Rise of the semiconductor 

THE semiconductor industry, long a mainstay in Malaysia, is now entering its most transformative decade.

Artificial intelligence (AI) infrastructure demands are driving unprecedented capital deployment, geopolitical divergence is forcing supply chain recalibration, and technological complexity is creating new bottlenecks at every layer.

Amid this upheaval, Malaysia – long perceived as a back-end services provider – is emerging as a more strategic player within the value chain.

The quiet giant

In 2025, Malaysia’s electronic integrated circuit (IC) exports jumped 24.3% year-on-year to RM389.15bil, driven by strong global adoption of advanced chips and accelerating digitalisation trends, particularly AI and automation.

Malaysia’s role as the world’s sixth-largest semiconductor exporter underscores its critical importance within the global supply chain, even if it receives limited attention.

In his bestselling book Chip War, Chris Miller noted that over 13% of global semiconductor assembly, testing and packaging (ATP) capacity is concentrated in Malaysia.

Without this ecosystem, he argues, the global semiconductor supply chain would be materially disrupted. Every advanced chip requires packaging, testing and integration before it functions.

Penang, the ‘Silicon Valley of the East’, anchors Malaysia’s semiconductor ecosystem with five decades of electronics and semiconductor heritage and more than 4,000 local suppliers.

The suppliers span the electrical and electronics value chain, particularly in outsourced semiconductor assembly and test services, as well as automated test equipment.

Three global shifts reshaping value chain

The World Semiconductor Trade Statistics forecasts the global semiconductor market reaching US$975bil by 2026, driven by AI demand for advanced packaging and test/inspection equipment – precisely Malaysia’s established strengths.

Changes in how chips are designed, produced and distributed are reshaping where value sits across the semiconductor chain and, in turn, Malaysia’s role within it.

Three structural shifts, in particular, are contributing to this repositioning.

First, technology advancement is rewarding Malaysia’s strengths. The AI boom is fundamentally changing back-end requirements.

Advanced AI chips demand high-bandwidth memory integration, sophisticated thermal management, and chiplet architectures that make packaging as technically challenging as fabrication.

Companies like Inari Amertron are expanding into photonics packaging for data centres. ViTrox is experiencing surging demand for inspection tools, and Tenasic is expanding its systems-on-chip design capabilities.

Second, geopolitics is creating structural opportunities.

Malaysia’s neutral stance amid global trade tensions has become a strategic asset.

As part of China+1 diversification strategies, Taiwanese original design manufacturers began shifting production to South-East Asia from 2018, with expansion accelerating significantly after 2020 as geopolitical and supply chain risks intensified.

Intel’s RM12bil advanced packaging facility in Penang, Infineon’s silicon carbide expansion, and commitments from NXP, Plexus and Carsem reflect Malaysia’s strategic position as mitigation against concentration risk.

Third, government policy is providing unprecedented support.

The National Semiconductor Strategy (NSS), backed by RM25bil across three phases, targets attracting RM500bil in investments, training 60,000 engineers by 2030, and establishing at least 10 local design and advanced packaging companies with revenues between RM1bil and RM4.7bil.

Programmes like Engineering Talent For Semiconductor Industry target specific skill gaps, while platforms like Collaborative Research in Engineering, Science & Technology or Crest and Advanced Semiconductor Academy of Malaysia align academic curricula with industry needs.

The New Industrial Master Plan 2030 complements the NSS by positioning semiconductors alongside AI/robotics and electric vehicles (EVs), focusing explicitly on value addition rather than volume growth.

The intersection creates powerful synergies: EV adoption drives demand for power semiconductors, while AI adoption in manufacturing increases demand for automation and test equipment that Malaysian companies provide.

From assembly hub to end-to-end semiconductor capabilities

The ambition to deliver “Made by Malaysia” chips by 2030 is translating into tangible progress, with Bursa Malaysia playing a role in enabling this shift by enhancing visibility for emerging champions and providing access to capital.

Bursa Malaysia offers investors a comprehensive semiconductor investment thesis within a single, liquid market, reflected in the diversity of semiconductor listings – from large-cap anchors such as Inari Amertron, Frontken and ViTrox, to mid-tier specialists like Pentamaster, and emerging design innovators like Oppstar.

In specialised machinery, companies like MI Technovation, Pentamaster, Frontken, and JF Tech deliver smart automation platforms and automated optical inspection systems.

In chip design, firms such as Oppstar, Infinecs, SkyeChip and Experior are expanding beyond Malaysia’s traditional strengths in assembly, testing and automation into higher-value intellectual property creation.

Early movers in this part of the value chain are gaining traction with public market access providing capital for IP licensing and talent acquisition.

For example, SkyeChip’s Main Market listing on May 20, 2026, supports its strategic push into AI-driven silicon and advanced chip design, building on a portfolio of over 100 patents.

In terms of market outcomes, semiconductor-related companies led the Bursa Malaysia Technology Index rally, driving the index up by approximately 49.5% over the past 12 months amid sustained demand and earnings growth.

For businesses, Bursa Malaysia remains an important avenue for capital formation.

Since 2020, 35 technology companies have listed on the exchange, collectively raising RM3bil.

Over the same period, 70 listed technology firms have also accessed the secondary market, securing more than RM6.9bil in additional funding.

Next phase of Malaysia’s semiconductor journey

The next five years will be crucial. Medium-term momentum from 2026-2027 should broaden as the design ecosystem matures.

Success will ultimately be measured by ecosystem resilience – sustaining capability building across economic cycles and retaining trained engineers against global competition.

The country Chris Miller described as indispensable for packaging is systematically building capabilities across design, advanced packaging, equipment manufacturing and specialised fabrication.

Malaysia is carving out a differentiated position leveraging neutrality, established back-end dominance, and strategic focus on segments where AI and geopolitics create new opportunities.

Malaysia has been a global stronghold in the back-end of chip manufacturing.

The more compelling narrative is Malaysia’s continued evolution from an indispensable service provider into a comprehensive ecosystem spanning design, manufacturing and innovation.

The global semiconductor industry is being rewritten by AI and geopolitics, and Malaysia is positioning itself as a central player rather than a peripheral participant.

With the opportunity identified and strategy defined, disciplined execution can ensure success over the next five years.