Hurdles in IC design

IT is challenging to play in the chip designer space. Consider the case of Oppstar Bhd.

It just posted a net loss of RM12mil in its financial year ended March 31, 2025 (FY25), higher than the amount estimated by analysts covering the stock.

Oppstar listed on Bursa Malaysia’s ACE Market in 2023 with much anticipation, riding on the country’s ambition to move higher up the semiconductor value chain.

After listing at a historical price earnings (PE) multiple of 24 times at an initial public offering (IPO) price of 63 sen, the stock reached an intraday high of RM2.95 on its debut trading day on March 15, 2023.

At that peak, the company had a market capitalisation of some RM1.9bil. Its share price has faltered since then, and the market value is only RM281.9mil today.

What happened to the promising business of designing chips? A number of things apparently.

Firstly, Oppstar has been seeing a decline in contribution from turnkey projects.

The group’s main operating activity is in the provision of integrated circuit (IC) design covering front-end design, back-end design and complete turnkey solutions as well as post-silicon validation services. In its turnkey segment, Oppstar handles the entire IC design process, delivering a production-ready design that stops short of actual fabrication.

Oppstar did record some positive results soon after its listing.

For financial year 2023 (FY23), the company’s earnings rose by 22% year-on-year (y-o-y) to RM20.4mil on the back of a higher revenue from securing more turnkey design projects.

In FY24, Oppstar reported a 56% y-o-y increase in net profits.

But the company has been in the red in the last three quarters.

In its fourth quarter of financial year ended March 31, 2025 (4Q25), the company saw a 48% y-o-y drop in revenue. A drop in revenue from turnkey design services was one of the primary reasons.

It needs to be established that companies in IC design rely mostly on the engineering and design skills of their core team.

IC designers are at the apex of the engineering talent in the semiconductor industry and they command the highest salaries.

While that alone may not be a problem, things go awry if contracts and billings don’t come in as expected.

Hence, one of Oppstar’s key reasons for the big losses was overhead costs.

Kenanga Research, one of the two houses that cover the stock, notes that Oppstar is now considering a hiring freeze coupled with pay cuts to keep operating costs down. Oppstar’s engineer headcount has increased to 278.

Interestingly, the group had planned to expand its workforce by another 280 new hires, ranging from managerial level to junior level design engineers. This was to be done over three years with RM50mil of its IPO proceeds earmarked for this initiative.

At the time of listing, Oppstar had 220 engineers and this hiring target was set to double its workforce to 500 by the end of the period.

Another issue that impacted Oppstar’s latest earnings was the opening of offices in Japan, where it hoped to win business.

In 2Q25, Oppstar commenced a new segment that is involved in the sales of semiconductor wafers and components. There are no sales recorded from this division in 4Q25 which Kenanga Research said is due to tariff uncertainty, compared with the RM15.1mil sales registered in 3Q25.

Oppstar said the initial setup and fulfillment costs of the new segment outweighed revenue, compressing overall gross profit margin in 4Q25.

Nonetheless, Kenanga Research noted that Oppstar anticipates “rising interest” in the sale of semiconductor wafer and components, which is expected to fuel a turnaround from 2Q26.

Tariff uncertainties may continue to cloud the group’s performance in 1Q26.

Meanwhile, it is notable that the Malaysian government has a big initiative to help nudge Malaysian companies into the IC design space.

The government has struck a deal with UK’s Arm Holdings plc, one of the world’s leading chip architecture firms.

The government will be forking out around RM1bil for design licenses and tools from Arm Inc to be provided to deserving local IC design companies.

The aim is for Malaysian design companies to develop their own chipsets in the next five to 10 years and for there to be 10 local chip companies with annual revenues of between US$1.5bil and US$2bil each.

Certainly, the Arm deal is an impressive one, more sophisticated than previous government funded attempts at getting Malaysia into IC design and chip wafer fabrication.

The idea is for local chip designing talent to scale up to the next level, an initiative that is likely to be even more strategic for countries like Malaysia amidst escalations of the global tariff war. 

So far, Oppstar has indicated that it has submitted a proposal to participate in the Arm initiative, although details remain limited at this stage.

Kenanga Research, though, was bullish that Oppstar would stand as the “key beneficiary” of the Arm deal, largely supported by the company’s tie-up with South Korea’s tech giant Samsung Electronics Co Ltd. The deal may enhance Oppstar’s chances of securing more Arm compute subsystems projects under the initiative.

Securing a contract under the Arm-Malaysia tie-up could ease the high labour costs that Oppstar is grappling with. Last April, the group partnered with Samsung Electronics for the production of industrial ICs manufactured using Samsung’s 14 nanometre FinFET technology foundry process.

Analysts were mostly bullish on the collaboration, with Kenanga Research calling it “significant”, as it stands to transform Oppstar into an enabler (converting concepts into tangible products) for fabless tech players.