SINGAPORE – A growing number of Chinese semiconductor design companies are tapping Malaysian firms to assemble a portion of their high-end chips, keen to hedge risks in case the United States expands sanctions on China’s chip industry, sources said.

The companies are asking Malaysian chip packaging firms to assemble a type of chip known as graphics processing units (GPUs), according to three people with knowledge of the discussions.

The requests encompass only assembly – which does not contravene any US restrictions – and not fabrication of the chip wafers, they said. Some contracts have already been agreed on, two of the people added.

The people declined to disclose the names of the companies involved or to be identified, citing confidentiality agreements.

Seeking to limit China’s access to high-end GPUs that could fuel artificial intelligence (AI) breakthroughs or power supercomputers and military applications, Washington has increasingly placed restrictions on their sales and on sophisticated chip-making equipment.

As those sanctions bite and an AI boom fuels demand, smaller Chinese semiconductor design firms are struggling to secure sufficient advanced packaging services at home, analysts have said.

Some of the Chinese companies are interested in advanced chip packaging services, two people said.

Advanced packaging of chips can significantly improve chip performance and is emerging as a critical technology in the semiconductor industry. This sometimes involves the construction of chiplets where chips are packaged tightly to work together as one powerful brain.

Although not subject to US export restrictions, it is an area that can require sophisticated technology and which the firms worry might one day be targeted for curbs on exports to China, the two people added.

Malaysia, a major hub in the semiconductor supply chain, is seen as well placed to grab further business as Chinese chip firms diversify outside of China for assembling needs.

Unisem, majority owned by China’s Huatian Technology, and other Malaysian chip packaging companies have seen increased business and inquiries from Chinese clients, said one source who was briefed on the matter.

Unisem chairman John Chia declined to comment on the company’s clients but said: “Due to trade sanctions and supply chain issues, many Chinese chip design houses have come to Malaysia to establish additional sources of supply outside of China to support their business in and out of China.”

Chinese chip design firms also see Malaysia as a good option because the country is perceived as being on good terms with China, is affordable, and has an experienced workforce and sophisticated equipment, two of the sources said.