Semiconductor Industry Update - April 4th, 2025

Malaysia Tightens Chip Regulations and EU Firms Call for Stronger Chips Act – April 4th, 2025

As nations scramble to secure their positions in the semiconductor supply chain amid rising geopolitical pressures and escalating demand, two recent developments are of particular interest. Malaysia, a critical long-time player in the industry, is tightening its chip regulations in response to heightened pressure from the U.S., a move which carries significant implications for the global supply chain.  

At the same time, leading chipmakers in Europe are urging lawmakers to strengthen the EU Chips Act. They warn that without more funding and streamlined execution, Europe risks falling behind in semiconductor production and innovation.  

Together, these moves illustrate a broader shift toward greater oversight throughout the industry. Chipmakers worldwide are grappling with a new era—one where regulatory compliance and government incentives are no longer peripheral, but central to staying competitive.  

Malaysia Tightens Semiconductor Regulations Under U.S. Pressure

Long seen as a cost-effective hub for backend chip manufacturing, Malaysia now finds itself at the center of turbulent geopolitical currents. Facing mounting pressure from the United States, it is moving to tighten industry regulations in a move that could reshape operational dynamics for chipmakers across Southeast Asia.  

According to a recent Financial Times report, the U.S. government has urged Malaysian authorities to bolster oversight of its semiconductor manufacturing and exports, citing concerns over the movement of high-end Nvidia chips used in artificial intelligence (AI) development ending up in China.  

Malaysian Trade Minister Zafrul Aziz said in a statement to Reuters, “They [the U.S.] want us to make sure that servers end up in the data centres that they’re supposed to and not suddenly move to another ship.”  

This comes as authorities in Malaysia are investigating a shipment of servers linked to a case in which Singapore-based firms are accused of supplying $390 million in U.S. equipment to Malaysia. The case reportedly involves the transfer of Nvidia AI chips to China’s DeepSeek.  

The crackdown on oversight comes as part of the U.S. administration’s broader strategy of imposing strict levels of control across the chip supply chain.  

Malaysia is a vital global node in chip assembly, testing, and packaging, and companies like Infineon, Intel, and Texas Instruments have operated in the country for decades. However, historical advantages like its skilled workforce and relatively favorable cost structures are increasingly under scrutiny. If Malaysia is to maintain its position in the semiconductor industry, it must show compliance with expectations set by Western trade partners.

For chip firms operating in or sourcing from Malaysia, this regulatory scrutiny could carry significant implications. Stricter oversight may lead to higher costs, longer lead times, and changes to operational protocols, particularly in facilities handling advanced chips destined for sensitive applications like AI or defense.  

In the light of these happenings, semiconductor firms should thoroughly assess their supply chains and exposure to Malaysian operations. This includes evaluating potential bottlenecks in chip production and preparing contingency plans should operations be disrupted. Chipmakers may need to consider diversifying packaging and testing across other Southeast Asian countries to mitigate the risk of interruption.  

Malaysia, meanwhile, must carefully toe the line of offering competitive advantages and complying with regulations while maintaining confidence in its chip sector. Doing so while satisfying incongruent geopolitical expectations will be a significant challenge in the months to come.  

Semiconductor Firms Call for Stronger EU Chips Act  

European chipmakers including NXP, STMicroelectronics, Infineon, and Bosch, have called on lawmakers to bolster the EU Chips Act after an industry roundtable in Brussels. They argue the current framework lacks the financial firepower and policy cohesion to secure the region’s independent chip capabilities.  

As international competition escalates—fueled by U.S. subsidies, China’s massive state-led investments, and geopolitical reshuffling—industry leaders in Europe warn that without a stronger legislative backbone, the EU risks falling further behind in a market that is rapidly becoming critical to economic and national security.

Introduced in 2022, the EU Chips Act was conceived as a strategic response to shore up vulnerabilities exposed during the post-pandemic global chip shortage. By injecting funding and enhancing research capabilities, the legislation sought to strengthen Europe’s semiconductor industry and domestic production. While it was lauded as a step toward technological independence, leading European chipmakers now argue it lacks the scale, clarity, and urgency to meet the growing demands of an industry dominated by AI and advanced industrial applications.

Funding lies at the heart of the criticism. Many chipmakers and equipment manufacturers believe the EU Chips Act falls short of matching the incentives seen in the U.S. CHIPS and Science Act or similar programs in China. More than a dozen firms now point to slow-moving disbursements, fragmented implementation, and bureaucratic red tape as hindrances to achieving the goals set out in the original legislation.  

Their call for reform comes as advanced technologies, including AI and quantum computing, are pushing semiconductor performance requirements to new thresholds. Many European firms are critical to these innovations, yet their ability to lead on the global stage could diminish without stronger regulatory and financial scaffolding. The EU’s current reliance on non-European fabs for logic and advanced node chip production underscores its strategic vulnerability.  

While the EU Chips Act was a necessary first step, leading firms are now calling for a “Chips Act 2.0” to support the next era of innovation. Following the meeting, industry groups ESIA and SEMI Europe pledged to push European Commission digital chief Henna Virkkunen for fresh legislation.  

In a statement, SEMI said the new program should “decisively support semiconductor design and manufacturing, R&D, materials and equipment.”  

In the meantime, continued advocacy is essential for semiconductor companies in the EU. Stronger provisions in the EU Chips Act will be necessary for these players to stay competitive in the global market amid geopolitical uncertainty and growing demand for high-powered chips.