KUALA LUMPUR, MALAYSIA – 2018/01/24: A foreigner is seen against the background of the Malaysian flag. Kuala Lumpur or commonly known as KL is the national capital of Malaysia and is the fastest growing metropolitan areas in Southeast Asia. The urban city is also world famous for tourism and shopping. Kuala Lumpur has an excellent public transport for people traveling around the city. (Photo by Faris Hadziq/SOPA Images/LightRocket via Getty Images)
Faris Hadziq | Sopa Images | Lightrocket | Getty Images
Malaysia is emerging as a hotspot for semiconductor factories as US-China tensions push companies to diversify their operations.
“Malaysia has a well-established infrastructure with around five decades of experience in the ‘back end’ of the semiconductor manufacturing process, particularly in assembly, test and packaging,” said Kenddrick Chan, head of the digital international relations project at LSE IDEAS. foreign policy think tank of the London School of Economics and Political Science.
Semiconductors – critical components found in everything from smartphones to cars – have been at the center of a US-China tech war.
American chip giant Intel in December 2021 it said it would invest more than $7 billion to build a chip packaging and testing plant in Malaysia, with production expected to start in 2024.
“Our decision to invest in Malaysia is rooted in its diverse talent pool, established infrastructure and strong supply chain,” Aik Kean Chong, CEO of Intel Malaysia, told CNBC.
Intel’s first overseas production facility was an assembly facility in Penang started in 1972 with an investment of $1.6 million. The company went on to add a full testing facility as well as a development and design center in Malaysia.
Another US chip giant, GlobalFoundriesIn September opened a hub in Penang to “support global manufacturing operations” alongside its factories in Singapore, the US and Europe.
“Proactive policies and strong support from the regional government together with partners like InvestPenang have created a strong ecosystem for the industry to grow,” said Tan Yew Kong, senior vice president and general manager of GlobalFoundries Singapore.
Germany’s top chip maker Infineon in July 2022 said it would build a third wafer manufacturing plant in Kulim while Neways, a key supplier to the Dutch chip equipment maker ASMLhe said last month will build a new manufacturing facility in Klang.
“Malaysia’s advantage has always been its skilled workforce in packaging, assembly and testing and lower comparative operating costs, making exports more competitive globally,” said Yinglan Tan, founding partner of Insignia Ventures Partners. He added that the ringgit’s The current position makes the country an “attractive location for foreign players”.
Malaysia has 13% of the global market for chip packaging, assembly and test services, the Investment Development Authority of Malaysia said in Report of February 18. Semiconductor and integrated circuit device exports rose 0.03 percent to 387.45 billion Malaysian ringgit ($81.4 billion) in 2023 amid weak global chip demand.
Malaysia Semiconductor Industry Association president Datuk Seri Wong Siew Hai said many Chinese companies have diversified some of their production to Malaysia, calling the country China’s “plus one”.
Zafrul Aziz, Malaysia’s investment, trade and industry minister, told CNBC in January that Malaysia aims to focus on the “front end” of the chip-making process, rather than just the “back end.” Front-end processes include wafer fabrication and photolithography, while back-end processes focus on packaging and assembly.
In an effort to grow the country’s semiconductor ecosystem and attract investment, Malaysia in January created a national semiconductor strategic group, local media reported.
US-China tensions
India in February approved its construction three semiconductor facilities with investments of more than 15 billion dollars. India in June approved the US memory chip giant by Micron plans to set up semiconductor unit.
In the same month, the world’s largest contract chipmaker TSMC opened its first factory in Japan as it diversifies away from Taiwan amid US-China tensions.
Washington introduced sweeping rules in October 2022 aimed at limiting China’s access to advanced chip technology amid concerns that China could use them for military purposes. Last year, the US announced new regulations preventing US chip designer Nvidia from selling advanced artificial intelligence chips to China.
“Malaysia and Asia in general is poised to benefit from the China-US technology war, where access to advanced semiconductor chips is being weaponized as a tool to establish global technological supremacy,” said May-Ann Lim, director of the data governance practice at public policy consultancy Access Partnership.
Brain drain
While Malaysia stands to benefit from the US-China chip war, its brain drain poses challenges as workers leave the country for better job prospects and higher wages.
“This may well be the case if companies invest in upskilling the workforce in Malaysia, only to lose it to other competitors across the region once they acquire the skills,” Lim said.
An official study conducted in 2022 revealed that 3 out of 4 Malaysian workers in Singapore they are skilled or semi-skilled, highlighting the country’s brain drain problem.
“Whether this demand created by supply chain diversification will be met with an adequate supply of skilled talent in the country remains an ongoing business challenge,” said Tan of Insignia Ventures Partners.
Malaysian Prime Minister Anwar Ibrahim in September said the government is seeking to attract skilled Malaysians to come back and contribute to the country.