contrastBtngrayscaleBtn oku-icon


plusBtn crossBtn minusBtn


This site
is mobile


The Semiconductor Industry: Moving Up the Value Chain

>Manufacturing>The Semiconductor Industry: Moving Up the Value Chain

The Semiconductor Industry: Moving Up the Value Chain

The semiconductor industry is the primary enabling technology in every production line in the world. Semiconductor devices are essential components of electronic circuits and are made primarily from silicon. They can be found in almost every electrical device such as smartphones, computers and even coffee machines. Companies that operate in the semiconductor industry generally belong to one of these groups:


  1. Sure Play Foundries: These are companies that do not have any design capabilities as they focus only on the fabrication and testing of semiconductor products.
  2. Fabless: Fabless companies are involved only in the design and sale of semiconductor products while outsourcing the fabrication to foundries.
  3. Integrated Device Manufacturers (IDMs): IDMs are companies that design, fabricate and sell semiconductor products.

Industry forces and digital  innovations are reshaping the semiconductor industry. Together, these companies design, manufacture and sell products such as memory chips, microprocessors, integrated circuits and complex systems-on-a-chip (SOC). R&D spending is a crucial metric for semiconductor companies as improvements in manufacturing processes can help to drive down production costs, which leads to higher margins for semiconductor companies. With R&D spending expected to increase, profit margins are expected to expand over the next few years.

Trends within the Semiconductor Industry

The investment outlook in the semiconductor industry is potentially attractive given its value propositions. Estimates published by Gartner and Statista predicts semiconductor sales revenue to grow at a CAGR of 6.17% and hit USD503 billion in 2020.

The semiconductor industry is relatively consolidated, with  the top nine companies making up approximately 59% of worldwide semiconductor sales revenue. Wireless communication is the largest end-use segment for semiconductor products. Growth in this segment is expected to continue on the back of increasing smartphone penetration rates and infrastructure spending in preparation for 5G networks.

Steady increases in IoT hardware spending will be a significant source of revenue for the semiconductor industry in the future. Notable trends in the semiconductor industry include:


  1. Artificial Intelligent (AI) The growing demand for AI-based applications from other industries such as medical devices and imaging technology, life sciences and biotechnology, clean and green technology, information and communication technology as well as other fields will create new growth opportunities for semiconductor manufacturers.
  2. Transition to More Advanced Technology Node The transition to smaller and more current nodes in IC manufacturing will ensure that companies producing ICs have a competitive advantage by offering components that have increased power and performance. However, this move presents a challenge in terms of cost and resources that the semiconductor industry needs to address.
  3. Autonomous or Electric Vehicles (EVs) Semiconductors will play a vital role in the growth and innovation of autonomous driving technology in the automotive industry where semiconductor components will be widely used for autonomous cars and electric vehicles. The rapidly expanding automotive market will provide ample opportunities for automotive semiconductors to improve the connectivity, battery performance in EVs, enhanced sensors, and other technologies.
  4. Wireless Communication Products and Growth of 5G Wireless communication is currently one of the most significant end-use segments for semiconductor products. Growth in this area is heavily driven by trends such as increasing smartphone penetration rates and the demand for faster connection speeds. Similarly, the introduction of 5G technology, which promises to provide data transmission speeds over wireless broadband networks of up to 20Gbps, 20 times faster than 4G networks, will also benefit the semiconductor industry. It is estimated that by 2025, 5G infrastructure spending will hit USD326 billion. Of which, nearly 80% will be spent on network infrastructure, which is essential for 5G networks to operate smoothly. 5G compliant modems, wireless devices, small cells and data centres are a few examples of the hardware required by 5G networks, which will include semiconductors as an essential component. These investments will have a positive impact on the entire semiconductor industry.
  5. Rise in Hardware Spending for IoT Applications Semiconductors are the bedrock of technology. These days, it is nearly impossible to find a device that doesn’t rely on semiconductors. Autonomous vehicles, one of the up and coming IoT application, saw a 58% jump in semiconductor revenues from 2016 to 2017. As the IoT continues to materialise, other applications such as cloud-based computing and artificial intelligence (AI) will also see an increase in hardware spending, thus leading to an additional demand for semiconductors. Gartner estimates that there will be 20.4 billion smart devices in 2020. Hardware equipment such as smart devices is estimated to account for 35% of the total IoT market in 2020.

Challenges Ahead

Challenges are inevitable in any industry but recognising them is the crucial stepping  stone to enable industry stakeholders to effectively map out strategies to overcome them. 

The semiconductor industry is challenged with concerns driven by innovation and technological developments moving at a drastic pace. The industry needs to continuously inject new innovations in enhancing the value chain of the industry. It is crucial for the local semiconductor industry to develop a pool of product design talents and address issues such as intellectual property protection, licensing and research and development (R&D) spending. 

Not forgetting, the ability for Malaysia to adapt and adopt new technology efficiently will pose as challenge whilst determining Malaysia’s competitiveness in the global value chain. As the global technological trends led by top semiconductor and technology nations will affect and shape the local industries, Malaysia can no longer be playing catch-up but must actively strive to build its expertise and niche.

Gearing up the Future

Recognising the importance  of innovation and design activities to further spur the growth of the industry in Malaysia for coexistence with global technology transformation trends, MIDA continues to encourage companies to undertake design and development (D&D) activities in the E&E industry. These activities are eligible for incentives of 70% – 100% Pioneer Status for 5 to 10 years subject to specified criteria or conditions. Other eligible activities for the incentives include D&D and services of:


a) integrated circuit (IC) design; 

b) IC packaging design;

c) Embedded system design;

d) Test and engineering design services for E&E clusters and its  connecting supply chain ecosystem.

Any  queries and applications for the above activities can be submitted to E&E Industry Division of MIDA:(https://bit.ly/2Z7ZdUY).