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Opinion | Why Malaysia – once Silicon Valley of the East – is set to strike back
- A newly established task force wants to restore Malaysia’s chip status and improve the value it adds to the semiconductor industry
- Challenges such as a labour shortage and young people being discouraged from STEM education exist, but domestic and international countermeasures are in place
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Malaysia was once the Silicon Valley of the East until Taiwan and South Korea stole its thunder in the chip industry. Now, a newly established semiconductor task force in the country says the time has come to restore that glory.
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It represents the country’s latest efforts to elevate its chip industry from back-end assembly to front-end manufacturing. The back-end stage of the semiconductor supply chain consists of assembly, packing and testing (APT). APT is an indispensable step after chips are produced because it gives them protection to ensure their commercial applications.
Today, Malaysia commands 13 per cent of the world’s APT services, but it is not the most lucrative segment of the semiconductor supply chain. APT services only accounted for 6 per cent of the industry’s total value added in 2019. In contrast, front-end manufacturing took up 25 per cent.
This is the value Malaysia’s new semiconductor task force wants to capture. The good news is that Malaysia already has a mature chip cluster. Major chip makers including NXP, Infineon and Texas Instruments have been operating in the country since the 1970s.
Intel, for example, established its first offshore site in Malaysia in 1972 and has invested more than US$5 billion in the country since then. Together, these chip firms have transformed Malaysia into a semiconductor hub, contributing to 23 per cent of US semiconductor trade in 2022.
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Although China dominates APT services, commanding 38 per cent of the global market share, recent US restrictions to block its chip access are already reshaping the industry landscape. Some major chip makers have already begun diversifying their production outside China to comply with US export control rules.
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