Peter Lim Tze Cheng, an ex-fund manager and a long-time analyst/observer of the semiconductor industry, says the NSS has nailed this once-in-a-generation opportunity. Malaysia should, however, be seen as an integral part of the global semiconductor value chain, regardless of the chip war.
DUBBED the Silicon Valley of the East, Penang became what it is today thanks to the late Tun Dr Lim Chong Eu’s foresight in 1970s.
Dr Lim’s success in bringing in The Eight Samurai in the early 1970s — Intel, Robert Bosch, Clarion, Advanced Micro Devices (AMD), Hewlett-Packard (now split into Keysight Technologies and Agilent Technologies), Litronix (now Osram), Hitachi (now Renesas), and National Semiconductor (subsequently acquired by Texas Instruments) — planted the seeds for Malaysia’s involvement in the electronic & electrical (E&E) sector.
The semiconductor industry is one that constantly defies physics limitations — from the early vacuum tubes to the first transistor in Bell Labs and to the current ability to pack billions of transistors in a single chip.
The region is also one that drives industry globalisation, starting with Fairchild Semiconductor setting up its first overseas chip packaging facility in Hong Kong in the early 1960s, a precursor to the outsourcing wave that came to this region in the semicon industry shortly thereafter.
This period also witnessed the rise and fall of nations’ dominance in this field — from Russia that launched Sputnik, the first human-made object into space, to Japan’s rise in the early 1980s and subsequent fall.
Our nation’s involvement without a doubt has grown significantly over the years. In fact, E&E is by far our largest export segment, easily surpassing even crude oil and palm oil. But could we have done better?
A lack of understanding of the nature of this complex industry led to a lack of a concise strategy and direction prior to the recent launch of the National Semiconductor Strategy (NSS). The NSS provides a very realistic assessment of where Malaysia stands today and how we should proceed.
The OSAT (or outsourced semiconductor assembly and test) space, for example, has never been a major focus, having been viewed for years as a “low-end” and “low-technology” segment.
It has not often been mentioned that our two local champions, MPI and Unisem, already rank among the world’s top OSATs. It is about time this segment is given the recognition it deserves.
Compared to two decades ago, the OSAT industry is in a very different place today. The industry has not seen a new entry in recent years, due mainly to capital as well as technological barriers. Rather, we are seeing consolidation within the industry, bolstering the position of the players.
The world is scrambling to add investments into the foundries, but we are not seeing the same in the OSAT industry. What this may potentially lead to is a global bottleneck which will increase the bargaining power of the players.
Although the majority of advanced packaging activities are currently at foundries, they will eventually spill over to OSAT.
Investing in trailing edge chips is also a wise decision. Even though we refer to them as “trailing edge”, this segment represents the larger portion of the market in terms of value (I would estimate about 80% of the market).
Not everything requires miniaturised chips. In the automotive industry, the fastest-growing chip segment going forward, for once, there is ample space in the car to accommodate as-large-as-you-need chips.
In the case of attracting foundries and advanced chip manufacturing target firms, while the whole world is throwing billions of incentives to attract companies from the US, Germany, Taiwan and South Korea, maybe we should look at Chinese companies who want to establish overseas operations.
Upscaling local metal works and precision engineering ecosystems would provide more immediate benefits. We hope it will create local champions that can compete with Japanese and German precision manufacturers in the long run.
My personal opinion is that the NSS should have included electronic manufacturing services (EMS). NSSE?
Yes, it is a highly competitive industry. But we are also a major global player in this space. Tax incentives and a re-evaluation of our labour policies will definitely help this industry grow.
The NSS has nailed this once-in-a-generation opportunity. Malaysia should, however, be seen as an integral part of the global semiconductor value chain, regardless of the chip war.
This article first appeared in Star Biz7 weekly edition.
