1. Malaysia has signed a strategic partnership with Arm Holdings, a UK-based chip architecture company, to acquire advanced semiconductor design blueprints for US$250m. The agreement, spread over ten years, includes training for 10,000 local engineers and aims to transition Malaysia’s dominant role in chip assembly and testing to high-value semiconductor design.
2. While Malaysia will gain access to Arm’s blueprints and will be successful in manufacturing more higher-valued semiconductors, EIU believes that the country’s goal of creating its own designs will be challenging.
WHY DOES IT MATTER?
1. This partnership marks a significant step forward for Malaysia’s semiconductor ambitions. The country has been a major player in semiconductor assembly, packaging and testing for decades, accounting for an estimated 13% of these downstream activities globally. However, chip design—the higher-value-added segment of the semiconductor supply chain—is dominated by Taiwan, South Korea and the US.
2. Access to Arm’s chip designs will allow Malaysia to develop domestic capabilities in semiconductor intellectual property (IP) and innovation, potentially reducing reliance on foreign technology. In the long term, this move will enhance Malaysia’s role in the global chip supply chain, allowing it to capture a larger share of semiconductor value creation.
3. However, Malaysia faces considerable challenges in executing this strategy. Semiconductor design is a highly specialised field, requiring deep technical expertise and long-term investment in research and development; it is still a nascent discipline in Malaysia’s institutes of higher learning. Retaining the engineers trained under the agreement will be difficult. “Brain drain” is a persistent issue, with many of Malaysia’s top engineers seeking higher salaries and better career prospects abroad. Without competitive compensation and career pathways, Malaysia risks losing its best talent before its chip design industry can fully take off.
4. Another major challenge is funding and commercialisation. Unlike Taiwan and South Korea, which have strong venture capital ecosystems supporting semiconductor start-ups, Malaysia lacks a deep pool of private-sector investors willing to take on the risks associated with chip design. The government will need to provide sustained financial support to early-stage chip firms, but there is a risk that these companies will struggle to compete globally.
WHATS NEXT?
1. The immediate goal for the government is to identify local companies with the capabilities and expertise to begin manufacturing. Malaysia will focus on integrating its new chip design ecosystem with global supply chains.
2. We expect the establishment of an integrated-circuit design park at Selangor and the Singapore-Johor Special Economic Zone to increase the presence of higher-value-added semiconductor activity.
3. In the long term, Malaysia aims to leverage Arm’s IP to design custom chips for emerging technologies such as the internet of things or artificial intelligence.
4. However, a more realistic outcome would be that Malaysia remains dependent on licensed designs, manufacturing higher-value semiconductors but not innovating at the cutting edge.
Source: https://www.eiu.com/n/malaysia-gambles-on-a-semiconductor-deal/
