This article first appeared in The Edge Malaysia Weekly on January 5, 2026 - January 11, 2026

MALAYSIA’s semiconductor ambitions may be looking somewhat more nebulous following a cabinet reshuffle last month that brought new faces to two key economic ministries at a critical time in the execution of the National Semiconductor Strategy (NSS) and a high-profile initiative to secure decade-long semiconductor-related licences and know-how from British chip architect Arm Holdings plc.

Datuk Seri Johari Abdul Ghani recently took over as minister of investment, trade and industry less than two years after the NSS launch in May 2024, while newly appointed Minister of Economy Akmal Nasrullah Mohd Nasir inherits a portfolio closely linked to the US$250 million Arm deal announced in March 2025.

The leadership changes have inevitably raised concerns over continuity and follow-through, especially for policies that were closely identified with their predecessors — former investment, trade and industry minister Tengku Datuk Seri Zafrul Abdul Aziz and former economy minister Datuk Seri Rafizi Ramli.

However, local semiconductor industry experts point out that reshuffle notwithstanding, what is of greater concern is whether long-standing weaknesses in Malaysia’s electrical and electronics (E&E) ecosystem are being addressed.

The perennial problems of talent shortage and brain drain, slow or unclear funding rollouts, limited research and development (R&D) spending and a shallow pool of local chip design firms remain unresolved, they say. Without progress on these fronts, the risk is that both the NSS and the Arm deal become long on ambition but short on impact, regardless of who sits in the minister’s chair.

Malaysia Semiconductor Industry Association (MSIA) president Datuk Seri Wong Siew Hai observes that the country aspires to move up the value chain as spelt out in the NSS, especially in the areas of integrated circuit (IC) design, advanced packaging and advanced equipment technology.

The country also intends to move from “Made in Malaysia” to “Made by Malaysia” and to create global Malaysian champions. In order to achieve these goals, he stresses, the country needs to drive innovation and technology development, but cannot do this on its own.

“Malaysia would need to bring in some of the best global talents to complement its own. To start with, we propose that the government allow foreign graduates studying in Malaysia to remain and work in the country for two years and then convert [their stay] into [a] full employment pass,” he tells The Edge.

“In addition, allow companies to easily bring in experienced and expert talents to complement ours to drive innovation. There also needs to be collaboration with other countries on technology development. In addition to talents, there must be funding available to drive innovation and technology development.”

To remain relevant, Malaysia must aspire to be the “brain of innovation”, building advanced packaging depth, design-to-prototype pathways, local supply chain capability, as well as local firms that create value globally, he stresses. “We need to accelerate the implementation of the NSS; execution and speed of innovation will be the differentiating factor. The more advanced countries in the world spend 2.5% to 5% of GDP (gross domestic product) in R&D while Malaysia only spends 1% of GDP. In order to keep up with technology, Malaysia needs to invest more in R&D.”

While the RM25 billion allocation under the NSS includes RM1.2 billion earmarked for training and upskilling 60,000 high-skilled engineers — at RM20,000 per engineer — some in the industry say they have yet to see concrete fiscal disbursements, and that manpower constraints remain acute.

A vice-president of a multinational semiconductor firm, who wishes to remain anonymous, reckons that the success of NSS would depend on the availability of human talent.

“So far, I don’t see anything being done in this aspect by the government. Moreover, NSS certainly needs better clarity in terms of KPI (key performance indicators) and metrics to measure effectiveness of deployment,” he observes.

Others think it would be interesting to see whether the subsequent appointment of Zafrul as chairman of the Malaysian Investment Development Authority (Mida) — the primary investment promotion agency under the Ministry of Investment, Trade and Industry (Miti) — can cushion any potential negative impact from the ministerial changes.

“Mida is just one of the agencies under Miti. A strong minister will not allow the Mida chairman to be involved in policy matters,” observes a less sanguine semiconductor industry veteran.

Nevertheless, he believes Johari is the most suitable person to lead Miti.

“The Ministry of Plantation and Commodities was too small for him, given his past experience as minister of finance II and also in the corporate sector. He is business-friendly and has excellent communication skills,” the veteran comments.

As for the Arm deal, he admits it is difficult to say which direction the country is heading in as “nothing concrete seems to be happening after the announcement”.

“The Arm deal was Rafizi’s baby, [and the] contract was signed but usage by the industry is minimal. I was told that the government was thinking of cancelling it, but did not want to be seen as scrapping Rafizi’s project.

“Akmal probably does not have in-depth knowledge of semiconductors but is a very keen observer and willing to learn. Given the importance of this industry in Malaysia, he will have to meet the expectations of the industry,” the veteran adds.

Rafizi was widely regarded as the key figure behind the Arm deal, but resigned as economy minister in May 2025, about two months after the initiative was announced and he was unseated as deputy president of Parti Keadilan Rakyat in party polls.

Under the Arm partnership, stated objectives include producing a home-grown chip within five to seven years and establishing 10 chip companies with a combined annual turnover of up to US$20 billion. Of the access allocations, 25 tokens are designated for applicants under Arm Flexible Access (AFA), while seven are reserved for those applying via Arm Compute Subsystem (CSS).

However, industry observers argue that there are currently too few suitable local chip companies capable of fully utilising these access tokens. Key constraints cited include limited access to foundries and advanced chipmaking and design tools, insufficient capital to invest across the value chain, and a shortage of top-tier talent. The concern is that access could end up overly concentrated among a small number of firms, while unutilised tokens would result in wasted public funds.

Invest-in-Penang Bhd (InvestPenang) CEO Datuk Loo Lee Lian acknowledges that Malaysia’s Arm initiative is a “bold, timely and welcomed step”, but notes that its success will hinge on adequate capital support.

“Developing and commercialising advanced chips typically requires RM200 million to RM500 million over a two-year cycle, a scale beyond what most local firms can sustain on their own. Without sufficient financing, access tokens risk being underutilised or concentrated among a few players, limiting impact and returns on public investment,” she warns.

While advanced manufacturing will continue to rely on global foundries such as Taiwan Semiconductor Manufacturing Co Ltd (TSMC) and Samsung Electronics Co Ltd, Malaysia has capable design talent.

The real challenge, according to Loo, lies not in licensing or technical capability, but in securing the resources for additional intellectual property (IP), complete tape-out and scale to production. To maximise outcomes, capital must sit at the centre of the initiative.

“Targeted financing, joint ventures with global players and milestone-based token allocation can improve capital efficiency and commercial success.

“By linking design efforts with Malaysia’s strengths in OSAT (outsourced semiconductor assembly and test), EMS (electronics manufacturing services) and system assembly, the Arm initiative can move beyond access enablement to become a catalyst for shipped silicon, globally competitive firms, and sustainable industry growth,” she tells The Edge.

Selangor Information Technology & Digital Economy Corp (Sidec) CEO Yong Kai Ping is of the view that the appointments of Johari at Miti and Akmal as economy minister come at a pivotal moment for Malaysia. As the unity government enters the second half of its term, the national focus has shifted from setting direction to execution and delivery.

“Both ministers are widely regarded as dynamic, energetic, intellectually rigorous and hands-on leaders — an essential combination for ministries that sit at the very heart of Malaysia’s economic engine.

“This leadership transition takes place against a more fragmented global landscape, marked by heightened geopolitical risk, protectionist tendencies and increasingly unconventional trade and industrial policies among major economies. In such an environment, Malaysia requires pragmatic, adaptive leadership to sustain competitiveness and investor confidence,” he explains.

Moreover, the appointment of Zafrul as Mida chairman would reassure foreign investors and multinational corporations, particularly those involving large-scale trade and investment projects.

Yong points out that the Arm initiative is a strong example of all these leadership approaches that can translate into long-term national capability building.

Arm architecture represents one of the highest levels of semiconductor design — essentially the “brains” behind artificial intelligence (AI) and high-performance computing. Historically, only top-tier semiconductor powerhouses such as the US, China, Japan, South Korea and Taiwan have been deeply involved in Arm-based advanced design.

Yong says a growing number of local and foreign IC design companies — required to partner with Malaysian IC firms, research centre and university, or manufacturing facilities — are now applying for Arm CSS and AFA tokens.

“This momentum positions Malaysia to potentially emerge as one of the leading countries producing its own advanced chip by 2027 or 2028. Malaysia’s Arm initiatives target advanced nodes in the 4nm (nanometre) to 7nm range — placing the country firmly in the league of leading semiconductor powerhouses such as the US, China, Taiwan, South Korea and Japan,” he says.

Kalai Selvan Subramaniam, co-founder and CEO of local chip design house Infinecs Systems Sdn Bhd, believes the long-standing professional bond between Akmal and Rafizi would ensure that the philosophical and strategic foundations of current policies remain intact.

“With an execution-oriented mindset, Akmal is expected to prioritise the completion of high-impact projects. This focus will not only maintain policy clarity but also strengthen global investor confidence in Malaysia’s trajectory as a premier semiconductor hub,” he says.

As for the NSS, Kalai says it has been framed as a long-term, “living” strategy that will evolve with technological and market developments, supported by multiple ministries and agencies, rather than resting solely on any single office-bearer.

“As such, continuity in its overarching direction, headline targets and key focus areas — such as advancing local chip design, modernising OSAT capabilities and attracting high-value investments in advanced manufacturing and equipment — is likely to be preserved under Johari’s leadership,” he adds.

Nevertheless, Kalai concedes to the “significant challenge” facing the NSS in bridging the gap between policy announcement and on-the-ground execution.

“This is particularly crucial as the country grapples with persistent brain drain and structural constraints within the semiconductor sector. Despite the announcement of a substantial RM25 billion allocation, industry feedback has raised concerns about delays in fiscal disbursements and limited visible impact on acute manpower shortages,” he cautions.

Kalai observes that talent shortages persist due to brain drain, with 1.86 million Malaysians abroad in 2022, many of whom are highly skilled. This has left local IC design houses without experienced engineers, despite global investments such as the China+1 shifts. “Tertiary education gaps and competition from Singapore exacerbate retention issues, even as NSS partners with universities and commits to 30,000 engineers via the Ministry of Education.”

He is of the view that the risk of underutilisation or concentration of Arm initiative tokens in Malaysia’s semiconductor ecosystem “is real but manageable”, given the nascent state of local IC design capabilities and persistent constraints in talent, foundries, capital and tools. “The programme’s success hinges on broadening eligible applicants beyond a handful of firms, as current ecosystem maturity limits ready takers,” he points out.

Malaysia lacks a domestic company capable of consuming Arm-based System-on-Chip (SOC) products and securing business access to IC design and fabless companies, he says, compared with those from South Korea, Taiwan and China. “The likes of South Korea, Taiwan, and China invest significantly in semiconductor R&D and provide substantial incentives, but Malaysia still falls short in terms of R&D funding and lacks a well-defined long-term strategy.”

Therefore, Kalai cautions that there is a risk of token concentration among established foreign players, which could sideline small and medium enterprises (SMEs) and waste public funds if unclaimed within the CSS’ 36-month validity period.

“Policymakers should prioritise tiered eligibility criteria, co-funding for tool and foundry access, and accelerated upskilling through NSS partnerships to diversify chip adoption and achieve home-grown chip goals within five to seven years.

Targeted incubators like Semicon Start, SME matching grants and performance-based token allocation (linked to milestones) would minimise waste, he proposes.

Seasoned current affairs commentator Lum Chih Feng concurs that Akmal is likely to continue Rafizi’s policies, as he is Rafizi’s protégé and fairly loyal to — and aligned with — Rafizi’s direction.

“That said, the economy ministry does not offer much room for Akmal to make his mark. At best, he can only extend Rafizi’s approach and make some marginal, micro-level adjustments. If the Anwar government introduces new policies — particularly if there is a clearly defined economic policy or direction — Akmal will have little choice but to fall in line,” he says.

Unfortunately, says Lum, Akmal will be “quite isolated in cabinet”, without many like-minded allies, making it difficult for him to push through new initiatives. Moreover, as a relatively junior minister, his voice does not carry much weight.

“Unless Akmal can quickly build alliances within cabinet and form a young faction to amplify his influence, it will be hard for him to drive major reforms. On top of that, time is limited — perhaps only about 1½ years remain — and any new policies would not be able to produce results within such a brief period. In short, people shouldn’t have too high expectations of him at the moment,” he says.

However, Lum expects a lot more from Johari as the new minister of investment, trade and industry as the latter was a businessman before entering politics and thus very familiar with how business and capital markets operate.

“Johari had also served as minister of finance II between 2016 and 2018. He understands how the bureaucracy works, knows where the pitfalls are and how to navigate around them. He is both smart and shrewd. I believe he will roll out some policies in the short term that people can actually see and feel. This would help raise his standing in society, particularly among the Malay community and within Umno,” he notes.

Lum is also of the view that Johari is more dominant than Zafrul.

“At the 5th Ilmuwan Malaysia Madani Forum in April 2025, where Johari shared the stage with (Prime Minister Datuk Seri) Anwar Ibrahim, his remarks that government-linked companies should serve as a driver of national economic development and societal well-being were sharp and blunt and, to a certain extent, overshadowed the prime minister’s presence,” he observes.

See also “Climbing the semiconductor value chain amid geopolitical crosswinds”    

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