KUALA LUMPUR (Jan 13): The Joe Biden administration's plans to introduce new export restrictions on artificial intelligence (AI) chips under a three-tiered system by country have sparked concerns in Malaysia.

According to news reports, Malaysia has been classified as a Tier 2 country, permitted to import only 50,000 graphics processing units (GPUs) over two years, with data centre operators restricted to deploying a maximum of 7% of their computing capacity in any single Tier 2 nation.

Malaysia Semiconductor Industry Association (MSIA) president Datuk Seri Wong Siew Hai told The Edge that the industry is grappling with understanding the directives from such a “blanket” statement.

“First of all, I think it is a very important thing that we must comply with the US requirements. But the purported [new] directives are causing a lot of confusion. It is like two requirements that are not jiving, one statement is based on one assumption, and the other is based on another assumption,” Wong said.

Wong explained that the current compliance requires buyers of GPUs to get approval from vendors like Nvidia Corp. But the new purported tiering system makes interpretation difficult.

Commenting on the AI chips tiering news, Kenanga Investment Bank head of research Peter Kong said the new development may induce companies to come under US security standards to become validated end users (VEUs), which would then not be limited by the chip country quota.

“It does imply that there are higher guardrails being put up for the end-owners of these chips themselves, but this should not preclude assemblers of AI-chip powered servers from being able to conduct business,” Kong said.

Currently, there is no confirmation that the US will implement this, even though Bloomberg reported it would be announced by last Friday (Jan 10), Kong added.

Meanwhile, industry players believe the rollout of data centre (DC) projects will largely remain intact.

MSIA’s Wong explained that DCs have already obtained approvals from GPU vendors to secure GPUs. “As of now, data that is presented suggests that business is as usual for the industry, unless they receive new instructions from the US government.”

When contacted, YTL Power International Bhd (KL:YTLPOWR) managing director Datuk Seri Yeoh Seok Hong remained confident that the group will not be affected by the latest announcements on the limitation on the export of GPUs.

“We understand that American hyperscalers, which include Nvidia, are not subject to the limits. As the only non-US company selected by Nvidia in Asia to deploy Nvidia’s latest chips on Nvidia’s DGX Cloud AI platform, there should be no issue with our roll out,” he told The Edge.

Nevertheless, YTL Power saw its stock price drop by 25 sen or 5.9% to close at RM4 on Monday, giving it a market capitalisation of RM33.07 billion.

Tradeview Capital chief investment officer Nixon Wong Gok Hey thinks DC projects will be unaffected in the near term. “Based on the guide of the 7% threshold, current DC projects which are mostly US-related are still below that threshold,” he explained.

Analysts believe the impact on the local semiconductor industry will be minimal. For one, Tradeview’s Wong said that while Malaysia might be under some restrictions, it will not be entirely cut off from accessing advanced AI chips.

“Our semiconductor sector is not too exposed to advanced AI chips, and our strength lies in legacy, matured tech as Malaysia is still a key player in outsourced semiconductor assembly and test (OSAT) and automatic test equipment (ATE) fields,” Wong explained.

The same view was shared by TA Securities senior analyst Tony Chan Mun Chun, who highlighted that the proposed new regulation will certainly disrupt the global supply chain, and he expects local equipment players may temporarily see some business slow down.

Tradeview’s Wong noted that companies leveraging Nvidia's chips for AI-driven research and development or manufacturing — such as in Internet of Things (IoT), automotive technology, or industrial automation — might face disruptions in sourcing cutting-edge technology.

“I believe that the extent of the impact depends on several factors but may be moderate and will hinge on how restrictive the Tier 2 classification becomes. Perhaps it might just slow down innovation in tech production,” he added.

Economist Samirul Ariff Othman highlighted that the tiered approach may threaten Malaysia’s attractiveness to foreign investors, particularly US tech firms, who may view restricted chip access as a liability.

Samirul also believes that by categorising Malaysia in the second tier, the US has sent a signal of mistrust, potentially undermining its image as a reliable trade partner and tech hub.

“The spectre of a past Malaysian firm’s inclusion on the US Entity List serves as a stark reminder that export controls and compliance frameworks must be watertight,” he noted.

Meanwhile, MSIA’s Wong stated that all semiconductor manufacturers have been compliant with the US ruling on export controls for advanced chips.

“So far, there was only one violated case reported, but it was related to a distributor, not a manufacturer,” he noted. “The issue happened when the distributor sold it to a customer, then the customer sold it to another party. It’s quite hard to track after the next few layers. But at the first layer, we will definitely comply.”

As for Samirul, the path forward requires a delicate balancing act. Diplomatic engagement with the US to secure VEU status, coupled with robust internal governance to prevent technology misuse, will be crucial.

According to Science, Technology and Innovation Minister Chang Li Kang, Malaysia is bracing for the potential fallout from the US' proposed restrictions on chip exports. He cautioned that the measures, if enforced, would have far-reaching consequences, impacting not just Malaysia but the global technology ecosystem.

"If the restriction is implemented, it will impact Malaysia, especially as we are looking to grow AI in a big way. Without AI chips, we will have problems. But as of now, everything is still hearsay," Chang reportedly said.

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