This article first appeared in The Edge Malaysia Weekly on July 6, 2026 - July 12, 2026

IT has been slightly over two years since Prime Minister Datuk Seri Anwar Ibrahim launched the National Semiconductor Strategy (NSS) to move the country up the semiconductor value chain. Since then, local industry players have been working towards realising this dream and capturing a slice of the global pie, but so has the rest of the world.

The electrical and electronics (E&E) sector, which accounts for about 40% of Malaysia’s gross exports, is at a critical crossroads as the global semiconductor race heats up while the country seeks to build on its long-standing strength in assembly, testing and packaging, where it commands about 13% of the global market.

Taking into account that Malaysia is ranked sixth globally in semiconductor exports — but lacking the intellectual property (IP) side of the coin — Economy Minister Akmal Nasrullah Mohd Nasir said Malaysia’s pivoting the semiconductor sector towards an ecosystem that is designed and built by Malaysians is facing the “ultimate test”.

Since its launch, the NSS has attracted RM59.85 billion in realised investments from January 2024 to September 2025. In March, Deputy Investment, Trade and Industry Minister Sim Tze Tzin said RM56.8 billion was in the form of foreign direct investment (FDI), while RM3.05 billion comprised domestic direct investment.

The government has also established the Malaysia Advanced Packaging Consortium, bringing together five local companies under a matching grant to build advanced packaging capabilities.

More importantly, the federal government has laid out a road map to develop 60,000 highly skilled professionals and support 110 domestic corporate champions.

Private sector leaders, institutional investors and industry groups say the move from manufacturing to innovation must be executed with precision and speed as the window of opportunity will not remain open indefinitely.

“Globally, the industry is entering a new cycle shaped by supply chain rebalancing, rapid digital adoption, accelerating AI use cases and sustained growth in demand for advanced computing,” says HSBC Malaysia CEO Datuk Omar Siddiq.

“The priority should be to design financing that deepens ecosystem value creation because a ‘meaningful local presence’ happens when an investment leaves lasting capability behind. Financing can reinforce this by encouraging companies to deepen their local footprint progressively.”

To support cross-border capital flows into Malaysia’s semiconductor ecosystem, HSBC is leveraging its international footprint to help local companies reach new customers, attract strategic investors and integrate more deeply into global supply chains.

The local semiconductor sector is a network of complementary hubs, with each region playing to its strengths. “Penang remains the established manufacturing and E&E hub, while Selangor and Kuala Lumpur bring unique strengths in connectivity, infrastructure, engineering talent and regional headquarters capabilities,” says Omar.

“Selangor, in particular, benefits from strong logistics links and proximity to a dense network of multinationals and technology talent. This creates room for closer collaboration across the value chain — spanning manufacturing, supply chain management, innovation and services.”

The semiconductor industry has long been driven by the push to make chips smaller, faster and cheaper. But now that progress is slowing as shrinking chips further has become increasingly difficult and expensive, the search is on for new ways to improve performance.

“The scale and technology is still far away and if we want to chase that, it will take a long time and will require a lot of capital expenditure and investment in talent,” says Andrew Goh, corporate vice-president and general manager for Southeast Asia at Lam Research.

“Leading-edge manufacturing requires an immense amount of work and capital investment, not just in terms of human capital, but on the physical infrastructure and equipment side.

“It is not as straightforward as pumping large investments into a country and expecting a leading-edge wafer fabrication plant to appear overnight. Many countries today are declaring their intentions to build wafer fabs, but without a mature, interconnected ecosystem, those single-point investments are highly vulnerable to failure.”

As it becomes harder and more expensive to make ever-smaller chips, the industry has been turning to advanced packaging. Instead of building one large chip, manufacturers are combining smaller chips into a single package to improve performance. This also creates new engineering challenges, particularly in managing the heat generated by these high-performance chips.

“AI (artificial intelligence) chips are running incredibly hot because you are compressing unprecedented computing functionality into a singular package,” says Goh.

“When you hit these thermal limits, standard electrical wiring like copper interconnects begin to degrade efficiency. This is why co-packaged photonics — using light instead of electrical signals to transfer data — is becoming the new frontier in advanced packaging.”

This presents an opportunity for Malaysia, which already has a strong base in semiconductor assembly and testing even if it cannot yet match Taiwan in foundry dominance or South Korea in high-bandwidth memory supply chains.

“Malaysia should not abandon its assembly and test heritage. Instead, we should evolve assembly and test into advanced assembly and advanced test,” says Datuk Seri Wong Siew Hai, president of the Malaysia Semiconductor Industry Association (MSIA).

“The opportunity is to leverage our existing strength and move into higher-complexity manufacturing rather than attempting to replicate Taiwan’s wafer fabrication ecosystem overnight. The future may not belong to those who build the smallest transistor. It may belong to those who integrate the system most effectively.”

But even moving up the value chain requires a complete overhaul of how domestic semiconductor enterprises operate. Historically, local E&E firms have been capable contract manufacturers, executing the specifications provided by foreign tech giants. This “build for others” model sustained industrial growth for decades but left local firms exposed to low margins and cyclic displacement.

“The core challenge of the NSS is to shift the local mindset from the ‘heart of manufacturing’ to the ‘brain of innovation’, not just ‘build for others’ but also develop technology and own intellectual properties (IPs) that can sell globally. This involves access to scale capital combined with technology ownership,” says Wong.

“By 2027, success should not be defined by how many foreign companies expand in Malaysia, but by how many Malaysian firms own proprietary technology, patents, design platforms, packaging IP or manufacturing capabilities that are globally competitive.”

Moving up the value chain requires significant investment, as hardware engineering requires costly specialised equipment. Local firms also face the challenge of competing against global semiconductor leaders that have spent decades building proprietary technology and strong customer relationships.

This is why candidates must be subjected to strict technical and commercial benchmarks, says MSIA’s Wong. Success means creating Malaysian-developed capabilities that force global supply chains to route through local enterprises.

He says size and annual revenue alone are inaccurate indicators of long-term innovation capability. Instead, a future champion must demonstrate technology ownership, including a portfolio of defensible patents, sustained domestic research and development (R&D) investment and a workforce heavily weighted to specialised engineering talent.

Commercially, a true national champion must prove its global viability by deriving at least 50% of its corporate revenue from export markets, maintaining a diversified portfolio of international enterprise clients, and successfully achieving product qualification from global end-users.

How capital is allocated will determine the pace of the country’s semiconductor ambitions, adds Wong. Under the NSS, the federal government has committed significant funding to support high-value investments. This includes RM500 million in soft loans disbursed via Bank Pembangunan Malaysia Bhd that has been earmarked for incentivising domestic R&D and chip design activities.

Concurrently, Khazanah Nasional Bhd and Retirement Fund Inc (KWAP) have allocated RM550 million jointly to deepen collaboration between local and multinational players.

“Speed and commercial relevance are critical. Government funding should be assessed based on technology readiness, commercial demand and the economic multiplier. A practical model would involve faster approval cycles, strong business strategies and execution and clear commercialisation targets,” Wong explains.

“The best projects should be able to move from approval to deployment within months rather than years. In the semiconductor sector, timing is often more important than funding size.”

Recognising that successful fabless integrated circuit (IC) development requires strong global ecosystem collaboration, Yong Kai Ping, CEO of Selangor Information Technology & Digital Economy Corporation (SIDEC), says this is why the Malaysia Semiconductor IC Design Park was designed to significantly reduce the operational burden on local IC companies by supporting critical costs.

“These design parks dramatically lower the capital barrier to entry for home-grown hardware innovators. Capital allocation is moving beyond simple equity injections to incorporate strategic market-making mechanisms,” he says.

The Selangor government’s localised economic policies for new hyperscale data centre developments mandate a minimum of 30% local content participation.

Yong says this regulatory move has created immediate, high-volume commercial runways for local IC companies, power management vendors and technology infrastructure suppliers, allowing them to scale their operations using domestic enterprise demand before targeting international markets.

SIDEC, Permodalan Negeri Selangor Bhd and Artem Ventures Sdn Bhd have jointly established the Ehsan Selangor Fund, targeting RM100 million to support early-stage IC companies. To date, they have raised more than 50% of the target. One of the fund’s early success stories is the initial public offering (IPO) of SkyeChip Bhd, which has boosted investor confidence and created strong momentum within the local semiconductor industry.

“Building on this momentum, we are confident of nurturing another three to four companies — or related investments — towards IPO-readiness within the next three to four years,” says Yong.

Front-end wafer fabrication and advanced packaging facilities have stricter requirements than conventional factories. They need reliable power, ultra-pure water, tightly controlled environments and infrastructure that can meet the demanding standards of global chipmakers.

IJM Construction Bhd has built this expertise by delivering advanced technology facilities, semiconductor-related industrial buildings and data centres, where precision, reliable utilities and uninterrupted operations are essential.

“We are also seeing industrial clients place far greater emphasis on utility readiness and delivery certainty compared with five years ago. In sectors linked to semiconductors, AI infrastructure and advanced manufacturing, the ability to scale quickly has become a strategic consideration and not just a construction issue,” says its group CEO and managing director Datuk Lee Chun Fai.

He says demand from semiconductor investments and hyperscale data centres is growing faster than the expansion of critical utilities and supporting infrastructure. “Three bottlenecks stand out. Reliable utilities are the most pressing, particularly as wafer fabs, advanced manufacturing and AI infrastructure become more energy-intensive. Power reliability is critical, while water security is equally important, given the scale of ultra-pure water required for semiconductor manufacturing.

“Logistics connectivity and the speed of government approvals also remain important. Investors increasingly compare countries not only based on incentives, but on how quickly infrastructure can be delivered, utilities connected and regulatory approvals coordinated,” Lee says.

He points to IJM’s development of the Malaysia-China Kuantan Industrial Park (MCKIP) to showcase the importance of industrial design. The long-term value of MCKIP does not stem solely from its anchor investors, but from the logistics integration through Kuantan Port, the proximity of supporting industries, and long-term industrial activity it has enabled in the East Coast Economic Region.

“This ecosystem thinking is what we are bringing forward into newer developments, including the Southern Catalyst Innovation District in Sedenak within the JS-SEZ (Johor-Singapore Special Economic Zone), where IJM Land recently signed a joint venture with Southern Catalyst Sdn Bhd to develop 307 acres of industrial and commercial land,” says Lee.

“The real measure of Malaysia’s semiconductor success should not only be FDI headlines. It should be how many Malaysian companies are embedded in those supply chains five years after the MNCs (multinational companies) arrive.”

Ultimately, Malaysia’s semiconductor ambitions depend on talent. While the NSS aims to train 60,000 highly skilled professionals, the industry is already grappling with a regional talent shortage that could undermine those ambitions.

SIDEC’s Yong shares that Advanced Semiconductor Academy of Malaysia (ASEM), the training arm supporting Selangor’s ecosystem, has successfully trained more than 300 semiconductor engineering graduates over the past two years. This number is expected to grow to over 600 graduates in the coming years.

“Many ASEM graduates have received multiple employment offers from leading semiconductor companies, with starting salaries ranging from RM5,000 to RM8,000 — among the highest entry-level salaries for fresh graduates in Malaysia today,” says Yong.

The Malaysia Semiconductor IC Design Park currently houses more than 311 young engineers across 15 IC design companies. SIDEC is also working with IC firms and international executive search firms to attract experienced Malaysian semiconductor professionals from Singapore, Taiwan and the US. More than 40 high-potential candidates have been identified and are in discussions with participating companies.

The execution of the NSS requires alignment among stakeholders, however, government ministries, academic boards and the private sector operate at completely different speeds.

To ensure the NSS remains coordinated, industry-led agency Collaborative Research in Engineering, Science and Technology (CREST) serves as an intermediary between government, academia and industry.

CEO Jaffri Ibrahim says CREST is focused on commercialising research through industry-academia collaboration across the broader E&E sector. “Our approach is centred on identifying companies that have already demonstrated strong execution capabilities — whether through industry partnerships, customer validation, prototype readiness or potential market adoption,” he says.

“We also place strong emphasis on evaluating projects based on their commercialisation readiness, including factors such as technology maturity, market demand, scalability and the potential to strengthen Malaysia’s semiconductor ecosystem and value chain.”

CREST also supports local IC design start-ups through MYChipStart, which helps home-grown companies move from chip design to commercialisation.

Jaffri says the biggest challenge is not developing a prototype, but turning it into a market-ready product. That requires access to specialised design tools, manufacturing partners and commercial networks, areas where many early-stage companies face significant barriers.

“Beyond supporting critical silicon execution phases such as design, verification, tape-out and silicon validation, the programme also aims to create stronger pathways towards ecosystem participation, customer engagement and commercial scalability,” he says.

“In many cases, the biggest hurdle is not technical capability, but market access and commercial confidence. Many promising start-ups struggle with navigating industry relationships, understanding qualification requirements, securing customer trust and positioning themselves within highly complex global semiconductor value chains. CREST’s role is to help bridge those connections.”

These issues will be discussed at The Edge-HSBC E&E Symposium 2026 with the theme “The Value Chain Shift”. Industry leaders will examine the trends shaping Malaysia’s semiconductor sector and how the country can build on its strengths to move up the value chain.

Organised in collaboration with HSBC Bank Malaysia and supported by IJM Corp Bhd, the symposium will feature keynote addresses by Akmal Nasrullah and Deputy Finance Minister Liew Chin Tong, followed by discussions on ecosystem funding, talent, AI and Malaysia’s position in the global semiconductor industry.

With Sime Darby Property Bhd as the venue partner, the event will take place on July 13 at the KLGCC Convention Centre. The centre features a range of function rooms and meeting spaces designed to accommodate events of every scale — from intimate executive meetings and boardroom sessions to large conferences, seminars, exhibitions, corporate gatherings and annual general meetings.

KLGCC Convention Centre was refurbished this year to better serve the evolving corporate events and conference market, says Sime Darby Property head of asset management Rizqan Helmi Mohd Ariff.

“We achieved a seamless transformation while working around the venue’s live events calendar, with no room for delays or slippage. Our goal was to create a more contemporary ballroom and lobby while preserving the architectural character that has long defined Kuala Lumpur Golf & Country Club.

“Our focus is not on being the largest venue, but on delivering premium event experiences where quality, flexibility and service make the greatest difference. The convention centre is well suited for corporate gatherings in the 300- to 1,500-guest segment, while retaining the flexibility to accommodate up to 2,000 guests in its pillarless Grand Ballroom. Set within the KLGCC Resort, it offers organisers a distinctive environment that combines the functionality of a convention centre with the atmosphere of a resort destination.” 

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