Has Malaysia’s ‘semiconductor moment’ finally arrived

Malaysia and Taiwan were among the early semiconductor outposts during the late 1960s when U.S. companies like Intel began to outsource their assembly and test operations to Asia. Over half a century, while Taiwan has reached the design and manufacturing pinnacle, Malaysia mostly remained busy on back-end tasks related to chip assembly, packaging, and testing.

Malaysia—which currently accounts for 13% of the semiconductor packaging, assembly, and testing market—is now looking to position itself as a global IC design and manufacturing hub amid U.S. restrictions on China’s chip industry. According to a report published in Reuters, the Malaysian government plans to pour $107 billion into its semiconductor industry for IC design, advanced packaging, and manufacturing equipment for semiconductor chips.

Malaysia, long seeking to move beyond back-end chip assembly and testing and into high-value, front-end design work, is confident that time is now on its side. It’s worth noting here that Malaysia isn’t merely eyeing U.S. or western semiconductor outfits; chip firms in China aiming to diversify supply chains are also considering Malaysia for packaging and assembly operations as well as setting up design centers.

While Intel is setting up a $7 billion advanced packaging plant and Infineon is building a $5.4 billion power semiconductors fab in Malaysia, a Reuters report provides details of Chinese chip firms tapping Malaysian partners to assemble a portion of their high-end chips in the wake of U.S. sanctions.

Take the case of Xfusion, formerly a Huawei unit, joining hands with NationGate to assemble GPU servers in Malaysia and thus avoid U.S. sanctions. Likewise, chip assembly and testing firm TongFu Microelectronics is building a new facility in Malaysia in a joint venture with AMD. Next, RISC-V processor firm StarFive is setting up a design center in Penang.

However, Malaysia will need an immaculate execution besides pouring money into its ambitions to move up the semiconductor ladder as other destinations like India and Vietnam are also vying for a stake in chip design and manufacturing services. Moreover, while U.S. restrictions on China’s chip industry bring Malaysia new possibilities, it’s important to note that the country has been trying to move beyond back-end chip assembly and testing and into high-value front-end design work for quite some time.

So, while China’s chip outfits moving to Malaysia will add weight to the country’s efforts to become a semiconductor hub in Asia, it will still require a strong execution besides tax breaks, subsidies, and visa exemption fees. Malaysia has an experienced workforce and sophisticated equipment, critical elements in the semiconductor design recipe.

What’s required next is a few promising startups in semiconductor design and advanced packaging domains, as hinted by Malaysian Prime Minister Anwar Ibrahim during his policy speech.

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