KUALA LUMPUR – Malaysia, already a major player in the chip industry, is aiming high as it wants to move up the value chain into chip design and double its global market share of the overall semiconductor trade in five years, said a top government official at the state agency driving the country’s hoped-for transition into a regional digital hub.
Becoming a “chip design powerhouse” could grow Malaysia’s overall stake in the global semiconductor trade from 7 per cent currently to 14 per cent by 2029, Mr Yong Kai Ping, chief executive of the Selangor Information Technology & Digital Economy Corporation (Sidec), told The Straits Times.
“We hope to double it by moving up the value chain, especially through (to) the front-end IC (integrated circuit) design work. Wherever the head goes, (the) tail will always follow as it is a cluster industry,” he said.
Malaysia must quickly seize opportunities in chip design to move up the semiconductor value chain as competition intensifies, he added.
Such ambitions may well be propelled by a recently proposed plan for an IC design park in Puchong – touted to be the largest in South-east Asia – and also by the US-China chip rivalry in recent years, which has led multinational corporations (MNCs) to restructure supply chains and relocate operations to countries such as Malaysia, Vietnam and India, in a bid to reduce geopolitical risks.
On April 22, Prime Minister Anwar Ibrahim announced Malaysia’s plans to build the massive IC design hub in Selangor, in efforts to move beyond production into high-value, front-end design work.
The government is offering a slew of incentives, such as tax breaks, subsidies and visa exemption fees, to attract big tech companies, unicorns and investors, with the objective of being in the top 20 countries in the global start-up ecosystem index by 2030, said Datuk Seri Anwar.
The new park, which will be operational in July, is to be located in a 45,000 sq ft building, with the potential to expand to 60,000 sq ft. It will be managed by Sidec, the digital economy arm of the Selangor state government.
Already, the project has secured commitments from half a dozen companies that will employ up to 300 chip-design engineers, said Mr Yong. These include British chip-design giant Arm Holdings, Taiwan’s Phison Electronics and home-grown IC design solutions provider SkyeChip.
“Arm will act as a catalyst for innovation by empowering local IC companies with the guidance and support they need to thrive in the global semiconductor market,” said Mr Yong. Arm licenses its designs to more than 1,000 global partners such as Apple, Microsoft and Samsung.
Malaysia’s move to reposition itself beyond production into front-end design work could be a good thing.
The proposed chip design park is “a positive move to propel Malaysia out of the low-value (semiconductor) segment”, said UOB Group’s senior economist Julia Goh.
Moving into higher value-added semiconductor operations, which include wafer fabrication, research and development, and design work, could yield profit margins of 80 per cent to 100 per cent, according to Ms Goh’s estimates.
This compares with the lower value-added assembly and testing segments, which typically have profit margins of 5 per cent to 25 per cent, she noted.
Malaysia, which has emerged as a significant player in the chip manufacturing industry in the past five decades, accounts for about 13 per cent of global back-end manufacturing, according to the Malaysian Investment Development Authority.
Its northern island state of Penang – often dubbed the country’s Silicon Valley – is home to major semiconductor manufacturers such as Intel, GlobalFoundries and Infineon.
The semiconductor industry contributes to an estimated 25 per cent of Malaysia’s gross domestic product. About 40 per cent of Malaysia’s exports come from the electrical and electronics sector, with export earnings of RM575 billion (S$163.7 billion) in 2023, said Malaysia Semiconductor Industry Association (MSIA) president Wong Siew Hai.
When the new chip design park is up and running, it is hoped that Malaysia’s export share worldwide will increase, fuelled by the growing use of locally made chips in the country’s automotive industry and data centres.
Mr Yong said: “More exports of chips to South-east Asia and the Middle East markets are also expected after the new hub is operational, which will attract around RM1 billion in foreign direct investments during the initial phase (within the first three years).”
In 2023, the top electrical and electronics export markets for Malaysia were Singapore, with an 18.6 per cent share, followed by the US (16.3 per cent), China (15.2 per cent), Hong Kong (13.1 per cent), European Union (8.5 per cent) and Taiwan (4.9 per cent), according to UOB Global Economics & Markets research.
Malaysia had previously tried to nudge its way up the semiconductor value chain with SilTerra Malaysia, its largest semiconductor wafer foundry based in Kulim, in the northern Kedah state.
The foundry, which was established in 1995 and operational in 2001, accumulated losses to the tune of RM8 billion until it was sold off by government investment arm Khazanah Nasional in 2021, according to local media reports.
Industry observers said then that SilTerra’s failure to become sustainable was because it had not been able to keep up with the fast-evolving technologies in chipmaking, and that its plant in Kulim had been underutilised.
Still, it is with renewed vigour that the country is once again attempting to venture beyond production to the glossier front end.
Malaysia certainly ticks all the right boxes that influence investors’ decisions, with its strategic and earthquake-free location in South-east Asia, good infrastructure, and an educated population fluent in English and Mandarin.
Hence, MSIA’s Datuk Seri Wong is confident that Malaysia has what it takes to succeed, in terms of industry knowledge and trained talent.
“For front-end design works, we are competing with countries such as Singapore, Vietnam, the US and China. But Malaysia is not starting from scratch and we have talents that have experience,” he said.
And the more big players the new chip design park attracts, the better.
Mr Yong said: “In the long run, our strategy is to get these MNCs to be listed on Bursa Malaysia, which will result in more money being poured in by investors for these companies, which is needed for high-tech investments.”
