Localising the semiconductor sector

THE palpable buzz of business opportunities was clearly felt at this week’s Semicon South-East Asia 2026 show in Kuala Lumpur.

No sector in Malaysia seems more vibrant today – geopolitical conflicts notwithstanding – than semiconductors.

This is no surprise, considering Malaysia’s long history of involvement in the sector.

The push towards localisation and more ownership of intellectual properties (IPs) is the right move.

Recall that since 2024, Malaysia has been moving towards a more outcome-based incentive framework.

Instead of focusing purely on the size of investments or capital expenditure, the newer approach places greater emphasis on outcomes such as localisation, high-value activities, talent development, research and development, technology transfers, and the strengthening of local vendor ecosystems.

Investment, Trade and Industry Minister Datuk Seri Johari Abdul Ghani made clear at the event this week that domestic companies have already received Arm Holdings’ integrated circuit (IC) design tokens.

Under the RM1.1bil agreement inked between Malaysia and British semiconductor design firm Arm, the country will gain licences to seven of Arm’s advanced chip design blueprints or tokens, known as the Arm Compute Subsystem.

A total of 25 access tokens under the Arm Flexible Access programme, tailored for start-ups and smaller companies, are also offered in the deal.

While the Arm deal is significant as it tackles perhaps the most sophisticated layers of the semiconductor space, namely IC design, industry players reckon there is also a whole segment below that where local players still have some ways to go.

This can be easily visible from the fact that every time one of the big global tech companies open up new facilities or expand their existing one in Malaysia, whether in Penang, Kulim, Selangor or Johor, there will be a need for vendors and service providers for those facilities.

In many instances, it will be foreign companies that fulfil that role, because they are the ones which are certified by the global tech giants to do so.

That is not to say that there are no local boys already playing in this space.

In fact, some of the more exciting tech stocks on Bursa Malaysia are based on this model.

UWC Bhd, for example, saw its valuation re-rate sharply after investors gained confidence in its growing exposure to Lam Research-related wafer fabrication equipment (WFE) projects.

The shift became more pronounced from late 2024 onwards, when research houses began highlighting stronger front-end semiconductor orders, improving yield rates and rising WFE contributions from a major US customer believed to be Lam Research.

By early 2025, analysts were increasingly positioning UWC not merely as a traditional back-end semiconductor subcontractor, but as a higher-value precision engineering player leveraged to global wafer fab equipment spending.

Other examples are Greatech Technology Bhd and Globetronics Technology Bhd, catering to Infineon Technologies and ams OSRAM, respectively.

But there is still a lot of room for growth.

Many services are still handled by foreign-owned entities.

No doubt, these companies account for foreign direct investment when they come to Malaysia following the big global boys. But they remain foreign equity-owned.

It is not easy for a local company to bridge the technology and standard requirements of the global giants.

Kudos to those that do.

One fast track approach is to undertake joint ventures (JVs), which could be a very interesting trend.

This is where a new start-up like DK Global Semiconductor could be interesting.

One of its founders Loh Beng Siew tells StarBiz 7 that they have successfully inked a JV with a China company, with Loh and his two other Malaysian partners holding a 60% equity.

The group from China holds the remaining 40%.

The Chinese group services wafer fabs in China and it is their expertise which DK Global Semiconductor is largely relying on.

The plan, which does sound rather ambitious, entails a transfer of technology from the China partner to the Malaysian company, which will then tweak the solutions to cater to wafer fabs in Malaysia.

That new solution, claims Loh, will then belong to the Malaysian company – IP included, thereby achieving the goal of having more Malaysian-owned IP in the semiconductor space.

That, however, remains to be seen, considering that the China company owns the core technologies that will be deployed.

DK Global Semiconductor positions itself as a semiconductor facility solutions provider, specialising in high-purity gas and chemical delivery systems used in wafer fabrication, solar and pharmaceutical manufacturing.

It designs and builds systems required for semiconductor production processes, including gas deposition and chemical etching, where precision and contamination control are critical.

“The company differs from players such as Kelington Group Bhd and Faeth (part of the German-based Faeth Group), in that those companies typically manufacture based on customer-provided designs and specifications, whereas DK Global Semiconductor develops the solutions itself, including the overall system design, material selection, engineering drawings and integration process,” says Loh.

They also plan to set up a local manufacturing facility as well as service global clients of the Chinese group from Malaysia.

It remains to be seen how much local content and ownership would actually be present in this business when that happens.

It could lead to a new wave of semiconductor-related JVs that are moving away from merely enabling the re-exporting of goods and services from China via Malaysia to the western world or even to the domestic market, if indeed local ownership and content is at a real significant level, enabled by the necessary technology transfer from China.