Malaysia’s semiconductor industry demands a more strategic outlook

BY LIEW CHIN TONG, Deputy Minister of Investment, Trade and Industry

Semiconductors are quickly becoming both the new oil and a new source of global conflict. Today, everything that requires computing power has chips fitted, from weapons to watches and cars. The artificial intelligence era is only just beginning, which will inevitably lead to even greater use of semiconductor chips.

Malaysia is right in the middle of the global chip making supply chain. The electrical and electronics sector comprises about 7 per cent of Malaysia’s GDP, with semiconductor devices and electronic integrated circuits alone making up a quarter of total exports, totalling RM387 billion in export value in 2022.

As the world’s sixth largest semiconductor exporter, Malaysia holds 7 per cent of global market share and contributed to 23 per cent of US semiconductor trade in 2022.

Malaysia is welcoming more investment into the semiconductor value chain. The country has an established presence in chip assembly, packaging and testing as well as electronics manufacturing services, producing 13 per cent of global back-end semiconductor output.

The New Industrial Master Plan (NIMP) 2030 aspires to see more front-end activities such as integrated circuit design, wafer fabrication, semiconductor machinery and equipment manufacturing in Malaysia. Recent announcements of investment by Intel (US$7 billion), Infineon (US$5.5 billion) and Texas Instruments (US$3.1 billion) show that Malaysia is well positioned to scale and engage in more complex activities.

Unfortunately, many Malaysian companies, especially small and medium enterprises, are still dependent on unskilled foreign labour and are reluctant to automate. Many do not believe that Malaysia has the capability to produce automated machines or precision tools at the level of Germany or Japan.

But the global semiconductor industry in Malaysia has also created a number of successful local companies specialising in automation solutions, such as Greatech, Pentamaster and Walta. They are known for handling precision tooling or precision engineering, and together with ViTrox, a Malaysian company providing automated optical inspection systems for semiconductors, form a critical and highly resilient Malaysian supply chain for the semiconductor industry.

The semiconductor industry often complains that there is not enough talent in Malaysia. But Malaysia ultimately has a salary problem, not a talent problem. Many of Malaysia’s skilled workers, such as engineers and technicians, pursue employment in Singapore where the pay is better. Low pay is a systemic issue that creates a vicious cycle of inadequate skilled job creation. Malaysia is a rare case in which the median monthly wage in manufacturing (RM2205) is lower than the median monthly wage (RM2424).

Engineers are not immune from this problem. A 2022 report by the Board of Engineers Malaysia found that over a third of engineering graduates had a starting salary of less than RM2000 per month as of 2021, while 90 per cent of engineering graduates earned less than RM3000 per month. For a single adult household in Kuala Lumpur, this is scarcely enough to get by.