Semiconductor boomtown 

TO say Malaysia’s semiconductor sector is on a tear is stating the obvious. Bursa Malaysia’s technology index continues to surge.

Globally, semiconductor tech stocks are so hot, that some like Michael Burry, the investor made famous in The Big Short, is warning that technology stock valuations have reached unsustainable heights and the Nasdaq 100 Index is headed for a dramatic reversal.

He says the market resembles the peak of the dot-com bubble just before it burst.

Investors everywhere, including in Malaysia, don’t seem to be buying that theory yet.

This week alone, Bursa’s tech index went up another 3.4%. The index is up more than 70% in the last year or so.

The whole underlying artificial intelligence (AI) and data centre theme seems intact.

The sector’s buzz was clearly felt at last week’s Semicon South-East Asia 2026 show in Kuala Lumpur, which drew in record crowds.

“Everyone was smiling from ear to ear,” says Chew Ne Weng who runs locally-listed automated test equipment (ATE) manufacturer QES Group Bhd, whose booth at the event was near other big local tech companies such as ViTrox Corp Bhd and Pentamaster Corp Bhd.

“Customer enquiries and orders are visibly up,” Chew adds.

Stocks aside, another development is shaping up.

Huge new foreign direct investments (FDI) in the semiconductor space are happening.

Sure, the FDIs have been flowing in over the last few years but there does seem to be a visible upward spike in activities.

Consider the case of Lam Research Corp, the US giant that makes wafer fabrication equipment. When Lam Research opened its Batu Kawan manufacturing facility five years ago, it made big news.

The spillover of Lam Research’s presence there has been phenomenal not only in drawing other multinational corporations to Malaysia but also giving business to Malaysian companies.

At least two listed tech companies on Bursa Malaysia today trade at astronomical valuations largely because they are said to be the recipients of orders from Lam Research.

Now here’s the big news: Lam Research has quietly built up an even larger facility at Kulim Hi-Tech park, which will open its doors very soon. Word on the street is that the new facility will be a few times larger than the one at Batu Kawan and that investments have gone into the billions of ringgit.

When asked about this investment, Lam Research says it is “investing across its global footprint to meet growing customer and long-term demand growth”.

“This includes an expansion of our Malaysia manufacturing operations, which will add more capability to our integrated global network.

“Together, these global investments position Lam to increase operational velocity and deliver the speed, flexibility, and reliability our customers expect as the industry grows,” it tells Starbiz 7.

Fund manager Peter Lim Tze Cheng notes: “Imagine the spill-over effect from that into Malaysian listed companies”.

Beneficiaries will include local precision engineering and metal fabrication players, areas where Malaysia has developed strong capabilities.

“The wafer fabrication equipment that Lam Research makes is very high-end. But local players will be able to supply precision parts or certain modules used in those machines,” he says.

Sources say that as a result of Lam Research’s expansion in Kulim Hi-Tech Park, combined with the significant investments and expansions of other global players such as Vienna-listed Austria Technologie & Systemtechnik AG (AT&S), a slew of foreign players that support these giants are rushing to secure their slots in the newer phases at Kulim Hi-Tech park.

Tze Cheng adds that Lam Research’s expansion is positive as it creates the potential for Malaysian companies and talent to move further up the value chain given the sophistication of the equipment involved.

The semiconductor FDI boom is reaching other parts of the country that are seeking to mimic Penang and Kulim’s hitherto dominance in the sector.

Johor, more known for its electronics manufacturing services (EMS) players in the past and more recently as a global data centre hub, has been making efforts to woo semiconductor-related investments.

Late last year, Japanese group Ferrotec Holdings Corp, a global supplier of materials, components, and precision system solutions, announced a RM550mil investment.

Malaysian government officials boasted that this FDI will generate an annual export value of RM600mil, create 396 new jobs and use the services of 35 local vendors.

Another investment is by Taiwan’s Lincotec Technology, a maker of semiconductor equipment used in advanced chip packaging. Its 10-acre facility at Senai Airport City marks the group’s first manufacturing base in South-East Asia.

Johor’s more recent big news is the entry of an industry-leading company from China, dubbed for now as the “queen bee” project.

It is said to be involved in advanced semiconductor manufacturing and that this company will bring along an entire ecosystem of the sector, again creating more high-value jobs and strengthening the ecosystem.

In Selangor, Taiwan’s MEMC Electronic Materials which already has had a manufacturing facility at Sungei Way Free Trade Zone for a long time, is now opening a new one in Shah Alam, having recently acquired a piece of land there.

The company specialises in the manufacturing of silicon wafers, the foundational material used to make semiconductor chips.

Perak is also vying to attract front-end semiconductor investments. The state currently houses some of the country’s largest outsourced semiconductor assembly and test (OSAT) players, namely Unisem (M) Bhd and Carsem (M) Sdn Bhd.

It now wants to leverage on this to carve out a bigger footprint in the country’s semiconductor sector.

The tailwinds behind Malaysia’s chip sector are attracting Dutch firms too.

EMS firm Neways, a supplier to global semiconductor bluechip ASML Holding NV, is expanding its production capacity in Klang.

Its facility there, which only began in the fourth quarter of 2024 serves as the group’s South-East Asia hub for semiconductor customers, providing full EMS and cleanroom assembly solutions among others.

The company’s plan is to increase its Malaysian headcount to 200 from the current 60 while also setting aside room for future warehouse and production expansion at the site.

Neways Electronics International business development manager Peter Lim Chee Hong says the availability of talent, relatively stable political environment and government support are factors that are drawing Neways to Malaysia.

“Malaysia is a hotbed for electronics manufacturing with well established front-end and back-end semiconductor operations. These companies are potential customers for us and we see opportunities to supply to them and work alongside other global brands, allowing the ecosystem to grow together.

“While the more complex equipment or products may not yet be produced here, we plan to gradually narrow that gap,” he says.

According to the Netherlands Embassy in Malaysia, more and more Dutch advanced manufacturers for the semiconductor sector are looking at Malaysia as their first location in South-East Asia.

“Some of Malaysia’s distinguishing factors with other countries would be the mature advanced manufacturing and semiconductor supply chain ecosystem, supported by more than 50 years of industrialisation.

“In terms of its position in the value chain, Malaysia is moving beyond assembly, test and packaging into design, advanced packaging along with power semiconductor technologies like silicon carbide and gallium nitride,” a spokesperson tells StarBiz 7.

Interestingly, the embassy official says that protecting intellectual property (IP) rights “even more firmly” will boost the attractiveness of Malaysia’s semiconductor sector to investors.

The side effect of massive FDIs

The spike in big FDIs bring in capital, opportunities for local companies, create high paying jobs and attract more foreign service providers to set up shop locally. All that is good for the country.

But there are negative effects. One, it intensifies the engineering talent shortage issue. The semiconductor industry has historically been beset with a race for talent, incidentally also a global issue.

While some of the best local engineering talent continue to leave the country, those that remain and work for local players will now have even more job offers from the likes of giants like Lam Research as they continue to expand.

Retaining talent will drive up operational costs for local players, points out Ben Shane Lim, head of research at New Paradigm Securities.

“This is a long standing challenge which is likely going to be made worse,” he opines.

The talent issue is one that Muhamed Ali Hajah Mydin is well versed in, having spent seven years with the Penang Skills Development Centre, an industry-led skills training and education centre.

He says the notion that rising FDIs could intensify competition for talent and make hiring more expensive for existing local players is valid and has long been the case.

“Talent will naturally go where salaries are higher, where the company has a stronger name and where the benefits are better. Local large companies and small and medium enterprises face the most pressure as they may not be able to afford to match the salary and benefits that multinational companies pay,” says Muhamed Ali.

Malaysia Semiconductor Industry Association president Datuk Seri Wong Siew Hai says the influx of FDI does lead to the loss of local expertise and talent and is “a global scenario that occurs everywhere”.

Wong says this highlights the importance of strategic industry-academia alignment, the strengthening of TVET and the continuous reskilling and upskilling efforts.

Fund manager Tze Cheng, however, argues that the influx of FDI should not be blamed for the exacerbation of the country’s talent issues, as at the core of it is long-standing structural weaknesses in the country’s education and labour ecosystem.

Tze Cheng also reckons local companies need to level up their services and capabilities, arguing that stronger and more competitive firms would be able to pass on higher labour costs to customers.

To be fair, the government is accelerating its efforts to close the gap in moving graduates from classrooms to the chip fabrication floor.

The Special Taskforce-Talent Facilitation that was launched in 2023, saw the coming together of 17 stakeholders to align workforce development with industry needs.

Meanwhile, up to 10,000 local engineers will be trained in IC design over four years under the Arm-Malaysia Strategic Cooperation Initiative.

Khazanah Nasional, under the K-Youth Development Programme, has trained more than 8,000 Malaysians since 2021, with over 83% securing employment within three months of completion.

Local universities too are playing an active role in strengthening the talent pipeline of the country.

For one, Universiti Sains Malaysia led the MR13 programme in partnership with 27 industry players. Final year students through this programme are placed directly with sponsoring companies.

Some of Malaysia’s semiconductor champions, including ViTrox, Greatech Technology Bhd and UWC Bhd, are increasingly taking talent development into their own hands – not merely to sustain their own growth, but to strengthen the country’s broader semiconductor ecosystem.

Increasing competition and localisation of IPs

Other issues related to aggressive FDI is that it could intensify competition for local players.

Malaysia is also seeking to move away from the older model of bringing in MNCs and instead having more ownership or localisation of the IPs in Malaysian hands.

As one chief executive officer of a privately owned manufacturing company puts it: “It would be naive to pretend competition from foreign entrants, particularly those with cheaper financing, scale advantages, and a willingness to operate on thinner margins, does not change the local operating landscape”.

He however says that local players need to up the ante.

“If we are shielded from this competition, we will grow soft. Local players would have less reason to invest in automation or develop higher-precision capabilities,” he adds.

His view is that Malaysian companies in the EMS and semiconductor sectors that will do well in the next five to ten years will be the ones who “climb up the value chain, taking on work that requires real engineering partnership, quicker turnarounds, and the kind of customer responsiveness that large foreign operators struggle to match”.

Another option will be to collaborate with the foreign parties, such as those from China, in a way in which new IP is created in Malaysia and owned by locals.

That, though, is easier said than done, but is being attempted by a few local players.

One is a new startup called DK Global Semiconductor, which Muhamed Ali and a few other industry veterans are part of. It is a joint venture with a China company, where the Malaysian partners own 60% of equity.

The Chinese group provides services to wafer fabs in China and is the main provider of expertise that DK Global Semiconductor depends on.

Their plan calls for the Chinese partner to transfer technology to the Malaysian firm, which will then adapt those solutions for Malaysian wafer fabs.

DK Global says the resulting solution – including the IP – will be owned by the Malaysian company, helping increase Malaysian-owned IP in the semiconductor sector.

It remains to be seen if such partnerships will achieve their goals.