Malaysia Emerges Hub For Semiconductor Companies

Malaysia is becoming a hub for semiconductor factories as tension keeps rising between the United States and China, prompting companies to diversify their operations.

TakeAway Points:

  • Malaysia is emerging as a hotspot for semiconductor factories as U.S.-China tensions prompt companies to diversify operations.
  • Intel, GlobalFoundries, and Infineon are some of the semiconductor manufacturers who have established or increased their operations in Malaysia in recent years.
  • This occurs at a time when businesses are diversifying because of the U.S.-China chip conflict.

Malaysia Emerges as Semiconductor Hub

“Malaysia has well-established infrastructure with around five decades of experience in the ‘back end’ of the semiconductor manufacturing process, particularly in assembly, testing and packaging,” said Kenddrick Chan, head of the digital international relations project at LSE IDEAS, the foreign policy think-tank of the London School of Economics and Political Science.

Semiconductors—critical components found in everything from smartphones to automobiles—have been at the center of a U.S.-China technology war.

The Shift to Malaysia

American chip giant Intel in December 2021 said it will invest more than $7 billion to build a chip packaging and testing factory in Malaysia, with production expected to begin in 2024.

“Our decision to invest in Malaysia is rooted in its diverse talent pool, well-established infrastructure, and robust supply chain,” Aik Kean Chong, Intel Malaysia’s managing director, told CNBC.

Intel’s first overseas production facility was an assembly site in Penang, launched in 1972 with a $1.6 million investment. The company went on to add a full test facility as well as a development and design center in Malaysia.

Another U.S. chip giant, GlobalFoundries, opened a hub in Penang in September to “support global manufacturing operations” alongside its plants in Singapore, the U.S., and Europe.

“The forward-thinking policies and strong support from the regional government together with partners like InvestPenang have built a strong ecosystem for the industry to thrive,” said Tan Yew Kong, senior vice president and general manager of GlobalFoundries Singapore.

Germany’s top chipmaker, Infineon, said in July 2022 it will build a third wafer fabrication module in Kulim, while Neways, a key supplier to Dutch chip equipment maker ASML, said last month it will construct a new production facility in Klang.

“Malaysia’s edge has always been its skilled labor in packaging, assembly and testing, and lower comparative operating costs, making exports more competitive globally,” said Yinglan Tan, founding managing partner at Insignia Ventures Partners. He added that the ringgit’s current position makes the country an “attractive location for foreign players.”

Malaysia Positioned for Global Market

Malaysia holds 13% of the global market for chip packaging, assembly and testing services, said the Malaysian Investment Development Authority in a Feb. 18 report. Exports of semiconductor devices and integrated circuits increased by 0.03% to 387.45 billion Malaysian ringgit ($81.4 billion) in 2023, amid global chip demand weakness.

Malaysia Semiconductor Industry Association president Datuk Seri Wong Siew Hai said many Chinese firms diversified some of their production to Malaysia, calling the country China’s “plus one.”

Zafrul Aziz, Malaysia’s investment, trade, and industry minister, told CNBC in January that Malaysia aims to focus on the “front end” of the chip manufacturing process instead of just the “back end.” Front end processes involve wafer fabrication and photolithography, while back-end processes focus on packaging and assembly.

In a bid to grow the country’s semiconductor ecosystem and attract investments, Malaysia in January set up a national semiconductor strategic taskforce, local media reported.