Semiconductor firms tread cautiously

THE potential 25% tariff imposed by the US government is of significant concern for Malaysian semiconductor companies.

These firms, which are crucial to the global supply chain, contributed RM575bil in exports in 2024. Industry players are now navigating this uncertainty with heightened caution.

At the Asean Semiconductor Summit 2025 this week, one industry attendee noted that “it is hard to plan and execute capital expenditure (capex) when the tariff landscape changes almost daily – it is the biggest headache for everyone right now.”

QES Group Bhd managing director and president Chew Ne Weng tells StarBiz 7 that many firms are pausing expansion plans or deferring new investments.

“Most players are delaying capacity expansion or activating completed plants as they wait for the dust to settle on the tariff front,” he says.

There is uncertainty as to whether current tariff exemptions in the semiconductor sector will still apply after Aug 1 – the latest US regulatory deadline for its new tariffs on global exports, including from Malaysia.

Meanwhile, the United States is considering additional sectoral tariffs on semiconductors pending the outcome of its ongoing Section 232 investigation.

That said, Chew believes companies should take advantage of the current lull to build capacity, so that they will not be scrambling to keep up when demand recovers.

QES’ advanced manufacturing and technology facility at Batu Kawan Industrial Park, Penang, is ready, but commercial operations and full capacity ramp-up have been strategically paced to start around August or September in response to current market demand.

“Our strategy has always been to build first and worry about loading later. The second half of 2025 (2H25) was initially expected to be the sector’s boom period, but now I believe things will start to pick up again in 1H26,” he says.

Chew adds that the earlier frontloading of inventory may give way to a restocking cycle and that “it will not stay quiet for too long”.

“When companies start rebuilding inventories, it could spark a recovery by the end of the third quarter of 2025 (3Q25) and 4Q25.

“Hopefully, by then, things will start to progress more steadily to set up 2026 as the sector’s next upcycle,” he says.

The same holds true for Mi Technovation Bhd, which is also pressing ahead with its investment plans

The group is principally involved in the sale of semiconductor equipment and materials.

Mi Technovation founder and group chief executive officer Oh Kuang Eng says the recent trade and tariff development “does not affect” the group’s investment priorities.

He adds that unlike peers who are delaying investments, “technically strong and healthy companies like Taiwan Semiconductor Manufacturing Co Ltd, Nvidia Corp and Broadcom Inc” accelerated capex, particularly in the advanced packaging space where Mi Technovation operates.

“We are still advancing our plans based on our five-year roadmap. The group achieved a critical milestone in June 2025. Our production line in Hangzhou, China completed its power module prototype.

“This positions us to capture the growing demand for energy-efficient power solutions in the automotive and industrial markets,” he says.

In 1Q25, Taiwan was Mi Technovation’s biggest market, making up more than one-third of its revenue. This was followed by China at 30%. South-East Asia and India contributed 25.6% of the group’s revenue, while South Korea, Japan, the United States and others accounted for the remaining 8.6%.

Austrian circuit board maker AT&S Austria Technologie & Systemtechnik is also staying the course with its investment plans in Malaysia. The company has a high-end integrated circuit (IC) substrate plant in Kulim Hi-Tech Park, Kedah, and recently secured a US$150mil (RM638.18mil) sustainability-linked loan from Malayan Banking Bhd to support its operations there.

AT&S corporate communications vice-president Gerald Reischl says the group remains “fully focused” on ramping up operations in Kulim and its Hinterberg 3 manufacturing and research facility in Leoben-Hinterberg, Austria.

“Diversification was already underway prior to recent tariff developments, so current investment priorities remain unchanged,” he says.

Gerald says the group remains confident in the market’s long-term momentum even though current geopolitical tensions have introduced some headwinds. Though customers’ orders have been “affected by various factors during the last years”, AT&S saw minimal effects in the early phase of the tariff announcements.

“The technology sector continues to evolve rapidly. We are already seeing signs of normalisation. These effects (headwinds from geopolitical tensions) are only of minor relevance for our business,” he says.

UOB Kay Hian Wealth Advisors head of investment research Mohd Sedek Jantan says the chip industry is expected to stay fluid in 2H25, influenced by global uncertainties.

He opines the risks in Malaysia’s semiconductor sector are “not yet fully priced in”.

“While certain market and policy concerns have been reflected in valuations, several emerging and persistent risks – particularly related to trade policy, regulatory developments and supply chain dynamics – remain underappreciated by investors,” Mohd Sedek explains.

He says should tariff disputes persist, multinational corporations could delay capex spending, slowing replenishment of order books for Malaysian players in automated test equipment and factory automation.

“Similarly, inconclusive tariff negotiations may lengthen customer decision-making cycles in the electronic manufacturing services sector,” says Mohd Sedek.

Nonetheless, he maintains that Malaysia’s track record of trade compliance and regulatory alignment positions its firms well for long-term partnerships, particularly as global supply chains continue to diversify.

“Technology remains a core investment theme for 2H25, alongside housing, property, data centre infrastructure and logistics,” he says.

According to Mohd Sedek, a gradual recovery in global capex cycles is anticipated, positioning Malaysia as a potential beneficiary of supply chain diversification.

“Multinationals seeking alternatives to traditional manufacturing hubs may increasingly view Malaysia’s established semiconductor ecosystem as a reliable destination for incremental orders and strategic partnerships,” he says.