Malaysia’s Semiconductor Growth: Can it Move up the Value Chain?

Malaysia is making bold strides in the global semiconductor industry, with the recent US$250 million investment by British chip giant ARM serving as a potential catalyst for growth. This move signals a shift in Malaysia’s ambitions, aiming not just to be a crucial player in chip assembly and testing but to elevate its position in the value chain. ARM’s investment aligns with Malaysia’s long-term vision of attracting high-tech semiconductor design and research, moving beyond its traditional role in backend chip manufacturing.

The country has long been recognized as a key hub for semiconductor packaging and testing, but this latest investment raises an important question: Can Malaysia successfully transition into high-value chip design and fabrication? ARM’s expansion marks an important milestone, offering not just capital infusion but also knowledge transfer, skill development, and the potential to integrate Malaysia further into the global semiconductor supply chain.

Malaysia’s semiconductor ecosystem and strengths

Malaysia has built a strong foundation in the semiconductor industry, supported by decades of expertise in electronics manufacturing. The country is home to several multinational chipmakers, including Intel and Infineon, which have long leveraged Malaysia’s cost-effective labor market, stable economic environment, and robust infrastructure.

Penang, often referred to as the “Silicon Valley of the East,” remains a core hub for semiconductor production, drawing both foreign and domestic investments.

Find Business Support

Navigating Malaysia’s semiconductor industry requires expert guidance. Work with our experienced Dezan Shira & Associates consultants to explore investment opportunities, understand regulatory frameworks, and make informed business decisions.

The country contributes about 13 percent of the world’s semiconductor testing and packaging, with increasing investments in integrated circuit (IC) design aimed at establishing a major IC design hub. Additionally, Malaysia holds about 7 percent of the global semiconductor market, with aspirations to double this share to 14 percent by 2029 through strategic investments and advancements in chip design.

Employment in the sector remains significant, with approximately 100,000 people working in semiconductor-related roles. This figure is expected to rise as ongoing investments drive further expansion of manufacturing and R&D facilities.

Major semiconductor firms continue to expand in Malaysia, with Intel investing US$7 billion in a new plant, Micron opening its second assembly and testing plant, and Infineon planning to invest US$5.4 billion over the next five years. Texas Instruments also maintains a significant presence in the country.

The challenge of moving up the value chain

Despite its well-established semiconductor ecosystem, Malaysia faces several hurdles in its quest to move up the value chain. One of the most pressing challenges is talent development. The semiconductor industry relies heavily on skilled engineers, researchers, and design experts, in areas where Malaysia still lags behind regional competitors such as Taiwan, South Korea, and China.

The absence of major semiconductor fabrication plants further limits the country’s ability to become a dominant force in chip design and manufacturing.

Competition from established players presents another challenge. Taiwan and South Korea have long dominated semiconductor fabrication, with companies such as TSMC and Samsung Semiconductor leading global production. Their well-funded ecosystems, extensive R&D investments, and advanced technological capabilities make it difficult for emerging markets like Malaysia to break into high-value semiconductor manufacturing.

Another obstacle is the scale of investment required for semiconductor fabrication plants. Setting up a high-tech chip fabrication facility requires billions of dollars, long-term commitments, and extensive government support. While Malaysia has successfully attracted back-end manufacturing and testing operations, the leap into fabrication and design remains a formidable challenge.

Government policies and industry support

To address these challenges, the Malaysian government has implemented several policies to attract high-tech semiconductor investments. Agencies like the Malaysian Investment Development Authority (MIDA) have introduced incentives, including tax breaks, grants, and funding programs aimed at fostering innovation and research in the sector.

Additionally, initiatives such as the National Investment Aspirations (NIA) framework and Industry4WRD policies are designed to drive Malaysia’s industrial transformation and strengthen its role in high-value semiconductor production.

A key focus has been on developing a highly skilled workforce. Malaysia is actively developing its STEM workforce to support the semiconductor industry. The Penang STEM Talent Blueprint, integrated into the National Semiconductor Strategy (NSS), aims to train 60,000 skilled engineers by 2030.

University-industry partnerships have been established to enhance STEM education and provide practical training opportunities for students entering the semiconductor field. Meanwhile, the expansion of Technical and Vocational Education and Training (TVET) programs in STEM fields, with a specific focus on increasing female participation, is another initiative aimed at strengthening Malaysia’s talent pipeline.

National plans & strategies

Semiconductors are a key focus in Malaysia’s New Industrial Master Plan (NIMP 2030) and other economic blueprints. The National Semiconductor Strategy (NSS), launched in 2024, aims to elevate Malaysia’s semiconductor industry through strategic initiatives. These include the establishment of the Advanced Packaging Program and Technology Centre, the MYChipStart Program, and the Wafer Fabrication Park, which is designed to strengthen Malaysia’s semiconductor capabilities across multiple segments.

NIMP 2030 further outlines Malaysia’s strategy to enhance its role in semiconductor equipment manufacturing, wafer fabrication, and integrated circuit design. By implementing these initiatives, Malaysia is positioning itself to move up the semiconductor value chain and attract more high-tech investments.

Tax incentives for semiconductor firms

To further attract semiconductor firms, Malaysia offers several tax incentives designed to reduce costs and enhance investment attractiveness. Companies investing in the semiconductor sector can benefit from:

• Pioneer Status (PS): Provides a 70 percent income tax exemption for up to 10 years.
• Investment Tax Allowance (ITA): Offers an allowance of 60 percent on qualifying capital expenditure for five years.

Prospects and Malaysia’s path to becoming a semiconductor powerhouse

The semiconductor industry is rapidly evolving, with increasing demand for AI-driven chips, automotive semiconductors, and edge computing processors. Malaysia can leverage its existing strengths to position itself as a hub for specialized chip design and advanced packaging technologies. As global companies seek diversification in semiconductor supply chains, Malaysia has an opportunity to attract investments in next-generation semiconductor fabrication and chiplet technology.

Another key area is sustainability in semiconductor manufacturing. With rising concerns over energy consumption in chip production, Malaysia can adopt greener manufacturing processes and incentivize companies to invest in energy-efficient semiconductor technologies. This could provide a competitive edge in attracting environmentally conscious investors.

Seizing the moment

ARM’s US$250 million investment is more than just a financial boost for Malaysia’s semiconductor sector—it is a signal that the country is on the path to greater technological advancement. However, this opportunity must be met with strategic planning, workforce development, and sustained government-industry collaboration.

• Previous Article Singapore’s Maritime Industry: A Guide for Foreign Businesses
• Next Article Transfer Pricing in Thailand: A Guide for Foreign Investors