Malaysia’s Semiconductor Industry: Are We Losing or BenefitingIn Light of Increasing Geopolitical Tensions?

The semiconductor industry in Malaysia has grown significantly over the past few decades, positioning the country as a key player in global electronics manufacturing. This sector alone contributes substantially to the Malaysia’s economic growth and export revenue leveraging the country’s skilled workforce, favourable business environment, and strategic location in Southeast Asia. Yet, as geopolitical tensions escalate – particularly among major economies, the industry faces a mix of challenges and opportunities. Malaysia’s strategic response could solidify its role in the global semiconductor supply chain or expose vulnerabilities that need addressing.

Malaysia’s semiconductor strength lies in its back-end services, such as assembly, packaging and testing, making it a sought-after partner in the global semiconductor value chain. Local champions like Skyechip, Oppstar, Infinecs, Carsem, Globetronics and Inari serve a wide array of industries, including automotive, consumer, power management, industrial and medical devices. These companies offer essential services such as:

• Design and engineering services;
• IC design, engineering and testing;
• IC packaging; and
• Manufacturing of modules, system devices and finished products.

The ecosystem has established Malaysia as a competitive player in the global market for semiconductor services.

Global battle for supply chains has gained prominence in light of increasing geopolitical tensions in recent years. Such tensions may continue towards disruptions of the flow of goods and materials across international borders. Malaysia, like many other countries, has reevaluated supply chain strategies diversifying their supplier base to reduce the risk associated with geopolitical tensions to maintain their country’s economic efficiency.

Malaysia has been a hub for the semiconductor industry for many years hosting several semiconductor manufacturing companies namely Intel, Infineon, TF-AMD, Western Digital, Unisem and many others. These companies have invested significantly in their Malaysian operations, proving the country’s attractiveness as a competitive investment destination. In fact, Malaysian semiconductor companies are benefiting from supply chain disruptions and are in a position to continue to benefit from this as we see more China, USA and Taiwan companies either continue to expand their operations in Malaysia or outsource their manufacturing to Malaysian companies despite the tension.

While the industry shows promise, the semiconductor industry faces significant challenges tied to its dependence on global markets. Trade policy shifts and demand fluctuations introduce risks to sustained growth and stability. To mitigate these risks, Malaysia must diversify its industry markets, strengthen domestic consumption of semiconductor products, and invest in technological advancements aligned with global market trends.

Additionally, addressing skills shortages and upskilling the workforce remain critical imperatives for the semiconductor industry in Malaysia. As technologies like artificial intelligence (AI) and the Internet-of-Things (IoT) evolve, the semiconductor industry must ensure that its workforce remains up-to-date. Ongoing investments in education, training programmes, and vocational initiatives will be essential to maintain industry relevance and competitiveness.

Under the New Industrial Master Plan (NIMP) 2030, the Malaysian Government is strategically positioning local IC design companies such as Skyechip, Oppstar, and Infinecs to become global leaders in IC design for sectors like electric vehicles (EVs), renewable energy (RE), and artificial intelligence (AI) over the next seven (7) years.

Tax incentives, including tax breaks and infrastructure development support for semiconductor companies engaged in R&D activities, are offered to foster investments in cutting-edge research.

To strengthen the semiconductor industry in line with the NIMP 2030, National Semiconductor Strategy (NSS) was launched in May 2024 which aims to establish Malaysia as a global leader in the semiconductor industry by attracting high-value foreign investment and boosting export value. Key initiatives include policy reforms and the Invest Malaysia Facilitation Centre (IMFC) to streamline procedures and enhance investor confidence.

In short, the NSS integrates policy reform, infrastructure, talent development, and innovation to boost Malaysia’s competitiveness and export potential in the global semiconductor market.

The country’s strong engineering talent and the capabilities of its workforce are key factors driving the sector. Malaysia actively collaborates with educational institutions to cultivate a steady supply of skilled workers for the semiconductor industry. Institutions such as Universiti Teknologi Malaysia (UTM) and Universiti Malaya (UM) offer specialised programmes and maintain partnerships with industry leaders.

Moreover, Malaysia continues to invest in education and skill development initiatives aimed at nurturing a proficient workforce, in line with the strategy to train and upskill 60,000 high-skilled Malaysian engineers under NSS. These efforts encompass training programmes, scholarships, and strategic partnerships with industry stakeholders, ensuring abundant skilled talent pool to meet industry needs and attract quality multinational companies.

A global R&D hub will drive innovation, positioning Malaysia at the forefront of semiconductor technology. Malaysia has made significant investments in R&D initiatives, organisations such as MIMOS (Malaysian Institute of Microelectronic Systems) and the Malaysia Productivity Corporation (MPC) are instrumental in fostering innovation and enhancing productivity within the semiconductor sector. This demonstrate proactive approach towards enhancing capabilities and competitiveness in the semiconductor industry.

MIMOS an applied research center under Malaysia’s Ministry of Science, Technology, and Innovation (MOSTI), focuses on advancing microelectronics and semiconductor technologies through R&D. Its efforts contribute to the technological capabilities and competitiveness of Malaysia’s semiconductor industry.

On the other hand, MPC collaborates with various industries, including semiconductors, to improve productivity and efficiency through innovative practices and technologies. MPC’s initiatives are crucial in driving growth and sustainability within Malaysia’s semiconductor ecosystem.

NSS focuses on developing world-class infrastructure, such as semiconductor parks and R&D hubs, aimed to increase production capacity in areas like wafer fabrication, IC design, and advanced packaging.

Malaysia has established dedicated technology parks and zones tailored for the semiconductor industry, equipped with advanced infrastructure and services aimed at attracting semiconductor manufacturers. Significant investments have been made in essential facilities such as wafer fabrications, clean rooms, and testing and assembly facilities to bolster the industry’s capabilities.

High-tech industrial parks like Kulim Hi-Tech Park and Penang Science Park are strategically developed to appeal specifically to semiconductor and electronics companies. These parks offer a range of amenities and infrastructure meticulously designed to meet the industry’s specialised requirements.

In conclusion, Malaysia’s semiconductor industry stands at a crossroads amidst increasing geopolitical tensions worldwide. While challenges such as supply chain and market volatility persist, opportunities abound for Malaysia to consolidate its position as a leading semiconductor manufacturer. Strategic investments in technology, infrastructure, and human capital are crucial for navigating these turbulent times and emerging stronger in the global semiconductor landscape. By leveraging its strengths and proactive government policies, Malaysia continues its growth, fosters innovation, and contributes significantly to the global semiconductor ecosystem.

To explore investment opportunities, please visit https://www.mida.gov.my/ or reach out to the Electrical & Electronics Division MIDA at https://www.mida.gov.my/staffdirectory/electrical-electronics-division/.