Malaysia Emerges as a Rising Force in the Global Semiconductor Industry

Although rarely included in discussions of technological or manufacturing powerhouses, Malaysia is the world's sixth-largest exporter of semiconductors, holding a 13% share of the chip packaging and testing market. Last year, Malaysia was also the largest source of chip imports for the United States, accounting for over 20%, which was more than China, South Korea, and Japan.

This position in the industry chain is expected to continue to rise. As technology competition and trade frictions intensify between major nations, Malaysia, with its relative neutrality, is reaping significant investments from various directions.

Firstly, Western companies seeking supply chain diversification are investing heavily in the country. Foreign direct investment in Malaysia exceeded $40 billion last year, more than double that of 2019.

Compared to India, which relies more heavily on Apple, Malaysia's five-decade experience in chip packaging and testing, mature supply chain ecosystem, and stable and friendly policy support have helped attract a broader range of technology company investments.

Intel's $7 billion testing and packaging facility commenced operations this year, while Graphcore opened a new office in Penang, Malaysia, in September last year. Infineon, a major automotive chip manufacturer, plans to build the world's largest 8-inch silicon carbide wafer plant in Kulim, Malaysia. Neways, a key supplier to leading lithography machine manufacturer ASML, announced plans to establish an advanced manufacturing facility in Banting, Malaysia. Additionally, NVIDIA intends to construct a $4.3 billion AI data center in the country.

Chinese companies are also investing heavily in local manufacturing facilities. Due to stricter trade regulations, U.S. chip equipment suppliers are unable to provide state-of-the-art machinery to Chinese customers. Since they also have numerous Chinese component suppliers, they may require these suppliers to invest in manufacturing facilities in Malaysia and other locations to mitigate potential risks.

According to the Penang Investment Promotion Agency, there are currently around 55 manufacturing companies from mainland China operating locally, with the majority operating in the chip industry. Prior to U.S. export controls on China, this number was only 16.

While demand for advanced packaging in AI chips has yet to surge, testing and packaging have long been viewed as relatively straightforward and labor-intensive stages in the chip industry with lower value.

However, with more funding and technology influx, local Malaysian chip companies are also expanding into areas such as high-demand chip design and front-end manufacturing.