European chipmaker Infineon recently joined the growing list of companies that have invested in Malaysia’s booming semiconductor industry. Earlier this month, Infineon announced it would invest $8 billion to set up a power semiconductor plant in Kulim, Malaysia, eventually creating 4,000 jobs.
In addition to Infineon, Intel has recently invested $7 billion to expand its operations in the country. Micron, AT&S and Texas Instruments are among the other companies that have either recently invested or are expanding their operations in the country.
Malaysia, a country of 34 million people, produces 7% of global semiconductors and 13% of global chip assembly, testing and packaging activities. Six of the 12 largest semiconductor companies currently operate in Malaysia, “underscoring its strategic importance and attractiveness as a hub for major industry players,” according to a recent press release issued by the Malaysian Investment Development Authority (MIDA).
Geopolitical Advantage
The chip war between the US and China is clearly benefiting Malaysia. Chip companies are exploring options besides China and Taiwan for chip manufacturing, and Malaysia is emerging as a viable option.
In this context, it is not surprising that the country highlights its “neutral” positioning as its key differentiating factor. “I offer our nation as the most neutral and non-aligned location for semiconductor production, to help build a more secure and resilient global semiconductor supply chain,” says Malaysia’s Prime Minister Anwar Bin Ibrahim at a press conference earlier this year.
Interestingly, Malaysia is the destination of the Chinese chip companies as well as they look to continue their relationship with international and American clients. Several Chinese companies are believed to have started operations in Malaysia to circumvent the US restrictions on Chinese firms.
Last year, Penang alone attracted $12.8 billion in foreign direct investment, more than in the previous seven years. The Government is stepping up to gain from the geopolitical reality. As part of its National Semiconductor Strategy (NSS), the country plans to establish ten local design and advanced chip manufacturing companies, with annual revenue of at least $210 million. It is also targeting to set up over 100 semiconductor-related companies with revenue of up to $210 million.
Leveraging existing capabilities
To its advantage, Malaysia is already established as a prominent player in the chip assembly, packaging, and testing sector.
“Malaysia is one of the countries with a complete semiconductor manufacturing supply chain. The country has established a strong presence in chip assembly, packaging, and testing, which makes it well-positioned to attract more investment and expand its role in the semiconductor industry,” says Brady Wang, Associate Director at Counterpoint.
The country now has to leverage this advantage to improve its presence in the global semiconductor market. Earlier this year it announced that it will invest around $107 billion in the country’s semiconductor industry. By comparison, the US CHIPS Act offers $52 billion, less than half of Malaysia’s $107 billion.
“Malaysia is aggressively expanding into other fields like chip manufacturing and IC design. Since the challenge of building manufacturing capability is big and takes time, moving more to IC design makes more sense. Malaysia is planning to be the lead of SEA IC design countries, and it has built the largest IC design park and targets building local startups and attracting foreign startup companies to be located in Malaysia, which means attracting talent,” says Helen Chiang, Semiconductor Research Lead at IDC Asia Pacific.
Addressing the challenges
Even as market forces align in its favor, Malaysia needs to address several challenges. “Although the country has a well-established manufacturing infrastructure, there is a need for more investment and technological upgrades in advanced manufacturing equipment and specialized environments, such as ultra-clean rooms,” says Wang of Counterpoint.
“Moreover, Malaysia should strengthen its international collaborations with leading nations and key suppliers, particularly in technology transfer and R&D, to address the shortage of skilled professionals in high-tech industries,” adds Wang.
As more and more chip companies set up base in Malaysia, it faces the challenge of skilled talent. “It needs to build strong infrastructure in terms of logistics and stable power supply. In addition, while there are strong packaging/testing companies in Malaysia, there is less manufacturing supply chain which includes materials, equipment etc,” says Chiang.
Another issue Malaysia faces is the lack of a homegrown chip giant, like Samsung in South Korea or Intel in the US. This factor impacts the building of an ecosystem and possibly even talent.
Malaysia faces strong competition from Vietnam, which also aims to grow on the chip value chain. It must address the challenges and seize the opportunities before others try to take a share of the semiconductor market.