How ‘Friendshoring’ Made Southeast Asia Pivotal to the AI Revolution

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How ‘Friendshoring’ Made Southeast Asia Pivotal to the AI Revolution
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Thanks in part to 'friendshoring,' Malaysia now rivals South Korea and Silicon Valley as a semiconductor powerhouse amid the AI boom.

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mployees entering Intel’s advanced PG8 foundry on the Malaysian island of Penang must take elaborate safety precautions. Not that they’re the ones at risk.

As a part of this drive, Intel is investing $7 billion in new facilities in Penang, including an advanced packaging site codenamed “pelican” for transformative “3D” semiconductors—which stack chips on top of each other to boost performance—set to open early next year. As semiconductors chips themselves have exponentially advanced, so has the complexity of the backend work necessary for their deployment.

Yet geopolitics continues to bubble in the background and many wonder for how long nations like Malaysia can play all sides, with some industry groups fearing the U.S. could start restricting products and equipment built in Malaysia by locally based Chinese companies. It’s a delicate balance; while the U.S. is the top source of FDI to Malaysia, China has been its largest trading partner for 15 consecutive years.

However, at present Taiwan produces over 90% of the most advanced semiconductor nodes and China’s repeated threats to invade the self-governing island is a cause of significant anxiety. In response, the 2022 U.S. CHIPS and Science Act allocated $39 billion to semiconductor manufacturers to subsidize the opening of American foundries, including nearly $28 billion shared between Intel, TSMC, Samsung, and Micron, alone.

“It's a really amazing semiconductor ecosystem they've developed specifically in Penang,” says Peter Hanbury, a semiconductor specialist at the Bain & Co. consulting firm. “It has all the different semiconductor players, their manufacturers, tool vendors, and assembly tests.” “The ‘talent war’ is not only faced by Malaysia but is actually across this region,” says AK Chong, Intel vice-president of foundry manufacturing and supply chain. “We face strong competition not only locally and also externally.”

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