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Another big semiconductor push

Another big semiconductor push

11 Jun 2024

THE National Semiconductor Strategy (NSS) announced during the recent widely attended SEMICON South-East Asia 2024, is a step in the right direction.

But visibly absent in the plan is one element which the sector needs — the acknowledgement that Malaysia cannot move up the sector’s value chain without putting out the red carpet to attract foreign engineering talent into the country.

As industry veteran Datuk Seri Wong Siew Hai has been saying for a while now, there just aren’t enough high quality engineers being produced by our education system.

In Malaysia now, the problem has been exacerbated by the spike in foreign investment of companies in the semiconductor ecosystem coming here to set up shop.

The problem is a global one. And the global players are doing just that. In countries like the US and Singapore, foreign engineers are brought in and offered residence after proving themselves.

Instead, the NSS has a big goal of steering the country towards producing 60,000 high skilled engineers. It is unclear how that is going to be achieved.

As part of the NSS, some other big goals were set — for Malaysia to become “a global R&D hub for semiconductors, featuring world-class universities, corporate R&D, and centres of excellence”.

These are great targets but they sound like they will take some time to develop. Such moves also cannot be achieved without opening our doors to foreign talent in a big way.

There is a general reluctance by the government to provide work permits for foreign workers in high skilled jobs, let alone issuing such workers with residency status.

The fear has been that opening up in that way would deprive Malaysians of jobs but as industry officials have often voiced out, by bringing in one good engineer, more local jobs will be created as a spillover effect of the success of that firm.

Another key aspect of the NSS is for an allocation of a whopping RM25bil to boost the sector. Details of that are yet to be known and are being worked out by the Ministry of Investment, Trade and Industry.

One thing that the government ought to stay away from is in trying to create another government-owned wafer fabrication company. Billions of ringgit went into this attempt in the past and it proved to be a massive bet gone wrong, with a huge amount of the investment written off by the government.

The two wafer fabs were Silterra and 1st Silicon. They still exist but in a smaller form and with ownership transferred to private hands, at a huge discount compared to the investment poured in by the government.

Instead, if money is going to be spent, it should go towards subsidising integrated circuit (IC) design houses.

The NSS envisages the creation of more IC design and advanced packaging companies in Malaysia, which are correct targets to have as these companies are higher up the value chain, make more profits with better margins and entail the creation of intellectual property.

But IC design houses are costly enterprises. Software and hardware tools, coupled with prototyping and salary costs of design engineers can go into the tens of millions of ringgit.

China plays this game by providing subsidies for every step along the journey of the IC design house. They also subsidise the salaries of foreign talent in the form of senior engineers who the IC design house is able to recruit.

This is a good way for Malaysia to spend RM25bil, rather than trying to set up any government-owned entity to run a business. Most of such enterprises in the past have failed to deliver on what they were set up to do.

The NSS is a step in the right direction. The semiconductor industry in Malaysia is one that Malaysia is proud of, and one that we should be banking on for further growth.

The catch is, many other governments have realised the importance of the sector and are ramping up their own national plans.

India and Vietnam are good examples. Not to mention that semiconductors form the basis of the trade and political tussles between the US and China.

Incidentally, Malaysia remains a big beneficiary of the trade war as we have become a bridge between the two countries. Setting up a production house here in Malaysia circumvents trade sanctions plus reduces supply chain risks.

But the NSS also needs to be more than just a good big picture plan. It needs to help push facilitative initiatives such as fast-tracking the hiring of foreign engineers and reducing red tape in the creation of more enterprises in the sector.

Despite failed attempts at nudging our semiconductor industry higher up the value chain, it is not too late to try again.

Source: The Star