With over 50 years of experience in the semiconductor industry, Malaysia has established itself as a key hub for chip assembly and test, accounting for a staggering 13% of the global outsourced semiconductor assembly and test (OSAT) market. It boasts a market share of over 50% in Southeast Asia. . Industry giants such as Intel, Texas Instruments, Micron and ASE have long considered Malaysia as the foundation for their back-end manufacturing operations.
However, recent policy announcements and statements from political leaders indicate that the country is no longer satisfied with its achievements. This ambition is articulated in the New Industry Master Plan 2030 (NIMP 2030), released in September last year, which states: “As Malaysia continues to move up the semiconductor value chain, there is a growing urgency to establish chip manufacturing facilities. “It’s higher than ever before,” he said.
In May this year, Prime Minister Anwar Ibrahim echoed these aspirations, affirming that under the National Semiconductor Strategy (NSS), Malaysia would not only strengthen OSAT expertise but also encourage domestic and foreign investment in chip manufacturing. .
To be sure, Malaysia is not completely uninvolved in the chip manufacturing scene. Multinational companies such as Infineon, Onsemi, Osram and X-Fab have already established a foothold in the country. Notably, Infineon announced plans to build the world’s largest 8-inch silicon carbide (SiC) power wafer fab in Kulim, Kedah in August last year, a project that has brought Malaysia to the international semiconductor spotlight.
However, with geopolitical tensions rising in East Asia, the world’s semiconductor manufacturers are increasingly motivated to diversify their supply chains. We believe Malaysia has a great opportunity to secure a larger slice of the chip manufacturing pie, coupled with the significant value that upstream activities in the semiconductor industry bring.
While this vision is undoubtedly appealing, the path to industrial upgrades is fraught with difficult challenges.
Silterra semiconductor factory
Photo courtesy of SilTerra Malaysia Facebook
amazing cost
One of the biggest challenges Malaysia faces in developing its chip manufacturing sector is funding. Semiconductor manufacturing is an inherently capital-intensive industry, requiring expensive equipment such as lithography and etching equipment.
According to DIGITIMES Research, building a single wafer fab costs at least $1.4 billion, with prices rising rapidly to up to $16 billion for more advanced nodes.
These exorbitant costs make chip manufacturing a high-stakes gamble. Facilities can quickly find themselves in financial trouble due to low yields and unstable customer demand. Unfortunately, Malaysia is not immune to this harsh reality.
Let’s take Silterra as an example. Local wafer fabs have suffered from declining revenues and rising costs for years, accumulating cumulative losses of RM1.832 billion (approximately $387.52 million) over nine years, according to a 2019 Auditor General report. . Bowing to pressure, Silterra’s majority shareholder Khazanah Nasional sold the company to Malaysian company DNEX and China’s CGP Fund in 2021.
A similar fate befell 1st Silicon, another Malaysian wafer fab founded in 1998. Due to continued financial difficulties, the company was sold to a German company in March 2006 and subsequently rebranded to the aforementioned X-Fab.
Dr. Mohd Zamir Pakrudin, Director of the Institute of Nano-Optoelectronics Research and Technology (INOR), emphasized the scale of investment required. “Developing the chip manufacturing industry is a big undertaking. Just expanding the production capacity of existing players, let alone building new fabs from scratch, requires billions of dollars,” he said.
Learning from the failures of Silterra and 1st Silicon, Malaysia is pivoting away from government-owned ventures to a collaborative model that includes domestic and foreign investment. The NIMP 2030 blueprint aims to attract at least one global leader to set up a wafer fab in the country. The government is also aiming to encourage the participation of local companies in the supply chain to improve technological capabilities.
Mr. Pahluddin supported this strategy and emphasized the wisdom of leveraging foreign investment. “Local companies alone cannot shoulder billions of dollars of investment,” he explained. Why not increase Malaysia’s chip manufacturing capacity by attracting multinational companies to play a central role? ”
Foreign investment can potentially address more than just financing issues. David Lacy, Chairman of Semiconductor Manufacturing Society of Malaysia (SFAM), said: “Multinational companies not only have technical expertise but also an established customer base. Attracting them to Malaysia will give the chip manufacturing industry immediate access to both advanced technology and stable customers. It will be like this.”
XFAB Malaysia factory
Photo provided by: XFAB official website
shortage of human resources
The second major hurdle lies in the lack of skilled personnel. As Malaysia’s semiconductor industry continues to grow, the government predicts that at least 50,000 skilled engineers will be needed. However, the country produces 5,000 engineering graduates every year.
The NIMP 2030 report frankly acknowledges this, stating that the proportion of graduates in science, technology, engineering and mathematics (STEM) fields remains below the ideal 60%, leaving companies facing a lack of technical expertise. He points out that he is troubled.
David Lacy emphasized that building the chip manufacturing ecosystem requires more people with relevant bachelor’s degrees. Malaysia needs to produce more STEM master’s and doctoral graduates.
While universities such as Universiti Malaya (UM) and Universiti Sains Malaysia (USM) have made commendable efforts to develop semiconductor talent, Lacey believes this is not enough. “We need more institutions focused on semiconductor education, each specializing in a different technology area. This approach creates a comprehensive talent pool that can address the diverse challenges faced by Malaysian chipmakers.” “It will be done,” he said.
According to Lacey, many Malaysians are hesitant to pursue graduate school for two main reasons.
First, there are a limited number of chip manufacturing factories in Malaysia, which have historically provided fewer employment opportunities than assembly and testing facilities. This lack of demand discourages individuals from pursuing advanced degrees. Second, new graduates often prioritize getting a job to earn an immediate income and consider further study to be an expensive and time-consuming endeavor.
“The semiconductor industry values graduate qualifications highly, not only in Japan, South Korea and Taiwan, but also in Western countries,” Lacey says. “In contrast, this mindset is less prevalent in Malaysia, with many missing out on the long-term benefits of an advanced degree.”
Bayan Lepas is an important city where semiconductor factories are located.
Photo courtesy: Shutterstock
talent war
Malaysia is also suffering from a severe brain drain. Due to uncompetitive wages, many skilled engineers are attracted to attractive offers from companies in Singapore, Taiwan, and mainland China, and ultimately choose to work overseas. Even Pua Kein Seng, CEO of Taiwan’s Faison Electronics, cited the exodus of talent as the main reason for closing the R&D center he once established in Penang.
Pakrudin freely acknowledged that this challenge is exacerbated by the global race to expand semiconductor manufacturing capacity. “Malaysian engineers are fluent in both English and Chinese, making them highly competitive in the international market.” “I pulled it out,” he said.
Even within Malaysia, competition for talent is fierce among local semiconductor companies, and the losers often face unstable management. Mohd Zamir Pakrudin, who worked as an engineer at Silterra from 2003 to 2009, witnessed this firsthand. “Shortly after I joined Silterra, Infineon poached employees and offered salary increases of at least 30%. Many of Silterra’s engineers and managers left for greener pastures. is a common occurrence in the semiconductor and electronics sector in Malaysia,” he recalled.
“Imagine: How can a factory run smoothly if employees are constantly being headhunted? Or, more importantly, how can a factory be set up here? Are you confident?”
reinforcement of supplies
The third major hurdle is Malaysia’s relatively incomplete semiconductor ecosystem. Malaysia already has advantages such as tax incentives, well-equipped industrial parks, and strong infrastructure, as well as political stability and a thriving chip assembly and testing industry, but it is difficult to fully support chip manufacturing. There are still gaps that need to be addressed.
Lacey said Malaysia’s semiconductor ecosystem still needs significant improvement. A significant drawback is the lack of local availability of chemicals and materials essential to chip manufacturing, such as silicon wafers, electronic gases, and photoresists. “Ensuring a stable supply of these materials is essential to establishing wafer fabrication facilities and attracting investment,” Lacey emphasized.
The NIMP 2030 report actively encourages foreign and domestic companies to locally produce electronic chemicals for wafer manufacturing needs.
In addition to materials, the success of Malaysia’s chip manufacturing industry also depends on the technical support of research institutes.
In Taiwan, this role is played by the Industrial Technology Research Institute (ITRI), which formulates development strategies to overcome technological challenges.
Similarly, South Korea has institutions such as the Korea Institute of Industry, Economics and Trade (KIET) and the Korea Electronics Technology Institute (KETI) that support the semiconductor sector.
Malaysia tried to follow in the footsteps of Taiwan and South Korea by establishing the Malaysian Institute of Microelectronics Systems (MIMOS). However, MIMOS is relatively less effective than those in Taiwan and South Korea. The company was founded in 1985, but it took 10 years under MIMOS for the country’s first wafer fab to be established.
“Like ITRI in Taiwan, MIMOS plays an important role in the ecosystem,” Lacy said. A robust semiconductor ecosystem also requires a thriving upstream IC design sector. The more fabless semiconductor companies operate within Malaysia, the more stable the demand for local chip manufacturing will be. Pakrudin pointed out that the failure of Silterra and First Silicon was partly due to the underdeveloped state of Malaysia’s IC design industry, which was unable to supply enough orders to sustain the wafer fab.
Enhancement of IC design
Malaysia is starting to address the weaknesses in upstream IC design. In April this year, Prime Minister Anwar Ibrahim announced the establishment of a 60,000 sq ft IC Design Park in Selangor, with the aim of making it the largest IC design hub in Southeast Asia.
Global intellectual property giant ARM is one of the key partners in this effort. Additionally, Phison Electronics CEO Pua Khein Seng invested RM100 million (approximately NT$700 million) to launch a startup named MaiStorage in Selangor. The company aims to bring generative AI technology, data centers, and EV-related memory storage to Malaysia.
By December, the Malaysian government had allocated RM50 million (approximately NT$366.62 million) to support IC design development in Penang. Penang Chief Minister Chow Kon Yeow said that more than 30 IC design companies have already set up operations in Penang, and that Penang will receive RM120 million (approximately NT$879.88 million) in investment over the next five years. He emphasized that the city is expected to attract investment.
After experiencing setbacks with Silterra and 1st Silicon, Malaysia readjusted its strategy. The focus has shifted from wholly government-owned ventures to co-investment models involving national and international stakeholders.
However, the challenges remain formidable. A lack of talent and an incomplete ecosystem remain major obstacles to Malaysia’s chip manufacturing ambitions. As the nation ambitiously climbs the semiconductor value chain, questions remain whether Malaysia can overcome these obstacles and achieve success.
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TNL Editors: Michael Beltran, Kim Chan (@thenewslensintl)
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