The semicon pivot: Shedding low-cost assembly for high-value innovation

This article first appeared in the Industrial Special Report in November 2025.

Malaysia’s modern industrial aspiration is accelerating, and at the heart of it is technology surrounding a chip that is often no larger than a fingernail. Yet, its impact on the economic future of the nation is proving to be seismic.

Taking the Industrial Revolution (IR) 4.0 in its stride, Malaysia has gained a firm footing in the global semiconductor industry, with a current ranking as the sixth-largest semiconductor exporter worldwide.

According to international data platform The Observatory of Economic Complexity (OEC), this high ranking is owed to the country’s significant role in the global supply chain, particularly in the assembly, testing, and packaging (ATP) of semiconductors, where Malaysia holds 13% of the global market share.

India-based market analysis firm Mordor Intelligence Pte Ltd projects that the Malaysian semiconductor market size will reach a value of US$10.85 billion (RM44.79 billion) in 2025, and likely climb to US$16.51 billion by 2030, translating into a compound annual growth rate of 8.76% over the next five years.

This is in tandem with an expected expansion of the global semiconductor market, as technological advancements in artificial intelligence (AI), electric vehicles (EVs), and automation are already driving fresh demand and higher production volumes.

Away from the limelight, Malaysia’s semiconductor journey actually began in the 1970s. Tucked in Penang, multinational corporations initially focused on assembly and packaging. Nevertheless, this foundation built Malaysia’s reputation for manufacturing excellence, supply chain reliability, and attracted substantial foreign direct investment (FDI) inflows.

Despite having made considerable headway into the market, the increasingly complex technological demands of the global semiconductor industry necessitate an evolution on the nation’s part.

“While [the previous] model established Malaysia as a strong manufacturing hub, it led to limited progress in technology leadership, and stagnation in higher-value activities such as integrated chip (IC) design and advanced R&D,” Selangor Information Technology & Digital Economy Corporation (Sidec) CEO Yong Kai Ping tells EdgeProp in an exclusive interview.

In order to remain competitive, Malaysia is now racing up the value chain from being a trusted ATP hub to becoming a key player in fabrication, design, and innovation. Industry stakeholders say a vital pivot is already well underway. Besides a half-century production track record, the nation is ramping up its trajectory with more than US$100 billion in announced capital commitments, and a government-funded RM25 billion National Semiconductor Strategy (NSS).

“Today, Malaysia has successfully diversified into integrated-circuit (IC) design, advanced testing solutions, R&D support, design validation, and electronic systems development. The nation is no longer perceived merely as a low-cost base, but as a strategic global semiconductor hub with world-class engineering talent, robust infrastructure, and strong free-trade linkages,” Yong says.

In fact, he says, the semiconductor industry is already the backbone of Malaysia’s export-driven economy, contributing approximately 25% of total exports, and around 7% of the gross domestic product (GDP).

Still, growth and change are imperative steps to ensure sustained success in an increasingly competitive global market.

Evolution, expansion, and continued competitiveness

According to Sidec, Malaysia offers distinct advantages as a critical global semiconductor hub. Among them, a mature supply chain ecosystem (particularly in Penang and Selangor), a skilled and cost-competitive workforce with decades of electronics expertise, and reliable infrastructure, coupled with a stable investor-friendly regulatory environment.

Additionally, Malaysia boasts a strategic geographical position and strong Asean trade connectivity, which is an attractive proposition for global investors.

The country’s firm political commitment to the growth of the semiconductor industry is another pull factor. Besides the NSS, the Malaysia Silicon Vision was launched in March to transform the country into a leader of the semiconductor field via the creation of its own AI chip within five years.

State-led initiatives raise the stakes too. The Malaysia Semiconductor IC Design Park (MSICP) in Puchong, Selangor, which Sidec is spearheading, is the nation’s first dedicated IC design cluster that will bring together homegrown and global IC design players to drive the transformation from “Made in Malaysia” to “Made by Malaysia”. It nurtures fabless companies, talent pipelines, and industry partnerships.

Most recently, on Nov 6, Prime Minister Datuk Seri Anwar Ibrahim launched the Advanced Chip Testing Centre at CoPlace 9 in Cyberjaya, Selangor, with the opening of the Malaysia Semiconductor IC Design Park 2 (IC Park 2).

“The centre is the first world-class chip testing facility in Southeast Asia and forms part of the national strategy to move Malaysia from contract chip manufacturing to local chip design and ownership,” reported EdgeProp.my.

In his speech, Anwar also hinted that Selangor may soon see “IC Design Park 3”, following the success of earlier phases.

Meanwhile, the Selangor government announced the Selangor Semiconductor Fund, targeting over RM100 million in capital to invest in at least seven local startups from November.

Nationally, there is now a stronger focus on in-market high-value chip development, such as AI-driven chips, EV and automotive electronics, high performance computing (HPC)-based semiconductors, aerospace-grade systems, and AI-enabled automation solutions.

There are also considerable investments into the establishment of design incubators, innovation programmes, and training centres to create a sustainable and future-ready semiconductor ecosystem.

Sidec identifies several local companies that are instrumental in establishing Malaysia’s credibility as a critical node in the global semiconductor supply chain. They include Inari Amertron Bhd, ViTrox Corporation Bhd, Greatech Technology Bhd, QES Group Bhd, NationGate Holdings Bhd, and Oppstar Bhd.

For both local and global players, robust government incentives under the NSS provide fiscal sweeteners that include pioneer tax status, investment allowances, and fast-track licensing. Those terms have helped spur over RM1 trillion in committed spending between 2021 and mid-2024 from local and global players.

Preferential corporate rates within the Johor–Singapore Special Economic Zone (JS-SEZ) widens the incentive appeal for AI and quantum startups.

Together with the NSS incentives, the overall policy package reduces entry risk for multinationals, and speeds scale-up for local suppliers, adding positive momentum to the semiconductor market.

Key domestic conditions propelling growth

Growing demand for automotive electrification

EVs pack triple the semiconductor content of internal-combustion cars. Meeting this demand, Germany-based Infineon Technologies (Kulim) Sdn Bhd’s new power semiconductor plant in Kulim, Kedah, is set to become the world’s largest 200mm silicon carbide fabrication facility once fully operational in 2027.

It is designed to serve 30% of the global silicon-carbide power market by decade-end. Malaysia’s position as an Asean vehicle assembly base means rising EV programmes translate directly into local chip orders, representing an incremental growth stream.

Surge in global 5G handset outsourcing to Malaysian OSATs

Leading outsourced semiconductor assembly and test (OSAT) providers are investing in real estate, and advanced radio frequency (RF) testing gear to accommodate its expansion into handling 5G handset complexity. Among them are Taiwan-based ASE Technology Holding Co in Bayan Lepas, Penang; and Kuala Lumpur-based Unisem (M) Bhd, whose major manufacturing facilities are in Ipoh. Paired with Malaysia’s domestic 5G adoption target of 84% mobile penetration by 2029, outsourcing flows consolidate Malaysia’s role in global smartphone supply chains.

Emergence of Penang as a regional chip-testing hub

Over 350 foreign enterprises, and 4,000 small and medium enterprises (SMEs) operate inside Penang’s “Silicon Island”.

Decades of cumulative know-how now extend into system-in-package formats and 3D integration for automotive, AI, and industrial devices. Local equipment makers have co-located to shorten upgrade cycles, while state grants subsidise IR 4.0 automation. The existing infrastructure of networking entities keeps assembly and test lead-times rapid, which is attracting future chiplet programmes to zero-in on Penang’s production speed and capability. This supports sustained value capture in the Malaysian semiconductor market.

Global conditions a window of opportunity?

The current global trade climate is far from rosy, and ongoing trade wars have been painfully destabilising. Despite this, market analyst Mordor Intelligence points out that as geopolitical supply chains rebalance away from China, this may direct high-value assembly and advanced packaging mandates to Malaysian sites.

“An [electrical and electronics (E&E)] export base worth RM575 billion in 2024 confirms [Malaysia’s] global relevance.

ICs dominate factory output, but surging sensor and micro-electro-mechanical systems (MEMS) demand, robust incentives, and fast uptake of EV power devices expand the opportunity set,” it said in its 2025 Malaysia Semiconductor Market Analysis report.

According to the Malaysian Investment Development Authority (Mida), global firms are adopting a “China+1” strategy, relocating parts of their production to Southeast Asia. Widely perceived as a neutral trade partner, Malaysia’s strong ecosystem in assembly, testing, and packaging makes it a preferred destination.

China, the US, and Hong Kong are the largest global importers of semiconductor devices. While a 19% reciprocal US tariff exists on some Malaysian goods, semiconductors remain exempt, following the Agreement on Reciprocal Trade (ART) signed on Oct 26.

The property impact

The semiconductor industry has had a significant impact on the Malaysian property market, by driving up demand for industrial and commercial real estate. Consequently, the employment boost also leads to higher demand for residential properties around key manufacturing hubs.

Naturally, the most direct beneficiary is the industrial sector. The influx of global, especially Chinese semiconductor companies establishing factories, processing plants, and chip fabrication facilities has caused a surge in demand for industrial land, and properties.

According to the National Property Information Centre (Napic), there are 1,496 industrial units under construction, and another 2,130 units in the planning stages nationally as at July 2024.

Key hubs such as Penang, Johor, and Selangor have experienced particularly high demand. In Penang, where major semiconductor manufacturers converge, land scarcity has prompted land reclamation efforts to accommodate more industrial zones.

The semiconductor industry expansion has also spurred robust demand for specialised industrial real estate within key regions. For example, Penang and Kedah’s Kulim district have been established as centres for assembly, testing, advanced packaging, and wafer fabrication (fabs), attracting specific high-tech industrial parks like Penang Science Park, and Kulim Hi-Tech Park.

Johor benefits from integration with Singapore through the JS-SEZ, boosting demand for advanced manufacturing and data centre space, which has significantly driven up land prices.

Selangor, and the Klang Valley region focuses on IC design houses, R&D, and regional headquarters, leveraging its connectivity to airports and digital infrastructure.

Between 2021 and 2023, Malaysia attracted RM114.7 billion worth of investments in data centres and cloud services, says Mida in an online article dated July 18, 2024. This growing investment ensures a resilient industrial property market with continued growth projected in 2025 by most property market analysts.

Knight Frank Malaysia reports that the industrial sector is “poised for promising growth trajectories, riding on high-growth drivers such as semiconductors and data centres”. Its recent surveys also indicate optimism for the commercial real estate market in 2025, with many respondents planning to increase investments.

The growth in high-skilled jobs (engineering, R&D) created by the semiconductor industry has increased demand for new offices and R&D centres. Cities like KL, Cyberjaya, and Johor Bahru (JB) are seeing a rise in demand for office spaces within technology parks and innovation hubs

Enhanced employment opportunities are also attracting both local and international “white-collar” migration to impacted regions, and increasing demand for residential properties in areas surrounding the industrial and commercial hubs.

Rising housing needs are creating potential rental income opportunities for investors too, especially in locations close to emerging employment centres and major infrastructure projects—such as the JB-Singapore Rapid Transit System (RTS).

Overall, the semiconductor industry is establishing itself as a vital part of Malaysia’s economy, accounting for about 40% of the country’s E&E exports. Its stability and growth support the overall national economic momentum, which in turn underpins a more resilient property market, particularly the industrial segment.

In fact, Mordor Intelligence projects that the expansion of E&E and e-commerce activities in the country, along with other property developments planned around emerging hubs, will account for nearly one-fifth of Malaysia’s entire real estate market share in the coming years.

Challenges to address

Key challenges the Malaysian semiconductor currently faces include a growing talent shortage and the need for increased investment in front-end processes, such as design and manufacturing, to stay competitive in the long-term.

“Despite the progress we’ve made, several challenges remain in Malaysia’s ambition to elevate its semiconductor value chain. There is a talent shortage in advanced design, R&D, and fabrication, which requires stronger efforts to attract youths into the semiconductor sector, supported by competitive salaries, and clear career pathways,” says Sidec’s Yong.

Yong adds that there is still a dependence on foreign technologies and intellectual property (IP), due to limited local IC design companies and domestic technology ownership. Another limiting factor is the high capital intensity of entering fabrication, which demands significant investment, and market assurance for high-end foundries, and advanced packaging facilities.

“These need to be addressed as there is rising global competition from countries such as Taiwan, South Korea, China, India, and Vietnam, all of which are accelerating domestic semiconductor development to secure technology sovereignty,” Yong points out.

Various government agencies are actively addressing these issues through different initiatives. Yong says Sidec itself is strengthening local IC design capabilities, and moving Malaysia up the E&E value chain through the MSICP, and IC Park 2.

The initiative will stimulate the creation of high-value, high-paying jobs in IC design, verification, and R&D. It will also facilitate the expansion of the semiconductor and E&E support ecosystem (including electronic design automation (EDA) tools, IP design, advanced packaging, electronics manufacturing services (EMS), and identity management (IdM) transition).

Yong says Sidec will also work on attracting FDI and the development of local startups across the semiconductor design chain. It will also adopt local technologies and solutions—particularly in advanced chips, AI systems, and electronic products—to enable local companies to first capture domestic opportunities before scaling globally.

Sidec is strengthening education and talent pipelines through Sidec’s training arm, Advanced Semiconductor Academy of Malaysia (ASEM) in both its Puchong and Cyberjaya hubs, which collaborates with universities and industry players to build skilled semiconductor professionals.

During the recent IC Park 2 launching, Sidec highlighted that Cyberjaya’s ASEM targets to produce 20,000 semiconductor engineers over the next 10 years. The launch also saw the graduation of seven ASEM training cohorts involving hundreds of students, reported EdgeProp.my,

In addition to facilitating state-level collaboration between academia and industry to provide training, R&D partnerships, and foster innovation, it will also be supporting local startups through Sidec’s accelerator programmes and the Selangor Semiconductor Fund (SSF).

To maintain competitiveness at a global level, Yong believes Malaysia must next focus its investment attention on IC design capabilities, as well as develop local IP ownership and fabless startups to nurture new global technology-driven firms.

“IC design represents the pinnacle of technological know-how, and is critical for global semiconductor leadership as we move forward,” he says.

KEY TARGETS

The government, under the NSS, has set a target of attracting over RM500 billion (approximately US$106.4 billion) in semiconductor investments over the next decade.

According to Mida, the manufacturing sector secured RM120.5 billion in approved investments in 2024, of which 73.8% (RM88.9 billion) was foreign investment, a strong indicator of industrial interest. Malaysia reportedly eclipsed China in 2024 FDI inflows aimed at semiconductor supply-chain diversification, capturing US$235 billion.

Manufacturing investments in the country are expected to generate close to 88,000 new jobs, supporting the need for a skilled workforce in high-tech industries.

FUTURE POLICIES TO ADOPT

Moving forward, Sidec proposes future policy enhancements to further empower local companies and innovators. These include:

*Incentivise local IP creation and ownership to build national competitiveness

*Support venture capital and financing for fabless startups through joint public-private funds

*Establish a robust IP valuation framework to help semiconductor firms leverage technology assets for financing and growth

 *Strengthen inter-state collaboration through a Penang–Selangor–Johor–Sarawak technology corridor, enhancing regional synergies and specialisation.

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