Malaysia’s Semiconductor Industry

The semiconductor industry has been part of Malaysia’s growth story for the past fifty years. At present, the sector employs almost 260,000 workers and generates some US$95.6 billion in exports per year.

Recent high-profile investments from industry majors are encouraging, and there are emerging capabilities in higher value-added sectors such as integrated circuit design.

Looking at the evolution of the semiconductor sector over the past twelve years, we find promising indicators in terms of increasing numbers of firms, workers, salary levels and outputs.

Yet there are indications that there are opportunities for the Malaysian semiconductor sector to be upgraded further. The current focus of the industry has been in the assembly, test and packing (ATP) sub-sector, where relatively fewer value-added tasks are concentrated. Data on patents indicate that firms present in Malaysia also develop relatively little cutting-edge technology.

Keenly aware of the sector’s long-term potential, the Madani administration has devoted considerable political and financial capital to boost the semiconductor sector. The National Semiconductor Strategy has ambitious plans for local firms and their capabilities.

However, Malaysia has a long tradition of high-quality plans, only to lose momentum when it comes to detailed follow-up. More is needed from relevant ministries in terms of detail and implementation, and long-standing issues regarding the quantity and quality of human capital remain problematic.

On the international front, the recently concluded US-Malaysia Agreement on Reciprocal Trade (ART) may bode well for the continued exemption of semiconductors from the United States’ continuously evolving tariff regime. Nonetheless, issues regarding transshipment and permitted use of semiconductors remain significant.