Forging partnerships to power Malaysia’s semiconductor future
02 Oct 2024
Launched in May, the National Semiconductor Strategy (NSS) has had time to resonate with industry players, allowing them to provide feedback on its strengths and weaknesses. In a fireside chat with The Edge Media Group publisher and group CEO Datuk Ho Kay Tat, Minister of Investment, Trade and Industry Tengku Datuk Seri Zafrul Abdul Aziz noted that the government has been actively engaging with stakeholders. Despite limited resources, the government is striving to incorporate as much of the feedback into the NSS as possible.
“[The NSS] is a live document, so we can always incorporate new elements that can improve the plan. That’s why engagements like today as well as our team on the ground has been meeting industries [for feedback],” he said during the fireside chat titled “The Multiplier Effect” at The Edge-HSBC New Era for E&E Industry Forum 2024.
The NSS also creates awareness among companies, prompting them to plan for the future in tandem with what policymakers want to see in this sector. “We need to give clarity, not just in terms of the roadmap, but also the timeline to support our ambition to be a major hub for the semiconductor sector,” Zafrul said.
However, after launching the NSS, he said the government realised that it needed to spend some time addressing the challenges, and it needed a bit more time to find solutions. Some of the challenges include the need for talent and for the industry to be green and to grow sustainably.
“This sector consumes a lot of energy. And going forward, they are mandated by their own stakeholders to meet their sustainability targets, so they do need green power,” Zafrul added.
“Thankfully, by September, we will hear the announcement on the availability of third-party access. That means companies can tap the grid to supply green power.”
In August, it was reported that the government will introduce the Corporate Renewable Energy Supply Scheme (CRESS) in September to increase corporate entities’ access to green electricity.
Through the concept of open grid access, third parties can supply (sell) or obtain (buy) electricity via the grid network system with a predetermined system access charge.
A need for better infrastructure and ecosystem
There are three areas of focus in the semiconductor industry currently — technology, climate change and finally, logistics, which is a particularly important part of the equation as the sector requires the movement of goods at a pace not seen by other industries.
Zafrul said there is an expectation that the government has to spend money to upgrade the infrastructure to become competitive in the sector globally. “We are lucky because we’ve been in this sector for the last 50 years. So in terms of talent, we can build [on] what we have.”
“We’re also lucky the infrastructure is there, but perhaps we underestimate the growth. Therefore, we need to catch up and prepare for that.”
He added that 80% of the total export of the country is manufacturing and 20% is commodities. Of that 80% exports in the manufacturing sector, half is E&E.
“That’s how important infrastructure is in terms of logistics to support the kind of growth that NSS is expecting. So if you assume that kind of growth, you have to make sure that the supporting ecosystem is there to cater towards that growth.”
Going up the value chain
For quite a while now, the government and industry players have been lamenting that Malaysia needs to “move up the value chain” in the semiconductor space. This means that the focus is to move away from manufacturing and to focus more on innovation (in the form of E&E engineering) in the semiconductor space.
Malaysia has a strong foundation in Outsourced Semiconductor Assembly and Test (OSAT) integrated circuit (IC) design, which Zafrul said accounts for 13% of back-end operations globally.
Malaysia is slowly becoming a player in the IC design space as well, with states such as Penang, Selangor and Sarawak announcing initiatives and hubs to spur this growth, indicating that the country is in the midst of going up the value chain.
“Wafer fabrication requires high capex (capital expenditure) and high grant support by the government. In fact, in India, the government gives a capital grant of up to 75% to a company. It’s not easy to compete with that kind of fiscal strength and we don’t have that fiscal space. So, we have to use other natural competitive advantages that we have to move up the value chain,” said Zafrul.
“That’s why I think we need a concerted effort where all companies, together with the government, together with the other stakeholders, we need to work as one, a whole of nation approach to move this up the value chain.”
Wafer fabrication is one of the most capital-intensive and technology-intensive industries. A 300mm (12in) wafer fabrication factory costs US$2.5 billion (RM10.7 billion) to US$3.5 billion, with the cost of equipment approaching 70% to 80% of the factory’s capital costs.
A silicon wafer, the substrate for most semiconductor devices, incurs expense through its journey from sand to a sophisticated electronic enabler. Multiple variables dictate the final price of these components, with important cost determinants being processing equipment, wafer size, production volumes, labour costs and technology node. The manufacturing process demarcates into various process steps, each incrementing the price through the use of materials, resources and human expertise.
Zafrul also addressed the issue of funding for the semiconductor sector, particularly in relation to the RM25 billion allocated under the NSS. While the funds are earmarked for research and development (R&D), incentives and talent development, the minister said this amount alone is insufficient to fully drive the industry’s growth.
“We need to work closely with [other agencies] and it’s also why I’m bringing in funds [into this sector]. Many private equity players, pension funds and even government funds are trying to understand this industry because they are not as exposed to this industry as they should be,” he said.
“They are more exposed to traditional portfolios because they want stable returns but when you look at the majority of this sector, there are opportunities as well.”
He added that the semiconductor industry requires capital at various stages of growth, ranging from mezzanine financing to venture capital and bank loans. A nationwide, collaborative approach will be key to advancing the industry and positioning Malaysia as a global player.
“The NSS is looking at collaboration with all relevant stakeholders to get things off the ground faster.”
“It is aggressive, but it is what we actually have in mind. We’re also talking to a few companies and trying to work together so that we can develop a global champion too.”
Although the strategy is ambitious, he said the government is already in discussions with several companies to foster the development of a globally recognised semiconductor champion.
Keeping out of the tech-war crossfire
Concerns were also raised about the ongoing tech war among countries such as China, Russia and the US, and whether Malaysia will be caught in the middle of it. While Malaysia’s neutral stance has been made very clear, Zafrul said Malaysia still needs to be careful when navigating the tech war.
“We are friends to all parties. You can see that even in our multilateral agreements that we signed with other countries, and negotiating today, it covers all.”
Some of the partnerships in which Malaysia is part of is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)’ the Regional Comprehensive Economic Partnership (RCEP), which includes China, South Korea and Japan; and the Indo-Pacific Economic Framework (IPEF), which is led by the US.
Prime Minister Datuk Seri Anwar Ibrahim also announced that negotiations were resuming on the Malaysia-EU Free Trade Agreement. On top of that, Malaysia has applied to join intergovernmental organisation BRICS.
“The West has raised concerns as well [and asked] why we are joining BRICS. But then again, we are joining everything. We are not just choosing one instead of another,” said Zafrul.
“Are we pivoting to any side? No. We want to strengthen Malaysia’s position and when we talk to companies, I think what they want to see is that this region continues to be engaging with all, because we want a region that is stable, which will bring peace.”
Source: The Edge Malaysia
