Upping the game to win semiconductor market share

MALAYSIA’S semiconductor industry must continue to adapt to capture further growth opportunities in the electronics supply chain.

This is crucial given that the industry is poised to continue its long-term growth trajectory and competition is heating up among countries that want to attract foreign direct investments (FDIS) that have strong economic spinoffs and create high-value jobs.

It is true that in the midst of the trade tensions between the United States and China, Malaysia, given its balanced diplomatic relations with both of these economic giants, possesses a unique pull factor for any trade diversions that are happening.

However, the country cannot rest on its laurels given the rise of other nations with similar diplomatic profiles within Asean, such as Vietnam, and even in the wider Asian continent, including India, which are also rapidly gaining on this front.

Just last month, Vietnam announced it would provide tax breaks and other perks to attract further investments into its semiconductor sector as it aims to also capture opportunities from any trade diversions from the Us-china trade tensions.

India, with its burgeoning relations with the United States, is also poised to be a strong contender on this front, announcing recently that it would like to capture more opportunities as it aims to become a global semiconductor hub to capitalise on trade diversion opportunities from the cooling Us-china relations.

What about Malaysia? Malaysia Semiconductor Industry Association’s (MSIA) president Datuk Seri Wong Siew Hai says the country is still a strong contender for future semiconductor investments given its long history in the sector.

Wong says it is important for Malaysia to keep moving up the semiconductor value chain.

“We have been present for more than 50 years in the semiconductor space and we have grown by leaps and bounds from semiconductor to assembly testing; in any case, we have actually gone up the value chain. Also, most of our factories are equipped with state-of-the-art assembly testing technology,” Wong tells Starbizweek.

“What we need to do now is to keep moving up the value chain and keep building our ecosystems.

“A lot of the companies have grown with this over the last 50 years – especially Malaysian companies which have supported the semiconductor and electronics industry through automation.

“Many have listed and grown by leaps and bounds. Malaysian companies also have the opportunity to grow with the industry,” he adds.

Wong notes that the Malaysian semiconductor industry remained resilient in 2023 despite a correction in the industry as seen globally.

“In 2023, Malaysia’s semiconductor exports dropped 3% compared with an 8% decline globally. A lot of semiconductor companies have moved from China to Malaysia.

“So we should continue to attract companies that will strengthen our ecosystem: Advanced Technologies & Solutions came with its substrate technology and Lam Research with fab-related equipments along with its suppliers,” Wong says.

He says MSIA is trying to target new areas for growth, as the whole assembly and testing industry is moving to a new technology called advanced packaging, which has seen substantial investments from Intel.

“What we need now is for Malaysian companies to go into advanced packaging and this would be the challenge.

“The second part is to attract a fabrication plant (fab) to complete the ecosystem – in the region of 24-40 nanometers (nm) and the 300nm fab.

“It is a very capital intensive business and we have to work very hard to attract such FDIS and tell the world of this plan. This will help develop the ecosystem,” Wong says.

According to Wong, a successful FDI into the fab segment would develop the industry’s supply chain even further for the fab, sort assembly testing.

Meanwhile, private investor and former senior investment banker Ian Yoong Kah Yin says the Malaysian government should not bend backwards to attract FDIS for a front-end fab plant.

“The presence of a heavily subsidised fabrication plant might spook foreign fabrication plants from dealing with our semiconductor sector. We must be cognisant of such sensitivities. It is best to play to our strengths,” Yoong tells Starbizweek.

He says it is also important to nurture a conducive environment for startups since almost all the successful companies in the semiconductor supply chain sector were initially startups.

On competing and continuing to be relevant in the global space, experts say it is also important for the country to maintain its fluency in English for quick knowledge transfer since technology develops quickly.

“The flood of FDI that is poised to come into Malaysia will require a large expansion of utilities, green energy, housing, schools, sanitation, water and 5G digital infrastructure. The multiplier effect on the wider economy will be massive,” Yoong says.

He adds: “The best strategy to compete globally now is to allow this well-oiled machine in the packaging, assembly and testing of semiconductors to flourish by improving infrastructure and increasing the number of well-qualified engineering graduates.”

Yoong also notes that Penang as a tech industry destination is competitive internationally and could be compared to the Silicon Valley in California.

“Best not to tamper too much with the winning formula that created the Silicon Valley of the East that is Penang. It is good to focus on improving the environment that created this success story. Malaysia is on the right path again after a decade in the wilderness,” Yoong says.