KUALA LUMPUR (Aug 13): Malaysia, alongside Singapore and Vietnam, is emerging as one of Southeast Asia’s biggest beneficiaries of the artificial intelligence (AI) technology upcycle, according to HSBC senior Asean economist Yun Liu.
The country’s surging chip exports over the past year and robust electronics trade with the US, China, Taiwan and Singapore underscore its growing role in the global semiconductor supply chain, she said.
Still, Malaysia’s chip industry faces several challenges as the AI boom reshapes demand, HSBC Global Investment Research said in a report on Thursday.
The benefits of the AI surge are unevenly distributed. Companies with direct exposure to the AI supercycle and related infrastructure build-out, including chipmakers and data-centre operators, are seeing stronger demand. Companies focused on traditional consumer electronics face a tougher environment as higher memory prices raise input costs and potentially constrain production, HSBC said.
Supply risks also remain. The conflict in the Middle East has heightened uncertainty over supplies of key chipmaking inputs such as helium. Malaysia is relatively insulated because its strength in back-end semiconductor assembly, testing and packaging (ATP), accounting for 13% of the global market, is less dependent on helium-intensive processes and relies more heavily on nitrogen, which is produced domestically.
Its wafer-fabrication plants, however, remain reliant on helium, making supply management an ongoing concern, HSBC said.
The government’s longer-term ambition is to move Malaysia further up the semiconductor value chain, capturing a larger share of advanced front-end manufacturing and chip design while expanding its capabilities in advanced packaging.
HSBC believes that shift will be difficult. Semiconductor foundries are among the most capital- and resource-intensive parts of the industry, while developing a deep pool of engineering talent takes years, it said.
"While financing and infrastructure can be addressed over time with the right incentives and execution, building [and retaining] a large pool of engineering talent is more difficult," it added.
Malaysia’s National Semiconductor Strategy, announced in 2024, commits RM25 billion and targets the training of 60,000 highly skilled local semiconductor engineers by 2030.
The bigger challenge may be keeping them in the country.
Average engineering wages in Malaysia’s manufacturing sector remain below those of several Asian competitors, leaving the industry vulnerable to talent outflows to neighbouring Singapore, where compensation is significantly higher, HSBC said.
Matching salaries in wealthier economies will be difficult. Policymakers could instead narrow the gap through targeted grants, tax incentives and other measures that improve the overall value proposition for high-skilled workers, while using targeted immigration policies to supplement the local talent pool, it said.
Malaysia nevertheless has an important strategic advantage: its ability to maintain economic ties with both the US and China as geopolitical tensions rise.
By balancing relations with the two powers and complementing Singapore, which faces tighter land and resource constraints, Malaysia can continue attracting diversified foreign investment into its semiconductor ecosystem, HSBC said.
The country has already seen a surge in commitments. Between January 2024 and March 2026, Malaysia’s semiconductor sector secured about RM92 billion in approved investments, including RM83 billion of foreign direct investment.
Semiconductor exports reached almost US$110 billion (RM449.36 billion) in 2025, equivalent to about 23% of Malaysia’s gross domestic product, highlighting the sector’s growing importance to the economy.