Arm partnership set to reshape technology sector

PETALING JAYA: Analysts are staying cautious on the technology sector, given mixed fundamentals over the short-to-mid-term.

Technology stocks are trading at relatively high valuations compared to their regional peers, Hong Leong Investment Bank (HLIB) said.

The bank’s research house noted that the government is forming a comprehensive ecosystem partnership with Arm Holdings (Arm), a leading British semiconductor and software design company.

Under the deal, Arm will provide the country with intellectual property (IP) licences as well as compute subsystems for RM1.11bil, to be paid over a decade.

Additionally, Arm will collect royalties for chips that are sold.

“The collaboration with Arm marks Malaysia’s shift away from traditional manufacturing to an IP-driven model. The goal is to foster long-term, indigenous innovation that aligns with new market opportunities. Arm helps to fast track our country to be part of the larger semiconductor ecosystem (from back-end to front-end) and push for the ‘Made by Malaysia’ agenda.”

Also, this effort aligns with the ambition of the National Semiconductor Strategy to create more than 10 local companies in design and advanced packaging to generate RM1bil to RM5bil in sales and help establish more than 100 semiconductor-related companies with revenues of around RM1bil, HLIB noted in its report.

HLIB said although it is still early days with no specific mention of potential firms, it has identified several chip designers that could partake in this Government initiative including Dagang NeXchange Bhd’s 60%-owned, SilTerra (a foundry player) which may tap on this opportunity in order to move up the semiconductor value chain.

Alternatively, it could also potentially benefit from future successful tape-out and manufacturing activities, it said.

Overall, we believe Malaysia’s partnership with ARM could generate positive spillover effects for the broader technology sector, particularly if it leads to the creation of a new semiconductor value chain, it said.

“We reckon this to be a longer-term, multi-year story, with the sector continuing to operate in a highly cyclical environment.”

UOB Kay Hian (UOBKH) Research in its report said while specific details regarding the first-round beneficiaries remain limited, it believes several chip designers could potentially participate in this initiative.

Among them are Oppstar Bhd as well as non-listed players like SkyeChip and Infinecs.

“Spearheading cutting-edge IP innovation on a nationwide level is a game-changing move that demands state-of-the-art technical expertise, significant capital investments, a supportive ecosystem and strong commitment from the government and stakeholders,” UOBKH Research said.