NSS is a multi-faceted boon for the chip sector

PETALING JAYA: Analysts are bullish on the National Semiconductor Strategy (NSS), believing it will further improve the prospects of the local technology and semiconductor industry.

The NSS, which has three overarching stages and sets five main goals, was announced by Prime Minister Datuk Seri Anwar Ibrahim on Tuesday at the Semiconductor Southeast Asia 2024 event in Kuala Lumpur.

The government is committing RM25 billion to try to strengthen the country’s position as a key manufacturing hub for outsourced semiconductor assembly and testing (Osat) services, while also moving up the value chain towards higher-end manufacturing, design, packaging and equipment.

Most observers praised Putrajaya’s move, with Rakuten Trade’s head of equity sales Vincent Lau calling the initiative timely and much needed, especially in light of the fact that similar activities are also being carried out in other markets.

“Our prospects for the technology industry have improved following this announcement as we truly need to leverage our infrastructure to attract more investment to Malaysia,” he told StarBiz. Pointing out that the government’s investment could push it towards its goal of securing Lau said that investments worth RM500 billion under the first phase of NSS Lau said the move is in line with the influx of data center construction applications that are currently permeating the country .

Malaysia should also leverage its strengths in the electrical and electronics sector by taking advantage of the China+1 phenomenon, which is leading to the emergence of several multinational corporations at the local level, he said.

Agreeing with Lau, Areca Capital chief executive Danny Wong said that compared to similar initiatives announced in the United States and China, Malaysia is taking the “small steps” necessary to modernize and advance its supply chain beyond Osat.

“This RM25 billion allocation by the government is expected to attract more foreign direct investment (FDI) – about 20 times – and create Malaysian companies at the mid- and front-end of the supply chain, such as chip design, manufacturing, integrated services and packaging,” he said .

Noting that the investment also aims to make Malaysia an R&D hub, Wong hopes the country will create enough supply of engineers coupled with a technically skilled workforce to meet the expected demand.

Moreover, he expects the government to provide incentives such as pioneer status and tax breaks in addition to grants as next steps, emphasizing that Malaysia’s neutral and non-aligned status is key to its exceptional competitiveness.

Siemens Malaysia Sdn Bhd chief executive Tindaro Danze believes it is imperative that Malaysia continues to invest in the semiconductor industry as the sector contributes about 25% of gross domestic product.

“Malaysia also meets 7% of global semiconductor demand and it is critical not to be left behind. The upcoming additional investments will increase efficiency,” he added.

Apart from the proposed construction of several data centers, he said Malaysia is also benefiting from the diversification strategy of many large corporations from years of isolation.

Danze said this could particularly be attributed to the assumption that Malaysia already has a healthy and conductive semiconductor ecosystem that helps industry players minimize disruptions to their supply chain.

Meanwhile, elaborating on the issue of adequate talent pool, the fund manager fears that this could be a thorn in the side of the ambitious NSS.

“NSS looks huge, but to meet the needs of areas such as chip manufacturing, advanced design, chip manufacturing and testing, these processes clearly require local skilled talent.

“We therefore recognize that NSS may have long-term positive effects, but we are not sure about its immediate prospects,” he said.

With Malaysia benefiting from US-China trade tensions, the fund manager said the NSS is an exercise to prepare companies to shift their production processes to Asia.

“However, we believe that the near-term prospects continue to depend on capital expenditure by industry stakeholders. The sector’s valuation is at the level of the historical average, which at this point seems less attractive for entering the market,” he said. He opined that the current momentum is centered around artificial intelligence and data centers, an area that most Malaysian technology companies have less exposure to.

Accordingly, the fund manager believes that the direction of the technology sector will continue to be driven mainly by the recovery in the semiconductor industry in personal computers, smartphones and electric vehicles, which analysts and industry players expect in the last quarter of this year.

CGS International Research (CGSI Research) and TA Research support the NSS, with the former seeing it as a positive direction for maintaining the country’s competitiveness in the face of increasing competition for foreign direct investment in semiconductors in Southeast Asia.

If the NSS is well executed, TA Research expects Malaysia to remain a popular destination as a neutral and non-aligned country that will attract global technology players in the near future.

“The only slight disappointment is that there is no specific timeline given for the main goals.

“Among all the key targets, we look forward to more details on fiscal support in the form of incentives worth at least RM25 billion as this will motivate local semiconductor players to accelerate their modernization and upskilling,” he added.

Some counters that research companies expect from NSS include Inari Amertron BhdMalaysian Pacific Industry Bhd, Elsoft Research Bhd and Vitrox Corp Bhd.

Notably, the Prime Minister’s announcement had no impact on the Bursa Malaysia Technology Index as yesterday’s market movements remained flat.

However, Rakuten Trade’s Lau remains hopeful that the Nasdaq’s spillover effect will provide support for the local index, noting that the current correction is solid given the recent good run of the overall market.