Malaysia's Semiconductor Sector Beckons Foreign Investors – ASEAN Briefing
Malaysia is seeking to attract more investments to help its semiconductor industry move up the value chain in the chips industry, particularly for chips used in electric vehicles.
The country controls 13 percent of the global market for packaging, assembly, and testing services for semiconductors and is the world’s sixth-largest exporter of semiconductors. The semiconductor industry contributes to an estimated 25 percent of Malaysia’s GDP.
Once dubbed as the Silicon Valley of the East, Malaysia was a leader in chipmaking during the 70s, as the country attracted an array of foreign chipmakers. However, it lost ground in the 1990s to South Korea and Taiwan due to the dominance of Samsung and Taiwan Semiconductors Manufacturing Co. Now Malaysia hopes to gain ground by pushing to diversify its production amidst continued trade tensions between the U.S. and China.
As such, Malaysia wants to develop its semiconductor industry beyond assembly and testing into more value-added production such as wafer fabrication and integrated circuit design.
Malaysia’s New Industrial Master Plan (NIMP) 2030 offers a roadmap to raise the manufacturing sector’s value-added by broadening the scope of products being exported. The government hopes that NIMP 2030 can encourage more front-end activities such as semiconductor equipment manufacturing, wafer fabrication, and integrated circuit design.
Recently, the country has seen major investments by Intel (US$7 billion) and Texas Instruments (US$3.1 billion) to engage in more complex manufacturing activities. Intel’s US$7 billion expansion will include the construction of an advanced 3D chip packaging facility — Intel’s first overseas facility for 3D chip packaging.
Malaysia’s semiconductor industry has a shortage of skilled talent and high employee turnover rates. The country requires an estimated 50,000 electrical and electronics engineers per year – Malaysia has a shortage of some 1.2 million workers which includes 600,000 in manufacturing, 550,000 in construction, and 120,000 in palm oil.
Further, many of Malaysia’s engineers and technicians pursue employment in Singapore due to better pay. The average salary in manufacturing was 2,200 ringgit (US$469) per month in 2021 compared to S$2,000 (US$1,495) in Singapore, while engineering graduates earned less than 3,000 ringgit (US$640) per month.
Malaysia’s semiconductor sector is also highly reliant on foreign players to sustain the industry. Companies such as Intel, Texas Instruments, and Infineon have been established in the country since the 1970s. Meanwhile, local companies like Unisem, Carsem, and Inari Amrtron have only a small global market presence. Moreover, Malaysia has not produced a major chip manufacturer such as Samsung nor does it have chip developers like Qualcomm.
Malaysia is facing regional competition from Thailand, Indonesia, the Philippines, Singapore, and Vietnam in the semiconductor industry. ASEAN’s increasing manufacturing capabilities, skilled workforce, and supportive government policies can transform the region into a production hub for semiconductors.
Countries in the region are looking to take advantage of the reshoring of manufacturing from China. ASEAN’s semiconductor exports reached US$165 billion in 2022, a huge increase compared to US$52 billion in 2017.
Despite Malaysia’s semiconductor industry’s challenges, the country is still considered one of the three production hubs in Asia for semiconductors, along with South Korea and Taiwan.
The country is still a magnet for foreign chip makers, attracted by its strategic geography and logistics at the center of Southeast Asia, and supportive government policies.
Jabil, Bosch, Western Digital, and Lam Research are expanding their manufacturing footprints in Malaysia’s Penang island. Further, DHL Express is constructing several logistics centers in the area. The logistics giant launched direct cargo flights from Penang to Hong Kong in 2021 five days a week. Hong Kong is known as a hub for chip trading.
Malaysia is benefitting from the increased diversification of supply chains, as many chip makers, particularly those located in China, are keen to hedge their risks in case the U.S. expands sanctions on China’s chip industry. The U.S. has not only banned China’s access to high-end chips, but also access to critical components and resources such as AI chip design, semiconductor manufacturing equipment, and design automation software, among others. In retaliation, China has banned the export of key semiconductor raw materials like germanium and gallium.
For Malaysia, the diversification of supply chains provides opportunities to develop the industry beyond assembly and testing and move to front-end production, and thus expand its footprint in the global electronics industry. Further, enhancing its potential for semiconductor innovation means more investments in research and development, especially in AI, as well as education and training programs. Malaysia’s engineer-to-population ratio stood at 1:170 in 2022, still below the national target of 1:100.
In navigating the complexities of the global semiconductor landscape, Malaysia is well-positioned to capitalize on emerging opportunities, driving growth, and innovation, and solidifying its standing as a vital player in the ever-evolving electronics industry.
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ASEAN Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices throughout ASEAN, including in Singapore, Hanoi, Ho Chi Minh City, and Da Nang in Vietnam, in addition to Jakarta, in Indonesia. We also have partner firms in Malaysia, the Philippines, and Thailand as well as our practices in China and India. Please contact us at [email protected] or visit our website at www.dezshira.com.
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