'They'll have to pay': The chip shortage in Malaysia has ushered in a new era in supply agreements

[ASEAN NOW Content Team]

 

Big-name clients are pounding on their doors to lock in take-or-pay, longer-term arrangements - and are willing to pay more if necessary, according to Malaysian electronics manufacturers vital to the supply of basic chips that control the world's cars, smartphones, and home devices.

Manufacturers are scrambling to refill chip stockpiles depleted as a result of plant shutdowns caused by the coronavirus epidemic, including automakers that had already cancelled orders due to low demand.

The chip shortfall has slowed their output and continues to disrupt supply chains, particularly as consumer demand rises in tandem with a global relaxation of COVID limits in daily life.

 

Buyers who sell chips to auto and electronics manufacturers in Malaysia, according to operators like chip packaging business Unisem, are eager to sign up for large price hikes, with some even demanding as many completed chips as plants can create - whatever the cost.

However, Malaysia's chip assembly business, which accounts for more than a tenth of a global trade worth more than US$20 billion, warns that shortages would continue at least two years, compounded by years of under-investment in basic chip production while high-end semiconductors were preferred.

 

Firms must balance the desire to increase output with the need to avoid COVID-19 infections in factories, which could result in factory closures.

"The shortage is really genuine," Unisem Chairman John Chia remarked.
"The fact that CEOs (of our clients) have escalated their problems to me directly demonstrates that this is a significant matter... now they want to talk to me personally," he told Reuters.

Chia refused to name clients who had asked for as much supplies as they can get their hands on.
Suppliers to worldwide automakers and electronics companies such as Apple are among Unisem's clients.

 

He said that demand is so strong that the company's Chengdu facility in China is fully booked for the rest of the year, and that clearing backlogs for some automobile components will take months.

According to market research firm Yole Development, the world's outsourced chip assembly and test sector was worth roughly US$23 billion before to the pandemic and is expected to expand to US$30 billion in 2022.

 

With more than 50% of the market, Taiwan is the largest service provider, followed by China, the United States, and Malaysia.
Suppliers and factories for chipmakers like STMicroelectronics and Infineon, as well as carmakers like Toyota Motor Corp, Ford Motor Co, and General Motors, may be found in the latter.

 

The Malaysia Semiconductor Industry Association's President, Wong Siew Hai, warns that the shortage will endure for years.
Long-term contracts ranging from one to three years have now become the industry norm, according to Wong. Some clients are ordering more than they need to lock in supplies.

"It will take at least two to three years for capacity to match demand," Wong told Reuters.