PublicInvest Research said the impact of US artificial intelligence (AI) chip export restriction on Malaysia’s technology sector is largely muted as the players mostly deal with the US hyperscalers.

However, it may take longer lead time for the AI server assemblers and dealers to process their orders due to various audit checks and traceability, the research house said in a note on Monday.

The US Department of Commerce under Biden administration announced last week that it is proposing a new framework that would curb the Nvidia’s AI chip exports, which command more than 80 percent of global market share.

The move is part of a plan to divide access to advanced computing power to the US and keep its dominant status in AI by controlling the supply markets.

According to the research house, the new measures are likely to see a backlash from the US AI chip companies, who are dependent on China as their key export market.

“In the local scene, with the exception of AI server dealers and AI server assemblers, most of the technology companies are not affected as they are not directly involved with the AI chip products,” it said.

Meanwhile, it noted more than 85 percent of the local data center investments are mainly from the US-based hyperscalers, which are totally exempted from the restrictions.

Based on recent channel checks, it noted there is no signs of slowing down for all the ongoing data center projects in Malaysia, while the orders for AI servers from China-based companies have been quiet for the last six months when the US-China tech rivalry continued to unfold.

“We see little chance for a complete overturn of the decision by the incoming Trump administration,

“However, the Trump administration could potentially lower the bar for the restriction in exchange for more favorable trade terms with all the trading partners,” PublicInvest said.

Meanwhile, it opined that the tighter measure will push China even harder to produce its own AI chips in the coming years.

According to the research house, China is poised to make a significant stride in its chipmaking capabilities, with the production of 28nm lithography equipment this month, a development that has taken many industry experts by surprise.

Despite rigorous US sanctions designed to block China’s progress in semiconductor technology, it noted China is advancing rapidly.

The forthcoming 28nm lithography equipment may not be cutting-edge by global standards nor on par with ASML’s deep ultraviolet (DUV) and extreme ultraviolet (EUV) lithography technology, but it represents a significant leap for China’s semiconductor industry, it added.

It also highlighted that in the latest development, China’s researchers are developing new approaches in the EUV lithography, which could produce extreme EUV light with a central wavelength of 13.5nm, meeting the urgent demand for EUV light sources in the photolithography market.

Under the framework, about 20 key allies and partners under the Tier-1 category such as Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Republic of Korea, Spain, Sweden, Taiwan, and the United Kingdom would face no restrictions on accessing AI chips.

For those countries, including Malaysia, that are placed in the second tier, could only purchase up to 50,000 graphics processing units (1 advanced AI server requires 8 GPUs) per country, and they could bump up the cap to 100,000 GPUs if
their renewable energy and technological security goals are aligned with the US.

Institutions in certain countries could also apply for a legal status that would allow them to purchase up to 320,000 advanced GPUs over two years.

Computer chip orders equivalent to 1,700 advanced GPUs would not need a license to import or count against the national chip cap if they are meant to serve the educational and medical purposes.

Companies that meet high security and trust standards are headquartered in close allies, and partners can obtain highly trusted universal verified end user (UVEU) status, which allows them to place up to 7 percent of their global AI computational capacity in countries under the tier-2 category.

Meanwhile, exports of AI chips will be prohibited for 22 countries categorized under third-tier, which include China, Hong Kong, and Macau, Russia, Iran, North Korea, Venezuela, Nicaragua, and Syria.

The rules, which are set to take effect in one year, will give companies a 120-day comment period so that the incoming Trump administration has more time to settle in and made changes to the rule after consulting with industry players and other countries.

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