Winning the tech war
MALAYSIA has been getting a lot of good press of late, being touted as one of the main beneficiaries of the ongoing US-China tech war. This is not new actually as the industry has enjoyed significant new business and investments in the past few years.

Dozens of overseas semiconductor-related companies have invested or increased investments in places like Penang and Kulim as they seek to avoid geopolitical disruptions to their businesses.

Will the trend continue or will there be hiccups that could hamper the sector’s growth? And why has Malaysia yet to significantly move up the value chain and go into areas such as chip design?

The good news is that Malaysia has been in this industry for more than 50 years. Penang has been the hotbed for the sector.

The country’s engineering talent and a sound ecosystem are the attractions.

As a country where many people speak global languages such as English and Chinese, it is also at an advantage.

Datuk Seri Wong Siew Hai, a veteran of the semiconductor industry, says Malaysians are often chosen to set up new facilities abroad when multinationals (MNCs) expand their operations. He also says Malaysia stands out as the MNCs tend to bring their latest technology and products here to be tested before they get into manufacturing lines.

All said, having sufficient talent to fuel further growth in the sector remains an issue.

Wong, who is the president of the Malaysia Semiconductor Industry Association (MSIA), points out however that it is a global issue. “There is a global war for talent,” he says.

He advocates bringing in talent from other countries to keep the industry here moving, a practice of many others like the US, Taiwan, China and Singapore.

There is more to look forward to going by growth projections for the industry. It is expected to grow glo- bally from US$574bil (RM2.7 trillion) in 2022 to US$1 trillion in 2030.

In 2022, Malaysia’s total electrical and electronics exports were at RM593bil, with two-thirds from semiconductor-related products.

Recent chip demand has been generally soft but is expected to pick later this year, helped by fresh concepts such as generative artificial intelligence (AI).

In Deloitte’s 2024 global semiconductor industry outlook, the group notes that it had been challenging for the “infamously cyclical” semi- conductor industry last year — its seventh downturn since 1990.

It is predicted that in 2024, global sales will hit US$588bil — 13% better than last year and 2.5% higher than 2022’s record industry revenue of US$574bil.

Generative AI chips will continue to be at the centre of the new wave of chip supply.

In 2024, chips designed to accelerate AI workloads will be the fastest- growing generative semiconductor market. According to Deloitte, the global chip market is expected to grow to over US$50 billion, representing close to 10% of all global chip sales.

Currently, Malaysia is the sixth-largest semiconductor exporter in the world. It packages more than 20% of the chips imported into the US.

Different strategy

Malaysia’s strategy has largely been focused on foreign direct investment (FDI) all these years.

This has been good for government coffers but it also means we have not become a major player in integrated circuit (IC) design, with only a small pocket of local companies in this sector.

Taiwan and South Korea have provided support to companies in this field to get them off the ground.

What the Malaysian government has done instead is spend billions trying to set up wafer fabrication plants, which failed. This is why people like MSIA’s Wong reckons that any investment by the government should be in IC design and not wafer fabs, as they are called.

Instead of building our own wafer fabs, Wong says the government should attract more foreign investments to boost the local semiconductor ecosystem.

Doubling down on the country’s strengths, with a renewed emphasis on capacity building and innovation as well as a more targeted FDI focus, will put the country in a better position for the future.

Competition is fast increasing regionally. Vietnam has stepped on the pedal, offering tax breaks and other incentives to semiconductor companies.

However, its science and technology minister Huynh Thanh Dat said recently that the country has a low localisation rate while research and development activities are not “synchronised.”

He also stated that high-quality talent in the field of semiconductors is limited.

These reasons are partly why the country had missed out on the recent major investments by companies like Intel and AT&S, which chose Malaysia instead.

Nevertheless, it may not be long before Vietnam gets its act together as there is now a more concerted effort to boost the industry.

Malaysia will do well to see how it can strengthen and build up local companies, attract more giants to set up shop here, all while also encouraging the next generation to develop a keen interest in science, technology, engineering and mathematics, or better known as STEM courses.

This will arrest the decline in younger people pursuing such subjects and help Malaysia to continue to remain a top exporter of semiconductor products and services for a long time to come.

This article first appeared in Star Biz7 weekly edition.
Star Biz7,Tech war,semiconductors,talent,chips,water fabs,technology,AI
MALAYSIA has been getting a lot of good press of late, being touted as one of the main beneficiaries of the ongoing US-China tech war. This is not new actually as the industry has enjoyed significant new business and investments in the past few years.