1. Home
  3. How Malaysia E&E Industry Benefited from the China-US Trade War (Part 2)

How Malaysia E&E Industry Benefited from the China-US Trade War (Part 2)

How Malaysia E&E Industry Benefited from the China-US Trade War (Part 2)

By Charles F. Moreira, Editor

[Part 1 of the article can be found HERE]

According to Penang Deputy Chief Minister I, Datuk Ahmad Zakiyuddin Abdul Rahman, the state was not affected by the weakening ringgit and InvestPenang is attracting more foreign investments. However, only one company,  Osram Opto Semiconductors (Malaysia) in Penang and Kulim had offered less  than 50 of its workers at its Penang and Kulim a voluntary separation scheme (VSS).

Industry players

Taiwanese businessman Lee Hung Lung, chairman of Penang-based Hotayi Electronic, built his first factory in Penang in 1992 and today Hotayi manufactures and assembles circuit boards and other electronic products.

However my the mid-1990s, many of Hotayi’s competitors started relocating to mainland China where labour costs were cheaper, so they could afford to mount circuit boards by hand instead of using machines.

By 2007, labour costs in China were 30% cheaper than in Penang but Lee decided to stay put and survived by investing in high-end automated manufacturing, more investment in information technology and software.

However, with the trade war, the opposite is happening, with many multinationals relocating from China to tariff-free manufacturing bases in South-East Asia, particularly Vietnam, due to rising costs.

Hotayi received more enquiries from foreign firms and in 2019 it opened a new 350,000 sq ft factory worth RM1 bil (US$245 mil) in the Batu Kawan Industrial Park, which builds products for clients, including Samsung, LG and Sharp. It’s other plant is in the Bukit Tengah industrial zone. Both are on mainland Penang and employ over 1,000 workers.

Lee regards Malaysia as one of the best amongst South-East Asian countries due to semiconductor manufacturers having operated here for over 40 years, as well as the very good supply chain and talent.

Globetronics Technology Chief Executive Heng Huck Lee concurs with Lee, saying that Malaysia’s over 40 years of industrialisation in high-tech work and its reliable infrastructure sets it apart from its regional neighbours.

The company is an original equipment manufacturer, original design manufacturer and contract manufacturer of semiconductor devices, light-emitting diodes, encoders, sensors, quartz crystals, timing devices, chemicals, IDM supplies, IT solutions and services, and according to Heng, Vietnam and Indonesia are behind Malaysia in terms of having a technical workforce which can  do product development and design, and to an extent, Thailand.

Globetronics left China in 2011 as production costs rose and focused on its Malaysian operation. According to Heng, it gained over 10% extra market share in 2019 for its sensor products and was expanding production capacity.

Heng reportedly said that several of its potential clients were mainly looking at a quick transfer and start up by renting ready facility and transferring some of their existing mature operations to Malaysia.

Meanwhile, Aemulus Corp. supplies equipment to the semiconductor industry and its Chief Executive Officer Ng Sang Beng says he has fielded five to 10 times more inquiries in 2019 than the previous year  from U.S. and China-based customers that are reconfiguring their supply chains in preparation for what he predicts will be a prolonged technological Cold War where opportunities will be huge.

Another company, Inari Amertron, produces radio frequency components which are used in smartphones including Apple’s iPhones

Also, U.S. companies such as chipmaker Micron Technology and iPhone supplier Jabil Inc. are building factories in Penang and the state is urgently freeing up more land to make space for new plants.

Other companies in Penang include Qdos, which makes flexible printed circuits which it supplies to companies including Hotayi, expects to benefit from the trade war only in 2020 when some customers who cut back on inventory place new orders.

Pentamaster which manufacturer factory automation systems had completed its second production plant in Penang in 2018 and is now expanding the floor space of its first plant by another 10% to 15%. It expected to sell more to China since some companies there are barred from buying certain high-tech equipment from the U.S.

ING Asia economist Prakash Sakpal sensed that Malaysia’s relative strength lies in its move up the electronics value chain and if this is so, its outperformance should continue even in a global downturn.

COVID-19 setback

However, as the number of  COVID-19 ramped up in China in early 2020, workers in upstream suppliers to Penang’s E&E companies were sent home to slow the spread of the virus. This greatly cut their production capacity creating shortages for manufacturers in Malaysia and other countries.

Pentamaster, which had seen its quarterly revenue increase steadily from RM99.3 mil in Q1 2018 to a record high of RM125.9 mil in Q4 2019, saw that drop by about 20% to RM100.1 mil in Q1 2020, according to its Bursa Malaysia filings. Over the same period, its net profit surged from RM7.2 mil in Q1 2018 to a record high of RM22.4 mil in Q4 2019, then dropped to RM16.7 mil in Q1 2020.

The company switched to alternative suppliers in Japan, South Korea, Germany and Italy but they faced the same problem too, since they also relied on Chinese suppliers too, according to Pentamaster Executive Chairman Chuah Choon Bin, and this predicament impacted other electronic manufactures across Penang.

Despite the pandemic being contained fairly quickly in China and manufacturing activities resumed, however Pentamaster’s revenue only recovered to RM105.4 mil in Q3 2020 and its net profit rose to RM17 mil in Q2 2020 and dropped back to RM15 mil in Q3 2020.

On the other hand, Inari-Amerton’s quarterly revenue dropped from RMRM265.4 mil in December 2019 to RM242.5 mil in March 2020 and down further to RM233.3 mil in June 2020, then jumped up to RM347.6 mil in September 2020. Over the same period, its quarterly net profit dropped from RM37.4 mil in December 2019 to RM35 mil in March 2020 and rose to an historic high of RM70 mil in September 2020.

Globetronics’ quarterly revenue went from RM44 mil in March 2019 to RM58.9 mil in December 2019, down to RM44.9 mil in June 2020, then up to RM65.5 mil in September 2020. It’s quarterly net profit went from RM3 mil in March 2019 to RM18.9 mil in September 2019, then down RM10.8 mil in March 2020 and down further to RM5 mil in June 2020, then up to RM18 mil in September 2020.

Penang accounts for about 8% of global back-end semiconductor output and inbound investments reached an historic high in 2019 but in 2020, the goal is about one-third of that or about US$1.2 bil, though this is due to the lifecycle of investments rather than the virus, according to the Penang state government.

The Biden question

With Democrat Joe Biden almost certain to be inaugurated U.S. President on 20 January 2021, many people are wondering whether he would end the U.S. – China trade war and revert to more amicable relations between the U.S. and China.

A Trump supporter has gone so far as to dub the future president “Beijing Biden”, whilst others on the left and right allege that Silicon Valley companies backed the Democrat Party and Biden in his bid for president.

True or not, the trade war is a double-edged sword which hurts both China and U.S. companies. For instance restrictions on U.S. companies from supplying chips, software and services to Chinese equipment and device manufactures such as Huawei not only hurts Chinese companies but also cuts  U.S. companies such as Qualcomm, Intel, AMD and others from their Chinese customers in a lose-lose trade war.

Biden reportedly had said that he would not end all tariffs on Chinese imports right away, so it could be assumed that he could scale back the tariffs in stages, wresting concessions from China along the way.

So if Biden scales back the trade war eventually and U.S. – China relations revert to what they were before the trade war, would the bonanza which benefited manufacturers in Malaysia, Penang and our neighbouring Asian countries continue or will the situation revert to what it was before?

Let’s wait and see.




Enquiries at EnterpriseTV.my@gmail.com