A quick boost for the chip sector

KUALA LUMPUR: The government’s allocation of RM25 billion in fiscal support under the National Semiconductor Strategy (NSS) is a landmark moment for the semiconductor industry.

This was seen as a much-needed boost for the local chip sector, enabling Malaysia to regain a competitive advantage over neighboring countries.

While industry leaders applaud the government’s key initiatives outlined in the NSS, all eyes are now on how to leverage the RM25 billion to fully maximize the value of the investment.

One industry player emphasized that the NSS takes into account three key elements needed in the sector: talent, financing and government support.

“The government has also outlined how much investment is required and what government support it will receive and the specific areas. Work on the details is now up to the relevant government bodies.

“RM25 billion is a lot of money for Malaysia. However, if the allocation goes to the wafer factory segment, the amount may not be enough,” he told StarBiz.

Divided into three stages – building on the country’s foundations, moving to the frontier, innovating at the frontier – and encompassing five main objectives, Prime Minister Datuk Seri Anwar Ibrahim said the NSS would be a living document, evolving as needed.

“Malaysia offers itself as a ‘bridge’ connecting countries open to technological cooperation here on our shores.

“Malaysia is already a melting pot of local and international technology talent, making it easier for companies with roots here to remain competitive in the region and globally,” he said during an NSS presentation at the SEMICON South-East Asia 2024 event yesterday. The government also plans to seek investments worth at least RM500 billion in Phase 1, with domestic direct investment (DDI) focusing on integrated circuit (IC) design, advanced packaging and manufacturing equipment.

Meanwhile, foreign direct investment (FDI) will be directed towards wafer factories and production equipment.

Therefore, an industry player said the targeted investment of RM500 billion, especially for the wafer plant, may not be enough.

“Even for a small, old wafer factory, we’re talking about a $10 billion investment. Taiwan Semiconductor Manufacturing Co Ltd (TSMC) Spends $20 Billion on Wafer Plant.”

He explained that in order for the factory to be built in the country, the company will have to spend at least 30% of the total investment amount, and most of the capital will come from the state treasury.

For example, the Micron Technology factory in India required a government subsidy of 70% of the investment cost.

“We’re talking about a small $3 billion factory, not a pure foundry. He added that for a pure foundry like TSMC, it’s a completely different ball game.

He believed that RM25bil should be allocated to segments where the industry faced the biggest gaps, such as chip design, front-end, software and advanced packaging.

“If we spend RM5 billion out of RM25 billion on chip design, the impact will be huge. It may not be enough, but at least we are on par with what Vietnam is doing.”

He said the allocation should also be used to further improve end-use services such as packaging, assembly and testing, in which Malaysia is very strong.

Malaysia currently accounts for 13% of the global market for chip packaging, assembly and testing services.

He stressed that companies that will greatly benefit from NSS are outsourced semiconductor assembly and testing (OSAT) entities such as Inari Amertron Bhd.

Meanwhile, Inari Group CEO KC Lau said the plan is a great initiative as it covers most states, balancing resource and technology development.

“This is a very exciting move to accelerate the development of the country’s electrical and electronics sector, especially for those who remain important in the value chain,” he said.

While the semiconductor industry offers great growth potential, challenges such as talent shortages remain key for many countries.

In February, Vietnam announced plans to train about 50,000 engineers by 2030. Like most countries, Vietnam faces a chronic shortage of talent needed to develop its chip industry.

Specifically, NSS aims to train and upskill 60,000 highly skilled Malaysian engineers.

Under Phase 2, the target is to establish at least 10 domestic design and advanced packaging companies with revenues between RM1 billion and RM4.7 billion and at least 100 semiconductor companies with revenues close to RM1 trillion, which will provide higher wages to Malaysians employees.

Siemens Malaysia president and CEO Tindaro Danze said this initiative will not solve the talent shortage problem facing the country, but rather go hand in hand with upskilling efforts the country is already undertaking.

“The creation of these companies means there will be a greater demand for talent. This does not diminish the government’s achievements in upskilling the workforce. The question now is how we will put 60,000 highly skilled workers into the industry.

“As new companies emerge, there will be more employment opportunities beyond multinational corporations,” he told StarBiz.

Tindaro said the NSS’s emphasis on not only FDI but also DDI is the right approach. He said increased DDI will help create a local semiconductor ecosystem, which in turn will naturally attract more FDI.

“A strengthened domestic semiconductor ecosystem will attract more investment as investors will have confidence that local infrastructure will be able to support their ventures.”

Malaysian Semiconductor Industry Association (MSIA) president Datuk Seri Wong Siew Hai said if the country manages to achieve even 50% of the targets set in the NSS, it would be considered a good achievement.

“Addressing the talent problem requires a whole-of-nation approach, with long-term, short-term and medium-term strategies. Only one strategy has been mentioned and there is still much work to be done. The talent shortage is actually one of the most difficult problems to solve,” he said.

Wong said Malaysia should focus on attracting FDI factories to the country.

“SEMI reported that there are more than 70 factories worldwide, of which only eight are in Southeast Asia. Therefore, the region needs to produce more factories and hopefully Malaysia will be able to secure some of these investments,” he added.

Meanwhile, QES Group Bhd Managing Director and Chairman NW Chew said the RM500 billion target for DDI and FDI is huge and if successful, will certainly boost the growth of semiconductor companies operating in Malaysia.

“Attracting both chip design, semiconductor wafer fabs and advanced packaging companies to invest here is an excellent strategy as Malaysia already has the testing and assembly expertise and manpower that can be further trained to create a comprehensive solutions for high-tech companies that could set up or farm here their requirements for Malaysian semiconductor companies.

He added that the RM25bil incentives to further encourage companies producing electrical and electronic products and automated test equipment bode well to ensure sustainable growth in these segments.

“Local Malaysian companies are eagerly awaiting the incentives, details of which will be announced later through the Ministry of Investment, Trade and Industry,” he added.