This article first appeared in Digital Edge, The Edge Malaysia Weekly on February 9, 2026 - February 15, 2026

Penang’s push towards becoming an artificial intelligence (AI)-ready state is entering a new phase, supported by deeper digital participation, expanding technical capabilities and rising industry adoption of AI-enabled tools across the design, manufacturing and public services sectors.

More than 250 start-ups are now registered with Digital Penang Sdn Bhd, the state agency leading its digital transformation.

Zairil Khir Johari, state executive councillor for Infrastructure, Transport and Digital, says the target is to reach 500 start-ups by 2030.

DahDigital, the state’s community digital literacy and upskilling programme, has reached nearly 18,000 participants through more than 700 classes to date, says Zairil.

Another milestone came in May, when StartupBlink — a global start-up ecosystem research and ranking platform — named Penang the fastest growing start-up ecosystem in Malaysia, surpassing Kuala Lumpur for the first time.

Digital Penang’s nomination for the International Chamber of Commerce-Mind the Bridge Startup Ecosystem Stars Award 2025 is testament to the state’s growing prominence on the global stage, he says.

“To sustain the momentum of Penang’s digital economy over the next five years, the focus will be on strengthening the 0-1 journey development of start-ups, the critical early stage where ideas evolve into viable businesses,” says Zairil.

At the community level, digital service adoption has improved. The Penang Island City Council (MBPP) has moved to a digital payment environment through its PEARL app, which treasury director Tan Bee Luan says is ultimately meant to serve as a unified digital entry point for Penang residents.

Industry, meanwhile, is going beyond the state’s traditional manufacturing base. For example, Intel Malaysia’s 53-year presence coincides with Penang’s evolution from a manufacturing hub into a critical centre for advanced design, validation and AI-enabled innovation.

Intel Malaysia managing director A K Chong says the company’s operations support AI workloads across data centres, the cloud, edge computing and networks, with local teams contributing to advanced packaging, automation and next-generation products as Intel moves towards AI-driven computing.

Recent AI-driven improvements from higher first-pass yield to shorter test cycles and predictive maintenance reflect how deeply embedded AI has become across its Malaysian operations.

One example involves using AI to predict parts failures in factory equipment, enabling earlier detection and more optimised maintenance, which has resulted in savings “that run into the millions of dollars” through reduced unplanned downtime and better spare parts usage.

Upgrades to its data warehouse and real-time analytics systems have also shown significant gains in how quickly engineers can act on factory data, she says.

“In one example, modernising our data platform reduced query completion times from around 30 minutes to just a few seconds. This allows process engineers to perform faster root-cause analysis, improve inline and end-of-line yield, speed up fault detection and spot trends in equipment behaviour much earlier.”

Guiding these developments is the Digital Economy Master Plan (DEMP) 2025-2030, which Zairil says will steer Penang’s next phase of digital transformation and ensure the state remains competitive and future-ready beyond the current administration.

“Aligned with national digital strategies, it leverages Penang’s strengths to build a digitally empowered economy and society that is resilient, inclusive and globally connected,” he says.

The DEMP supports Penang2030’s goal to become a “Family-focused, green and smart state that inspires the nation” by upgrading the economy to raise household income.

Since 2020, Digital Penang has supported over 3,000 micro, small and medium enterprises (MSMEs) in strengthening their digital capabilities and plugging more local businesses into the state’s growing digital economy.

Moreover, Digital Penang actively collaborates with strategic partners such as Malaysia Digital Economy Corporation, TikTok, Lazada, Apple, Unifi, META and Penang Women’s Development Corporation to enhance the digital readiness, marketing capabilities and business resilience of MSMEs, says Zairil.

“Through these partnerships, various training sessions, mentoring programmes and digital marketing workshops are conducted to help MSMEs build their online presence, adopt e-commerce platforms and leverage digital tools for business growth.”

Alongside these public-sector and ecosystem efforts, industry leaders such as Intel Malaysia are deepening Penang’s technical capabilities in AI-enabled design and manufacturing.

According to Chong, the silicon engineering team utilises AI tools to help in the design and validation of many of the latest Intel processors that are powering today’s AI workloads, including those for modern AI PCs.

“At the recent AI Horizon 2025 event in Penang, we showcased Intel’s leadership in AI, highlighting not just hardware advancements but also developer-ready tools and ecosystems,” Chong says, adding that the company’s open-source software stack is designed to make AI development more accessible and flexible for developers.

She notes that adaptive AI algorithms have also shortened test cycles without compromising quality, accelerating time-to-market for new products.

“These changes aren’t just technical wins; they translate into real business impact. In short, AI has helped us move towards running our factories with real-time insights and that’s a game-changer for competitiveness.”

Penang’s emerging AI and semiconductor ecosystem is also being shaped by home-grown design companies such as GreatAsic Technology Sdn Bhd and Oppstar Bhd — firms that are expanding Malaysia’s technical depth beyond manufacturing.

GreatAsic, which specialises in system-on-chip (SoC) development and semiconductor intellectual property (IP), has long-standing expertise in ARM-based architecture, used in smartphones, consumer electronics and embedded systems.

“We are also a pioneer of RISC-V technology in Malaysia and the broader Asean region.

“Our team developed the industry’s first RISC-V laptop, optimising the operating system, applications and even gaming performance for the new architecture,” says CEO Ong Chin Hu.

RISC-V refers to the rapidly emerging open-standard instruction set that is transforming the global semiconductor industry.

The company is now expanding work in custom application-specific integrated circuits (Asics), AI-related SoC development and automotive-grade semiconductors.

Ong credits Penang for its role as the cornerstone of Malaysia’s semiconductor industry, supported by a mature and integrated manufacturing ecosystem.

He notes that the state continues to play a pivotal role in the global outsourced semiconductor assembly and test (Osat) sector, serving as a hub for packaging, testing and back-end semiconductor operations.

“This success is underpinned by strong and sustained support from government agencies and the state government, whose proactive policies, industry engagement and talent development initiatives have attracted global players while empowering local companies to scale and innovate,” he says.

Penang-based Oppstar was created to fill what co-CEO Cheah Hun Wah describes as a clear market gap — the absence of a local design house capable of full turnkey services, taking a chip from specification to silicon.

“Our mission at Oppstar was never simply to fill a workforce capacity gap. We were founded to break a ceiling, the perception that Malaysian engineers are exceptional executors but rarely lead or own the full innovation process,” he says, adding that the company’s core strength lies in designing the silicon for AI applications.

While Oppstar excels at the “how” of chip design, he notes that the “why” — the domain expertise that shapes end-applications — often comes from partners.

“We provide the design engine, and we partner with companies that own the product vision and market insight. This synergy is how a Penang-rooted company like ours contributes meaningfully to the emerging AI landscape,” he says.

He adds that Oppstar’s growth has been driven by two factors — Penang’s proximity to multinational corporations with integrated circuit (IC) design activities, placing the company in the same time zone and physical neighbourhood as its clients, and Malaysia’s 50-year semiconductor foundation across Osat, equipment manufacturing and engineering services.

Digital Penang CEO Ng Kwang Ming says Penang start-ups in recent years have become more widely recognised for their ventures, initiatives and innovation.

These include Zero Technologies Sdn Bhd, winner of the AI Rising Star Award 2025 at the HNSE Asia AI Hardware Battle in Hainan, China; Brainbow (USM) Sdn Bhd, named a 10X1000 Global Ambassador at the Innovation Hub of Asia in Shanghai, China; and ADA Biotech Sdn Bhd, which emerged among the Top 10 finalists in Cradle Fund’s Startup World Cup 2025.

According to Ng, Digital Penang’s programmes are intentionally designed to be structured, goal-driven and founder-centric rather than event-led.

“Our programmes are designed to address the challenges faced by start-ups, including those in the AI space, to grow their venture and technology development. We focus on the founders more so than the technology itself,” he says.

According to Ng, federal agencies and industry players support Penang’s innovation ecosystem through grants, accelerator programmes, research and development (R&D) collaborations, testbeds and sandbox environments. These provide start-ups and innovators with real-world settings to develop and test new solutions.

Despite the momentum, he notes that some barriers remain, adding that the most challenging gap is shaping early-stage founders’ business mindset to be global or regional from the outset.

He adds that this does not mean start-ups are automatically ready for the world but that they have the capability to build the foundations and subsequent stacks that allow them to offer large-market solutions as they mature and become competitive at the regional level, not just within the country.

The second challenge, he says, is embedding an innovation- and research-driven culture as part of the organisation’s DNA.

“What we have learned from competitive and successful technology companies in China is their relentless drive and commitment to continuous R&D, which enables them to remain leading innovation companies,” he shares.

As Digital Penang focuses on building founder readiness and strengthening early-stage capabilities, deep-tech players face their own structural challenges.

Oppstar’s Cheah points to the high barrier to entry, driven by the “immense cost of advanced EDA (exploratory data analysis) tools and fabrication masks”, which significantly raises the cost of training and equipping talent.

While Oppstar collaborates with universities and institutions to help fund the tools needed to build a robust talent pipeline, Cheah acknowledges that these financial realities affect scalability and profitability.

“We cannot change the cost structure, so we must be strategic, optimising our resources without ever compromising on the quality of our engineering to ensure we deliver on our promises to clients.”

GreatAsic’s Ong highlights another major challenge in Malaysia’s semiconductor landscape — the absence of home-grown IC product companies.

He notes that local automotive manufacturers currently rely heavily on ICs and semiconductor components sourced from overseas rather than from domestic IC design companies, limiting the country’s ability to capture value across the entire supply chain.

“With continued support from the government and increasing collaboration with local automotive players, Malaysian IC companies can play a larger role in next-generation automotive technologies, including electric vehicles (EV), helping foster innovation, reduce dependency on imports and strengthen Malaysia’s position in the rapidly growing EV and advanced mobility markets,” he says.

Ong highlights another challenge, noting that most local venture capital firms expect fast short-term returns while a typical IC product design cycle — covering architecture, design, wafer fabrication, validation and volume production — can take two to 2½ years for an application-class SoC or custom Asic.

“This long development horizon has made early-stage investment in IC products less attractive to some of the venture capitalists,” Ong says.

He adds that the landscape is beginning to shift as the government rolls out strategic initiatives such as the Malaysia Silicon Vision, which aims to strengthen the domestic semiconductor ecosystem, foster deep-tech innovation and provide long-term support for companies developing advanced chip technologies.

Cheah concurs, noting that while the government’s recent initiatives are encouraging, sustained and focused investment will be essential for Malaysia to achieve the larger semiconductor breakthroughs needed in the coming years.

As Penang moves deeper into artificial intelligence (AI)-driven manufacturing, chip design and digital innovation, stakeholders warn that the state’s next growth phase hinges on addressing critical talent pipeline gaps.

According to Professor Dr Asrulnizam Abd Manaf, director of Universiti Sains Malaysia’s Collaborative Microelectronic Design Excellence Centre (Cedec), one of the most acute shortages is in advanced integrated circuit (IC) design.

“There is a significant shortage of talent with competencies in advanced IC design, particularly in 2.5D/3D IC architecture, chiplet integration and advanced-node verification,” he says, adding that this slows the industry’s shift into higher-value silicon research and development and the development of high-performance chips for AI applications.

Beyond design specialists, the industry also needs more embedded-AI hybrid engineers who can combine firmware, embedded hardware and edge-AI deployment as well as end-to-end system architects who can bridge electronics, software, cloud, cybersecurity and industrial data infrastructure.

“These engineers are the ones who turn concepts into scalable products,” Asrulnizam explains.

To address these gaps, Cedec has pushed deeper industry-academia collaboration. The Intel-USM 18A Design Space — the first university facility outside the US with access to Intel’s 18A PDK — allows students to train on the same work flows used by global AI-class processor teams.

“This sets a new benchmark for chip design education in Malaysia,” he says.

USM’s curriculum is now fully industry-infused, incorporating complete IC design flows, embedded-systems integration and AI-on-hardware techniques through modules co-developed with Intel, Infineon, SkyeChip, Oppstar Bhd and Synopsys. Cedec has also strengthened its capabilities in advanced packaging co-design, supporting Penang’s move into chiplet, high-bandwidth memory and heterogeneous integration technologies. In October 2025, USM introduced the Master Mix Mode in Advanced Semiconductor Packaging, covering materials characterisation, advanced processes and 2.5D/3D IC design architecture.

For Intel Malaysia, however, the challenge is not capability but perception — particularly how young Malaysians view engineering and deep-tech careers.

“Too many young Malaysians view STEM (science, technology, engineering and mathematics) careers as purely academic rather than seeing the exciting reality of designing cutting-edge processors, developing AI solutions or creating technologies that power billions of devices globally,” says Intel Malaysia managing director A K Chong.

She adds that despite Malaysia’s strong semiconductor heritage, there remains a significant awareness gap about high-value deep-tech careers and a disconnect between academic learning and industry-ready skills.

“We need comprehensive policies to transform how STEM is perceived and taught, and we need a national awareness campaign showcasing real Malaysian engineers making global impacts,” she says.

At the grassroots level, Intel Malaysia’s Geek Kids programme has reached more than 3,700 students and teachers from over 470 schools across 12 states over the past four years. At the secondary level, the AI for Youth programme, run with Tech Dome Penang, has provided hands-on learning to 120 students, supported by 28 Intel volunteers.

State-led efforts are also scaling. Digital Penang, working with 42Penang, continues to expand project-based programmes that build AI and digital capabilities, says state executive councillor Zairil Khir Johari.

“This initiative nurtures problem-solving, programming and critical-thinking skills among youth and career-switchers, contributing to a more robust and inclusive digital talent pool,” he says.

Other efforts include the Penang Chip Design Academy by the Penang Skills Development Centre and StartupPenang500, which supports undergraduates and fresh graduates in moving from university to technology entrepreneurship.

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