The Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS Act), signed into law by U.S. President Joe Biden on August 9, 2022, is designed to boost US competitiveness, innovation, and national security.
The law aims to catalyse investments in domestic semiconductor manufacturing capacity. It also seeks to jump-start R&D and commercialisation of leading-edge technologies, such as quantum computing, AI, clean energy, and nanotechnology, and create new regional high-tech hubs and a bigger, more inclusive science, technology, engineering, and math (STEM) workforce.
Now in force, political commentators see the Act as aa means to curb the growth of the semiconductors industry from rival nations. Or at least, its sets barriers.
Maybe then there is some truth in what Distinguished Fellow of the Asia Research Institute at the National University of Singapore and former President of the United Nations Security Council Kishore Mahbubani in his writings lamented in that direct confrontation between US and China would not be on the battlefield. It will be on other areas, especially on the part of mastery of technology.
BusinessToday spoke to Powerwell Holdings Berhad Managing Director Jason Tham recently on the impact and challenges faced in the production of semiconductors while understanding the strategies involved within the industry.
BT: What impact has the war in the Ukraine had on the production of semiconductors?
Jason: The war between Russia and Ukraine has the potential to intensify semiconductor supply chain issues and the chip shortage that has impacted the industry for the past two years. The supply of specific raw materials used in semiconductor manufacturing, such as neon and palladium, is the most immediate risk.
Shares in Asian semiconductor makers and suppliers are likely to further lose appeal among investors. Asian chipmakers, including Malaysia, are sandwiched between rising geopolitical tension between the two economic behemoths.
Since the announcement on Oct 7 by the US Department of Commerce to restrict semiconductor exports to China, the Bursa Malaysia Technology Index (KLTEC) fell 5.96%. The consumer will also bear the immediate impact because of this. As end-consumers, we should expect to see a rise in the prices of consumer electronics goods in case of extended tensions. The global semiconductor ecosystem must be prepared in the coming months. We may even see another chip supply shortage in the near future if this issue escalates into something big.
BT: Can it be said that the rivalry between US and China also means that the semiconductor industry has been used by the superpowers to define the next phase of their ‘mastery in technology’. And when we talk about semiconductors, we can’t leave out Taiwan as being the world’s largest producer. How do you view the Taiwan Strait crisis, in terms of how it has impacted business in Malaysia as well as the global landscape?
Jason: The Taiwan strait crisis certainly has impacted and caused disruption to the global supply chain of semiconductors and the electronics industries. Whilst Malaysia and the SEA region has always been a “backup” location for the all semiconductor companies to setup a second plant outside of Taiwan and China.
Malaysia has the right ecosystem and talent to produce semiconductors. Location here is an advantage to meet demands of the global supply chain. It’s very beneficial to such companies and the government must continue to implement beneficial policies for investors to setup their alternate plants in Malaysia. As a Southeast Asia’s semiconductor hub, Malaysia is still open to greater investments from chip players around the world, to complete its ecosystem. The country’s E&E industry in the first quarter of this year alone, contributed over RM19 billion with 13,700 new job opportunities.
BT: How would moves by players like the Taiwan Semiconductor Manufacturing Company Limited (TSMC), a Taiwanese multinational semiconductor contract manufacturing and design company, and Hon Hai Precision Industry, the world’s largest contract manufacturing company, be impacted by this rivalry? Some say that they are forced to set up manufacturing plants in the US and this move would hurt their fundamentals badly. What would you foresee?
Jason: Semiconductor players both domestic and foreign, are incentivised to establish more facilities on home ground soil, and many are doing so rather than TSMC. They will almost certainly need to find an intermediate and long-term solution. Setting up a plant in the US, while maintaining a presence in Asia, does not appear feasible. Alternatively, finding a middle region that can meet all supply chain criteria, such as Southeast Asia will be the best option and it can be an alternate partner as for the regions location. The future looks promising provided government initiatives provide stability.
BT: What then would be the latest semiconductor landscape and opportunities which Malaysia can tap into?
Jason: It is notable that Malaysia’s semiconductor industry has been on a positive trajectory after US President Joe Biden signed the CHIPS Act as it commits over US$280 billion in federal funding to support semiconductor production and research in the US.
Malaysia Semiconductor Industry Association (MSIA) president Datuk Seri Wong Siew Hai believed that with the US expecting to build state-of-the-art chip fabrication (fab) plants, they will need more assembly and testing services, as the current capacity will not be enough to cater to the new fab capacity. From that perspective, Malaysia would benefit because the country is still one of the most attractive and competitive places for investment compared with other Southeast Asian countries. With the more recent US-China rivalry slowdown, I doubt it will put much of a dent for Malaysia.
BT: Share with us your upcoming plans and outlook to continuously strengthen your position in the market.
Jason: As we have reported positive earnings for two consecutive quarters, we are optimistic of the Group’s outlook. The earnings visibility will ensure good earnings into the medium term at least. We have managed to improve our annual replenishment order book. This will support the sustainability of our Group and bolster our earnings. As comparison, the replenishment order book for FPE2021 and FYE2022 were RM96 million and RM125 million respectively. Year-to-date FYE2023, the replenishment currently stands at RM135 million as of 31 August 2022.
Our optimism is also backed by several factors such as, firstly, for the Malaysian market, Bank Negara Malaysia’s findings in its latest annual report stated that the construction industry is set to rebound with a 6.1% growth in 2022, which will benefit our business.
Secondly, we see strong demand for our products in Bangladesh due to the supportive policy of the government. Bangladesh aims to generate more than 4,100 megawatts of electricity from renewable energy sources and to build 12 solar projects, with an investment cost of RM729.1 million by 2030.
Thirdly, the Indonesian market has started to show recovery from the pandemic. The Indonesian government has allocated over RM116 billion for the infrastructure sector in 2022, where we expect our sales in Indonesia to contribute to the Group, going forward, and fourthly, according to the ASEAN Centre for Energy, demand for electricity in Southeast Asia will triple from 2022 to 2050, this offers us an opportunity to expand our business given the demand for our solutions from both conventional and renewable energy generation segments in the region.
Moving forward, the group will continue to strengthen our core businesses, expand our business overseas and to focus on growing industries such as Semiconductor, Data Centres and renewable energy. The group’s operations has seen an increase in its manufacturing capacity with newly acquired equipment and machinery which is certain to improve operational efficiency with the integration of enterprise resources planning and data management systems.
In addition, the rapid acceleration of climate change has made it imperative for the group to focus on key drivers to integrate ESG in every aspect to build a sustainable business which creates long term value. The group has defined a corporate sustainability goal in-line with current environmental and economic challenges especially with the need for global transition to a low-carbon economy as a prime example of this disruption. Powerwell has laid its roadmap to embrace sustainable operations and explore business opportunities in green technology, Industry Revolution 4.0 and digitalisation.
We believe with these business and operational strategies in place, it brings confidence to the shareholders with a positive future.
The Powerwell Group, is a specialist in the design, manufacturing and trading of electricity distribution products with over 25 years of experience in supplying its products for both local and international projects. All of the Group’s LV switchboards and MV switchgears are customised equipment that are tailored to the needs of a building or an infrastructure. Today, Powerwell is a Global presence company continue to develop and innovates power solutions to our client worldwide.