Timely push for chip sector

KUALA LUMPUR: The government’s allocation of RM25bil in fiscal support under the National Semiconductor Strategy (NSS) is a watershed moment for the semiconductor industry.

It was seen as a much-needed boost for the local chip sector, allowing Malaysia to recover its competitive edge against neighbouring countries.

While industry leaders applaud the government’s key initiatives outlined in the NSS, all eyes are now on how the RM25bil will be utilised to fully maximise the investment value.

One industry player highlighted that the NSS addresses the three crucial elements needed in the sector: talent, funding and government support.

“The government also spelt out how much investment is required and government support is going to come in and which are the specific areas. It is just up to the relevant government bodies to work on the details.

“RM25bil is a lot of money for Malaysia. However, if the allocation goes to the wafer fab segment, this amount may not be enough,” he told StarBiz.

Structured in three phases – building on the country’s foundations, moving to the frontier, innovating at the frontier – and encompassing five headline targets, Prime Minister Datuk Seri Anwar Ibrahim said the NSS will be a living document, evolving as needed.

“Malaysia is offering itself as the ‘bridge’ to connect countries open to tech collaboration right here on our shores.

“Malaysia is already a melting pot of local and international tech talent, making it easy for companies rooted here to be regionally and globally competitive,” he said during the unveiling of NSS at the SEMICON South-East Asia 2024 event yesterday. The government also plans to court at least RM500bil of investments 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 fabs and manufacturing equipment.

On this note, the industry player said the targeted investments of RM500bil, especially for a wafer fab, may not be enough.

“Even a small old wafer fab, we are talking about an investment of US$10bil. Taiwan Semiconductor Manufacturing Co Ltd (TSMC) spends US$20bil on wafer fab.”

He explained that for a fab to be built in a country, the company would need to spend a minimum of 30% of the total investment while the bulk of the capital would be via the country’s coffers.

For example, Micron Technology’s fab in India required the government to subsidise 70% of the investment cost.

“We are talking about only a small fab, about US$3bil, not a pure foundry. For a pure foundry like TSMC, it is a totally different ball game, he added.

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

“Out of RM25bil, if we spend RM5bil on IC design, the impact will be huge. This may not be enough but at least we are matching what Vietnam is doing.”

He said the allocation should also go into further enhancing the back end services such as packaging, assembly, and testing which Malaysia is very strong in.

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

He pointed out that companies that will benefit substantially from the NSS are the outsourced semiconductor assembly and test (OSAT) players, such as Inari Amertron Bhd.

Meanwhile, Inari group chief executive officer KC Lau said the plan is a great initiative as it covers most of the states, balancing the resources and technology development.

“It is a very exciting move to bring the country’s electrical and electronics sector forward especially for those who stay relevant in the value chain,” he said.

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

In February, Vietnam announced its plans to train some 50,000 engineers by 2030. Like the majority of countries, Vietnam is confronted with a chronic shortage of talents to grow its chip industry.

Notably, the NSS aims to train and upskill 60,000 high-skilled Malaysian engineers.

Under Phase 2, the goal is to establish at least 10 domestic companies in design and advanced packaging with revenues between RM1bil to RM4.7bil, and at least 100 semiconductor-related companies with revenues close to RM1bil, creating higher wages for Malaysian workers.

Siemens Malaysia president and chief executive officer Tindaro Danze said this initiative will not resolve the lack of talent the country is facing but rather it will go hand-in-hand with the upskilling efforts the country is already doing.

“The setting up of these companies means there is going to be more demand for talents. This will not discount what the government has done with regards to upskilling the workforce. The question now is how we are going to place the 60,000 upskilled individuals in the industry.

“With the emergence of new companies, there will also be more opportunities for employment beyond multinational corporations,” he told StarBiz.

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

“A strengthened domestic semiconductor ecosystem will attract more investment because investors will be confident that the local infrastructure can support their ventures.”

Malaysia Semiconductor Industry Association (MSIA) president Datuk Seri Wong Siew Hai said if the country can achieve even 50% of its goals set out in the NSS, it will be considered a good accomplishment.

“Addressing the talent issue requires a whole-of-nation approach, with long-term, short-term, and medium-term strategies. What was mentioned is just one strategy and there are much more that needs to be done. Talent shortage is actually one of the hardest issues to resolve,” he said.

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

“SEMI reported that there are over 70 fabs globally, with only eight located in South-East Asia. Therefore, the region needs to produce more fabs, and hopefully Malaysia can secure some of these investments,” he added.

Meanwhile, QES Group Bhd managing director and president NW Chew said the RM500bil target on DDI and FDI is massive and if successful will definitely spur growth of semiconductor related companies operating in Malaysia.

“Attracting both IC design, wafer fabs and advanced packaging companies to invest here is an excellent strategy as Malaysia already has test and assembly knowledge and workforce that can be further trained to complete a total solution for high technology companies to set up here or farm out their requirements to Malaysian semiconductor companies.

He added that incentives of RM25bil to further encourage the electrical and electronics products and automated test equipment manufacturing companies augurs well to ensure sustainable growth in these segments.

“The local Malaysian companies look forward to the incentives which the details will be announced later through the Investment, Trade and Industry Ministry,” he added.