Arm-ing semiconductor players

IT has been more than 50 years since the first semiconductor-related business set up shop in Malaysia, and today the country is known globally as a hotspot for packaging and testing of chips.

The problem is that the country hasn’t been able to move higher up the value chain.

Past attempts have seen billions of ringgit sunk into projects that came to naught, including building capital expanditure-heavy wafer fabrication and investing hundreds of millions into a few integrated circuit (IC) design houses.

This week’s deal with Arm Holdings Plc does look like a game changer.

In a nutshell, the government will be paying Arm around RM1bil for a slew of licences and know-how, which will then be provided to selected local players to eventually develop the country’s own intellectual property (IP) in chip sets or made in Malaysia chipsets.

The move, spearheaded by Economy Minister Datuk Seri Rafizi Ramli and his team, that took months of convincing and negotiations with Arm, is starkly different from previous attempts at nudging Malaysia higher up the semiconductor value chain.

For Datuk Phang Ah Tong, a former deputy chief executive officer of the Malaysian Investment Development Authority, who has been involved in bringing top global semiconductor names to Malaysia, this Arm deal is the best government initiative he has seen.

“Arm is the right partner to work with as it is the most authoritative company in the IC design architecture space and with the most global reach,” he says.

Ng Meng Thai, the head of Malaysia’s only listed IC design company Oppstar Bhd, adds: “The Arm deal addressed the important parts of semiconductor product realisation and will help nurture a broader ecosystem, particularly benefitting local companies”.

Phang says: “Currently, no local Malaysian companies are able to do IC designs and advanced packaging for artificial intelligence (AI) chips for advanced central processing units, graphics processing units or GPUs and data centres.

“Hence, the collaboration with Arm will help local companies create a platform to perform those processes. The companies could then gain access to Arm’s IP and expertise, making them more competitive,” he says.

Masaru Tsuchiya, a Tokyo-based partner at McKinsey notes that in the 1970s, Malaysia and Taiwan were at the same stage of development in the semiconductor space. However, Taiwan has since been leaps and bounds ahead of Malaysia.

To catch up, the key will be to “localise the semiconductor supply chain”.

Tsuchiya points out that if a foreign company were to work with a local semiconductor company, many parts of that process would entail securing bits and pieces from China and Taiwan and to a lesser extent, South Korea and Japan.

“So the key is to build the infrastructure and talent. The good news is that we are at the beginning of that journey here,” he adds.

Capital is still

a challenge

According to Masaru, funding will be key to any programme to get a country into building the semiconductor ecosystem.

That view is echoed by Oppstar’s Ng.

“There are still quite a number of investment challenges for local companies who have the ambition to make their own chips,” he says.

Ng points out that the process of developing a chip from concept to mass production is a costly affair.

It starts with studies on what chips to make and who will buy them, procuring expensive IP and software and hardware tools, foundry costs and testing followed by outsourcing the production.

To be sure, the Economy Ministry had sought to figure out the funding ecosystem in Malaysia prior to the Arm deal.

In 2024, KL20 was created which saw the accomplishment of several key initiatives.

The summit, aimed to enhance the local startup ecosystem by focusing on areas like talent development, funding accessibility and market access, saw investment commitments totalling RM4bil from Khazanah Nasional Bhd, The Retirement Fund Inc and Blue Chip VC.

There were also several flagship programmes that were announced during the event, to help startups gain access to capital, talent, and technology.

This, along with the launch of the National Semiconductor Strategy and the Puchong IC Design Park last year, are instrumental steps for the formation of the ecosystem which should be boosted following the partnership with Arm.

The government is paying US$250mil – a discounted price, to get access to Arm’s IPs, essentially two sets, one for startups and another for mature companies.

Phang asserts that the amount is a good deal for Malaysia. Although it may be a significant sum by Malaysian standards, it is not excessive if it delivers long-term economic and technological benefit.

“For semiconductor investments, US$250mil is peanuts. As long as we know what we are getting and if executed well, this collaboration could help Malaysia move beyond traditional assembly and testing into higher-value semiconductor segments for advanced packaging and chip design,” says Phang.

Among the sectors the plan is focused on are automotive, the Internet of Things, data centre and cloud market.

Phang is of the view that a greater emphasis placed on automotive electronics will bode well for the country given that it has prominent multinational corporations (MNCs) like Infineon, NXP, STMicro, Texas Instruments and Renesas, which have a working relationship with Arm.

“Malaysian automotive companies could secure jobs from these MNCs and be part of their supply chain as Tier 1 or Tier 2 if their IC designs and softwares are similar or aligned to those used and provided by Arm,” he says.

Talent is another ride or die factor for the success of the collaboration.

The deal addresses this, to some extent, with Arm set to train 10,000 engineers over four years in partnership with local educational institutions.

Currently, Arm is in talks with the Selangor government to train students at the Advanced Semiconductor Academy of Malaysia within the IC design park.

Among the beneficiaries identified by analysts from this deal are Oppstar, as well as outsourced semiconductor assembly and test players, Malaysia Pacific Industries Bhd, Inari Amertron Bhd and Unisem (M) Bhd. Non-listed companies like SkyeChip Sdn Bhd, Key ASIC, and Infinecs are also top picks.

On Thursday, Fabless designer Oppstar saw its share price surged by 20%, to close at 48 sen.

It remains to be seen whether Malaysian companies can fully undertake this 10-year plan, at least in its early stages.

Established players like Intel and Infineon are likely to play a supporting role in helping local firms progress toward this long-term goal.

Infineon Technologies (Kulim) Sdn Bhd senior vice president and managing director Ng Kok Tiong says the company is a reliable partner within the growing semiconductor hub in Malaysia.

With the recent expansion of our manufacturing footprint in Kulim, Infineon plays an important role in AI.

“Our products and solutions address the global demand for semiconductors to power AI data centres efficiently,” he says.