Malaysia bytes into global semiconductor industry - MIDA | Malaysian Investment Development Authority
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Malaysia bytes into global semiconductor industry

Malaysia bytes into global semiconductor industry

24 Jun 2023

SEMICONDUCTORS are an essential component in a broad range of electronic products used daily. Without semiconductor chips, modern electronics would not exist.

The semiconductor industry has experienced remarkable growth over the past two decades.

According to the Semiconductor Industry Association, a US-based trade body, global semiconductor sales skyrocketed more than 300% – from US$139bil (RM650bil) in 2001 to US$573.5bil (RM2.7 trillion) in 2022.

This upward trend is projected to continue, with an estimated 56% increase by 2030.

The demand for semiconductors in enterprise-driven sectors such as digital infrastructure, which requires greater computing power, will be the driving force behind this growth.

Yet, as the industry grows, the global semiconductor industry is facing several challenges requiring immediate attention.

Securing factory spaces, finding skilled talents, navigating the geopolitical environment and participating in the highly collaborative value chain have increasingly become pressing concerns.

Penang – a major player in the global semiconductor network

The entire semiconductor value chain is a complicated one that involves thousands of suppliers.

The global manufacturing chain is also highly diversified, and involves different companies such as fabless companies, foundries as well as outsourced semiconductor assembly and test (OSAT) companies.

South-East Asia has emerged as a major player in this interconnected network with its long-standing history of semiconductor production dating back to the 1970s.

Malaysia, in particular, celebrated the 50th anniversary of its electrical and electronics (E&E) industry in 2022. Malaysia’s E&E exports saw an impressive compound annual growth of 16% over 50 years.

Recognising the significance of the industry, the Malaysian government has placed strategic focus on initiatives to help the country move up the semiconductor value chain from back-end assembly to front-end design.

Penang, dubbed the Silicon Valley of the East, has a strong E&E ecosystem, having established its long-standing presence in the industry.

Over the past 51 years, Penang has attracted a diverse range of local suppliers and fostered a comprehensive value chain.

This encompasses automation, electronics, packaging, plastics, precision engineering and metal work, software development and more – all supporting the semiconductor manufacturing value chain.

This robust infrastructure has enticed industry giants like Intel, Advanced Semiconductor Engineering and Austria Technologie & Systemtechnik to invest billions of dollars in building state-of-theart facilities on the island.

The proactive steps taken by the local government in accommodating the semiconductor industry’s growth are commendable.

To support its E&E expansion plans, the Penang Development Corp has been developing additional industrial land, while programmes like the Penang Internship Subsidy Programme have helped attract skilled talent from other states to the island.

Collaborations with local universities further ensure a pipeline of industry-ready graduates.

Penang’s strategic location and comprehensive ecosystem have made it an attractive investment destination for global semiconductor companies.

By capitalising on its strengths, Malaysia can become an even more vital player in the industry.

To achieve this, the Malaysian government should continue to provide institutional support, create investment-friendly policies, and offer attractive tax incentives to drive the growth of the semiconductor sector in Penang.

Taking stock: Geopolitics dominate chip decisions

The importance of the semiconductor industry extends beyond its economic significance; it plays a crucial role in driving a country’s digital ambitions.

Governments worldwide are increasingly recognising the need to minimise the impact of global supply fluctuations by bolstering their domestic chip manufacturing capabilities.

The United States, for example, aims to regain its leadership in chips production and reduce its dependency on other countries.

The recently passed CHIPS and Science Act, which allocates US$53bil (RM248bil) to incentivise companies to build and manufacture on American soil, exemplifies this commitment.

However, migrating of supply chains can be an intricate move. As semiconductor companies consider reshoring or friend-shoring strategies, South-East Asia emerges as an attractive region due to its cost-effectiveness and reduced strategic risks.

Strengthening collaborations among suppliers, manufacturers, and distributors will be pivotal for the long-term growth and success of the semiconductor industry.

Facilitating complex chip connections

Looking ahead, the semiconductor industry’s role in driving emerging technologies like artificial intelligence and Internet of Things cannot be understated.

Penang, having already positioned itself as a prominent place in the global semiconductor network, will need to strengthen and capitalise on the industry’s immense potential.

It is crucial to nurture and strengthen the ecosystem, ensuring collaboration and innovation at every step of the value chain.

Governments, industry players and financial institutions must also work hand-in-hand to create an environment that fosters growth, resilience, and sustainable development for the semiconductor industry.

Terence Koh is the managing director, head of telecom, media and technology, sector solutions group at UOB. The views expressed here are the writer’s own.