NSS a multifaceted boon to chip sector
30 May 2024
Analysts are bullish about the National Semiconductor Strategy (NSS), believing that it would further boost the prospects of the local technology and semiconductor industries.
The NSS, which carries three overarching phases and outlined by five headline targets, was announced by Prime Minister Datuk Seri Anwar Ibrahim at the Semiconductor Southeast Asia 2024 event in Kuala Lumpur on Tuesday.
The government is allocating RM25bil in its attempt to strengthen the country’s position as a key manufacturing hub for outsourced semiconductor assembly and test (Osat) services, while also moving up the value chain into higher-end manufacturing, design, packaging and equipment.
Most observers applauded the move by Putrajaya, with Rakuten Trade head of equity sales Vincent Lau calling the initiative timely and much needed, especially in light of the fact that similar exercises are also being carried out in other markets.
“Our outlook for the tech industry has become brighter following this announcement because we do need to capitalise on our infrastructure to try and attract more investments into Malaysia,” he told StarBiz.Pointing out that the government’s investment could propel it towards the goal of securing RM500bil investments under Phase 1 of the NSS, Lau said the move is in line with the influx of data centre building applications currently permeating the country.
Malaysia should also build on its strengths in the electrical and electronics sector, taking advantage of the China+1 phenomenon that leads to the setting up of several multinational corporations locally, he said.
Concurring with Lau, Areca Capital chief executive Danny Wong said compared to similar initiatives that have been announced in the United States and China, Malaysia is taking the “baby steps” necessary to modernise and move up the supply chain beyond Osat.
“This RM25bil allotment by the government is to attract more foreign direct investment (FDI) – approximated to be around 20 times – and establish Malaysian companies in the middle and front end of the supply chain such as chip design, fabrication, integrated service and packaging,” he said.
While noting that the investment is also geared towards making Malaysia a research and development hub, Wong hopes the country will develop a sufficient supply of engineers, coupled with a technically skilled workforce, to cope with the anticipated demand.
Moreover, he expects the government to deliver incentives such as pioneer status and tax allowances as its next steps besides providing grants, highlighting that Malaysia’s neutral and non-aligned status is key to its unique competitiveness.
Siemens Malaysia Sdn Bhd chief executive Tindaro Danze is of the view that it is imperative Malaysia continues investing in the semiconductor industry as the sector contributes about 25% to its gross domestic product.
“Malaysia is also fulfilling 7% of global semiconductor demand and it is crucial it does not fall behind. The extra investments coming in will ramp up the capacity,” he added.
Aside from the proposed construction of several data centres, he said Malaysia is also benefiting from the diversification strategy of many major corporations, a lesson they picked up from the lockdown years.
Danze said this is particularly attributed to the idea that Malaysia already has a healthy and conducive semiconductor ecosystem, which helps industry players minimise disruptions to their supply chain.
Meanwhile, expanding on the point of an adequate talent pool, a fund manager is concerned that this could be a thorn in the ambitious NSS.
“The NSS looks huge but to cater to areas like chip fabrication, advanced chip designing, fabrication and testing, these processes clearly need local skilled talents.
“Hence, we recognise the NSS can bring about a long-term positive but we are not sure about its immediate prospects,” he said.
With Malaysia benefiting from US-China trade tensions, the fund manager said the NSS is an exercise to prepare for companies shifting their production processes to Asean.
“However, we believe that the near-term outlook still depends on the capital expenditure of the stakeholders in the industry. Sector valuation is at its historical average, which appears to be less attractive for entry at this juncture,” he said. He opined that the present momentum is centred around the artificial intelligence and data centre theme, a sphere which most Malaysian tech names have less exposure to.
As such, the fund manager believes the direction for the tech sector is still driven mainly by the recovery of semiconductors related to personal computers, smartphones and electric vehicles, which analysts and industry players expect to take place in the final quarter of this year.
CGS International Research (CGSI Research) and TA Research are supportive of the NSS, with the former seeing it as a positive direction for the country to remain competitive amid increasing competition for semiconductor FDIs in South-East Asia.
If the NSS is well executed, TA Research expects Malaysia to remain a popular destination as a neutral and non-aligned country that attracts global tech players in the foreseeable future.
“The only slight disappointment is no specific timeline is given for the headline targets.
“Of all the headline targets, we are looking forward to more details about the fiscal support of at least RM25bil incentives, as this will motivate local semiconductor players to expedite the upgrading and upskilling,” it added.
Some counters that the research firms expect will gain from the NSS are Inari Amertron Bhd, Malaysian Pacific Industries Bhd, Elsoft Research Bhd and Vitrox Corp Bhd.
Of note, the Bursa Malaysia Technology Index seemed unaffected by the Prime Minister’s announcement, as movement remained flattish in yesterday’s trade.
Rakuten Trade’s Lau nevertheless maintains hope that spillover effect from the Nasdaq will provide support for the local index, noting that the current correction is a healthy one, given the overall market’s positive run of late.
Source: The Star
