Malaysia’s semiconductor journey spanning half a century

In 1972, Intel opened a 5-acre assembly plant in Penang, the trading hub close to Malaysia’s northern tip. The assembly plant employed nearly a thousand people and soon became crucial to Intel’s semiconductor supply chain. By 1975, it accounted for more than half of Intel’s assembly capacity.

Soon, AMD, Hitachi and HP followed suit, and by the early 1980s, 14 semiconductor firms were operating in Malaysia. According to a Harvard Business School paper by Goh Pek Chen, it all began when the Malaysian government established the first free trade zone in 1972.

Figure 1 The four-year-old Intel was the first semiconductor company to benefit from Malaysia’s free trade zones. Source: Intel

The free trade zones offered companies tariff exemptions on imports and exports, tax holidays, tighter controls on labor organization, and streamlined regulatory processes. Moreover, these zones were strategically located along well-linked highways and railway systems and offered easy access to well-equipped seaports and Kuala Lumpur International Airport.

Fast forward to 2023, Infineon announced to significantly expand its fab in Kulim, Malaysia, which it built in 2006 to manufacture power semiconductor products like MOSFETs and IGBTs. Infineon will invest €5 billion in Kulim fab to build what it claims to be the world’s largest 200-mm-wafer silicon carbide (SiC) power fab. Kulim fab will be critical in Infineon’s goal to win 30% of SiC market share by 2030.

The journey from an assembly plant to a SiC semiconductor foundry marks a significant milestone for Malaysia’s semiconductor ecosystem. Taiwan-based contract manufacturer Foxconn has also announced to build a 300-mm wafer fab in Malaysia. It’ll operate on 28-nm to 40-nm process nodes and will have the capacity to produce 40,000 wafers per month.

New fab buildup aside, Malaysia’s semiconductor industry is known to comprise three main groups: outsourced semiconductor assembly and testing (OSAT), automated test equipment (ATE) suppliers, and designers and manufacturers of high-performance test sockets.

Take, for example, Bosch’s recent announcement to invest €65 million in an 18,000 square meters test center in Penang. It will carry out final testing of Bosch’s semiconductors fabricated in Reutlingen, Germany; Suzhou, China; and Hatvan, Hungary. The test center will include clean rooms, office space, and laboratories for quality assurance and manufacturing.

Malaysia has captured nearly 13% of the global chip assembly and testing market share; it’s also the world’s seventh-largest exporter of semiconductors. Furthermore, it’s consistently listed among the top 10 semiconductor manufacturing countries and is usually number seven or eight between the UK and the Netherlands.

Figure 2 Malaysia’s move from back-end to front-end chip manufacturing will raise its profile as a semiconductor industry hub. Source: UOB Group

The news about the new fab buildup hints toward the country’s ambitions to move up the semiconductor value chain. Especially when the semiconductor trade war between China and the United States is promising new opportunities for countries already exposed to the semiconductor technologies.

So, while semiconductor fabs are nothing new in Malaysia’s semiconductor ecosystem, the renewed interest in moving up the chip value chain is worth noting. Also, with the SiC power fab in Kulim, Malaysia’s semiconductor industry can claim an almost complete ecosystem to attract new investments.

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Malaysia’s semiconductor journey spanning half a century

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