For Malaysian semiconductor output and export figures:

The gradual launch at Unisem is consistent with the launches of many other peers.

Globetronics Technology, which manufactures optical sensors, light-emitting diodes and integrated circuits for Apple, Samsung Electronics, German automakers and others, operates 90% of the factory’s production capacity, despite surges in orders. We are also concerned about rising costs.

“We had to adapt and pay attention to the well-being of our workers during the blockade, including providing different types of incentives such as cash to keep our employees motivated and productive,” said Business and Operations. Heng Charng Yee, vice president in charge, told Reuters.

For example, the Malaysian government’s strict work rules, which require frequent swab inspections and staff limits, also add to cost pressure, she said.

“They have to pay”

Investors and analysts have invested billions of dollars in big names like Samsung and TSMC to develop more powerful and expensive ones, so this shortfall is in technology to make older generation chips at a cost of less than $ 1. It is also the result of a lack of investment. -End tip.

“We always consider these back-end semiconductors to be low-margin businesses, but suddenly we’ve added 5-10% pricing power,” said Principal Asset Management Bhd, the best in the ASEAN region. Patrick Chan, Chief Investment Officer, said.

In response to this demand, Unisem is expanding its factories in Malaysia and China. It will be up and running in 12 to 15 months.

“We are cautious,” said Chia. “We have been hit in blue and black before, do you remember the era of dotcom?”

“We now tell them (customers) to sign up for at least 70% of their expectations (volume). Even if they don’t give me that full amount, they still have to pay.”

(Report by Liz Lee, edited by Mi-yeon Kim and Kenneth Maxwell)

“They have to pay”: Malaysian tip crunches create a new era of supply trading

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