THE National Semiconductor Strategy (NSS) announced by Prime Minister Anwar Ibrahim during the Semicon SEA has outlined an aggressive transformation plan for Malaysia semiconductor industry, investing RM25 billion in developing 60,000 engineering talent who are capable in integrated circuits (IC) design and establishing 10 Malaysia companies in design and advanced packaging with billions of revenue.

Yet, looking at the reality of the global semiconductor value chain, the NSS high level strategy has plunged with significant blindspots.

Firstly, the core issue faced in Malaysia semiconductor industry transformation is not the amount of competent engineers. Every year, Malaysia’s higher education institutions produce a significant number of engineering graduates, but we do not have the right fit of companies that could provide career opportunities in semiconductor design and fabrication for those talents.

Only a handful of companies such as multinationals like Intel, AMD and Infineon, or local champion Oppstar and Silterra have the design or fabrication capability. In short, we lack the ecosystem that would provide talents a relevant, high-end semiconductor career growth with lucrative compensation, and that is fatal: most of them end up seeking alternative opportunities in Singapore, some in the US Silicon Valley, ultimately causing Malaysia talent drain.

So, why don’t we commonly see semiconductor design or fabrication houses in Malaysia?

Centre to this question is the unique global value chain of the semiconductor industry developed across the past 50 years.

In overview, semiconductor value chain is highly decentralized yet concentrated: each semiconductor manufacturing phase has been dispersed to specific geographical area - design architecture and its related software tools are dominated by US-Europe; East Asia has the best front-end foundry technology, owned by Taiwanese TSMC and Korean Samsung; the back-end test and assembly (T&A) key player changed periodically, but no doubt currently Malaysia is the champion.

Other than the relatively low-end T&A, over the years the subject matter expert in semiconductor design and foundry process has built up critical competency and shielded their know-how from other competitors, enabling their dominance in the market through patent filing, technology and trade secret preservation.

Hence, to tilt the current balance in global semiconductors’ value chain and then enable Malaysia entrance as a competent player in design and foundry, money is definitely not everything.

RM25 billion is just not that much for semiconductor high end technology development: a single ASML EUV machine which is fundamental to the most advanced IC fabrication already costs RM1.9 billion.

So here comes the second blindspot in the NSS: money and talent is not the key factor for Malaysia to go high end, it is the market that matters.

The current semiconductor design and fabrication landscape is very distinctive: high end IC often designed by OEM like Apple, NVidia in-house then fabricated by the East Asia giant, commonly TSMC foundry, whereas low end IC or other semiconductor components can be easily procured as off-the-shelf parts in the open market.

What is left over is only the narrow mid-tier market, where a high mix low volume demand exists.

Yet, in this arena, Taiwan and China design houses have occupied sternly the market position.

To paint a clearer picture on the cruel competition, it is worth to note that China has just announced USD 47.5 billion or RM223.5 billion semiconductor state investment fund to bolster China chip industry, an amount close to the total fiscal year expenditure of the Malaysian government.

The alternative way

All in all, the NSS is fatally positioning Malaysia in a red-sea - a congested competitive space filled with key dominance players.

Then what is the alternative way out for Malaysia?

In priority, the National Semiconductor Strategy should practically enhance our test and assembly (T&A) capability to fortify our position in the global semiconductor value chain through state investment.

No doubt, T&A is of lower value comparably, but this is the most probable sector that Malaysia can build up the technology great wall, and have the best competitive strength to dominate the market.

Three aspects would need to be further improved through state funding provision under NSS if we would to achieve T&A market dominance.

Firstly, an aggressive technology cycle upgrade on the current test and assembly industry which includes replacement of conventional assembly lines with AI powered automation and Internet of Things (IoT) sensory monitoring system, in aim to increase the yield quality and productivity.

Then, a 24hr x 7 days instant technical support for production troubleshooting, debugging and failure analysis which eliminate prolonged downtime would need to be in place.

Lastly, an uncompromised quality assurance system needs to be created to ensure product quality and customer focus deliverables consistently across time.

In parallel, the NSS should create a conglomerate development institute consisting of the current Malaysia semiconductor designers and fabrication companies such as Intel and Infineon, in order to train Malaysian engineers the necessary design/fabrication know-how.

This direct talent development pathway leveraging the industry knowledge and skills not just increases the effectiveness and reduce the time consumption of the training programme when compared to the academic training provided by Malaysia higher education institution, but it also creates a win-win situation where we ensure the involved company get to hunt down the best talent they need to sustain and expand the company industry operation.

Once the talent creation pipeline starts to snowball, the NSS shall then take further steps to incentivise semiconductor corporations to transfer their design and fabrication groups to Malaysia, building up the semiconductor design and foundry blocks locally through the expansion.

The mentioned strategy will also create a spill out effect - talents who immerse in the semiconductor design and fabrication ecosystem created will be the potential pioneer technopreneurs that form the Malaysian brand of semiconductor design company.

Overall, this alternative NSS strategy might be slower and less ambitious compared to what was announced by the prime minister, but it ensures a practical, steady and organic growth for Malaysia semiconductor industry quantum cycle upgrade, with better sustainability and global competitiveness.– June 4, 2024.

* Ooi Tze Howe is a trisector athlete with crossovers the corporate, governance and non profit sectors. He currently works in a US MNC electronic tech company. He founded and manages a non-profit think tank - HEYA Inc on a pro bono basis. He obtained his MSc. International Social and Public Policy from LSE under the Chevening Scholarship.