The Trump administration is considering a plan to mandate a 1:1 ratio of semiconductors manufactured domestically in the US to imported semiconductors. Companies failing to meet the 1:1 domestic-to-overseas chip manufacturing ratio would face tariffs. The tariffs could be extended to foreign electronic devices, based on the number of chips they contain.
Minimal direct impact on OSAT names such as Inari (BUY; TP: RM2.23) as its key customers will likely be granted tariff exemptions. Unisem (NR) and MPI (NR) should see limited direct impact as their shipment to the US stands at single-digit level of their total revenue.
Consumer-focused EMS names may see margin compression if cost pass-through to customers proves challenging, although it may be cushioned by the low semiconductor content in appliances, while industrial players such as ATECH are likely shielded by exemptions, and NATGATE’s (NR) negligible US exposure renders the effect immaterial.
Maintain Overweight, with top picks: Frontken (BUY; TP: RM5.36) and ATECH (BUY; TP: 1.27).
US mulls 1:1 semiconductor production-to-import policy. Last Friday, WSJ reported that the Trump administration is considering a plan to mandate a 1:1 ratio of semiconductors manufactured domestically in the US to imported semiconductors. Companies failing to meet the 1:1 domestic-to-overseas chip manufacturing ratio would face tariffs. The proposed policy aims to reduce US reliance on foreign-made semiconductors and enhance economic security.
Import credits for firms building US capacity. According to WSJ, if a company committed to build a plant in the US with capacity of 1m chips, for instance, it would receive import credits for the same amount. This would allow the company and its customers to keep importing up to 1m chips from overseas without tariffs while the plant is being built. The plan would also offer some grace period for those who commit to production investment in the US.
High complexity in policy implementation. Implementation of such tariffs is highly challenging, as WSJ noted, since companies often send US-manufactured chips overseas for assembly into tech products. They are then returned as components within those larger products, making it difficult to determine how tariff value would be calculated for products containing chips.
Potential tariffs on foreign electronic devices. Although details remain sparse on whether these tariffs would apply to the semiconductor value chain (i.e., front-end wafer fabs, OSAT packaged chips, or fully assembled tech products), Reuters reported over the weekend that the administration is considering tariffs on foreign electronic devices—ranging from toothbrushes to laptops—based on the number of chips they contain. The aim is to drive companies to shift manufacturing to the US.
Minimal direct impact on OSAT players. We see minimal "direct" impact on Malaysian-listed OSAT names. Inari (BUY; TP: RM2.23) has minuscule revenue exposure to the US (<1%), and with the US smartphone brand and Customer B committing substantial investments in the US, their imports will likely be shielded by tariff exemptions. Meanwhile, Unisem (NR) and MPI (NR) with larger revenue exposure to US-based customers at c.50% and c.20%, respectively, should see limited direct impact as well. We understand their shipment to the US stands at single-digit level of their total revenue as most of their shipment stays within the APAC region/China for final product assembly. Nonetheless, we reckon the indirect impact on OSAT players is difficult to assess as the potential tariff implementation on final-assembled tech products remains scarce at this juncture.
Implications for Frontken skewed positive. With no domestic foundry in the US able to rival TSMC’s advanced nodes, its order flow should remain intact. However, this 1:1 semiconductor production policy, if implemented, could accelerate TSMC’s US investment plans. TSMC already committed to major expansion in the US, with plans to invest an additional USD100bn to bring its total US investment to c. USD165bn, including multiple new fabs, advanced packaging facilities, and an R&D center. As such, TSMC’s continuous expansion of wafer fabs in the US may present opportunities for Frontken (BUY; TP: RM5.36) to establish a physical presence in the US via construction of new precision cleaning facilities or M&A, in our view.
Tariff risks for local-listed EMS names. Should tariffs be extended to electronic goods, Malaysian-listed EMS players could face headline risks, particularly those with notable US export exposure. Tariffs on foreign-made electronic devices (in addition to the existing 19% blanket tariffs) may be determined based on the origin of the semiconductor content of the products to encourage domestic production of chips in the US.
For consumer-focused EMS players such as V.S. Industry (NR), which derives an estimated 30–40% of revenue from US shipments, margin compression could arise if cost pass-through to customers proves challenging. That said, we think the overall impact may be cushioned by the low semiconductor content in appliances such as coffee machines and hair dryers, which typically accounts for only a single-digit percentage of the final selling price, based on our findings. In our view, the policy is more likely to affect smartphones, laptops, and AI devices, where high-value logic chips dominate. Fortunately, Malaysian EMS players have limited direct exposure in these segments. For industrial-centric EMS players, ATECH (BUY; TP: RM1.27) generates roughly 60% of its revenue from US exports, of which 80–90% comes from mission-critical communication devices supplied to US government agencies, which stand a high chance of receiving exemptions, in our view. Meanwhile, Nationgate (NR) has negligible exposure to the US market (<1% of revenue), making the potential impact immaterial.
Maintain Overweight. Semiconductors remain subject to an ongoing Section 232 investigation in the US, with the Commerce Department’s report due by 27 Dec 2025 (270 days from initiation on 1 Apr). Although continued tariffs noise may dent sentiment on the tech sector, we retain our Overweight rating, premised on (i) a semiconductor capex upcycle propelled by proliferation of AI applications, which is driving strong recovery in ATE demand, (ii) robust demand for leading-edge nodes and continued wafer fab expansions underpinning earnings growth for players with front-end exposure (i.e. Frontken and UWC), (iii) a gradual recovery in analog IDMs as the industry moves past the trough of the inventory correction cycle, providing uplift to OSAT players like MPI. Top picks: Frontken (BUY; TP: RM5.36) and ATECH (BUY; TP: RM1.27).
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