Build upon the grand plan

The RM25bil earmarked to boost the local semiconductor industry is a potential game-changer. It is hoped that this is actual money to be spent and not a calculation of tax receipts that will be forgone in the form of tax incentives. — Photo: Image by Vectonauta on Freepik

THE National Semiconductor Strategy (NSS) was launched with much pomp and splendour. Now the real work begins.

The NSS goals are pretty straightforward — Malaysia aims to attract RM500bil of investment in integrated circuit (IC) design, advanced packaging and manufacturing equipment for semiconductor chips. It also aims to create at least 10 local design and advanced packaging companies with revenues ranging from RM1bil to RM4.7bil.

The NSS also aims to make Malaysia a global hub for semiconductor research and development (R&D). The government plans to allocate RM25bil to the NSS, a huge sum considering the country’s debt of RM1.5 trillion.

Malaysia is by no means a small player in the semiconductor industry which has for a long time been a major contributor to the economy, providing many jobs. Penang, the Silicon Valley of the East, hosts many semiconductor companies.

We are known mostly for semiconductor packaging, assembly and testing players, but we lag behind in the “premium” segment of the industry, namely design of integrated circuits (ICs) and wafer fabrication.

Can Malaysia penetrate these segments in a big way after decades of futility? What are our chances with growing competition from countries like India and Vietnam?

There is no clear answer to this, but at least there is a plan to build upon.

Some optimism

Industry players believe that Malaysia is on the right track.

SEMI South-East Asia, Singapore president Linda Tan says the NSS is testament to the country’s commitment to advancing its semiconductor ambitions.

“The NSS, with its detailed targets and phased approach, showcases a serious, strategic commitment to bolstering the industry.”

Tan says Malaysia continues to be a vital player in the industry with its robust ecosystem, adding that it already is the world’s sixth-largest exporter of semiconductors, and accounts for 13% of the global market for packaging, assembly and testing.

Peter Lim Tze Cheng, an ex-fund manager and a long-time analyst/observer of the semiconductor industry, is also quite positive about the NSS roadmap.

“The NSS finally shows a down-to-earth assessment of where Malaysia stands now and how we should move forward. For example, until the NSS, the OSAT or outsourced semiconductor assembly and test space has never been really at the centre of focus,” Lim says.

“For many years, our OSATs have been placed at the back end due to the perception that it is a “low-end” and “low technology” segment of the industry. What has not been often mentioned is that our two local champions, MPI and Unisem, are already among the world’s top OSATs.”

Bill Wiseman, the global co-leader of McKinsey’s Semiconductors Practice and Senior Partner in McKinsey & Company is equally optimistic.

In his op-ed he says this: “A focus on advanced packaging and expanding capacity in power, analog, and other chips requiring mainstream technology, while developing local chip design champions, has been earmarked in Phase 1 of the NSS.

“This could give Malaysia a strong foundation from which to position itself at the frontier of the semiconductor value chain — that is, in front-end fabrication and advanced chip design — where a greater portion of the value-added by the industry could be captured.”

At first glance, many of the NSS targets appear lofty, but without high ambitions, there will be no improvement.

The RM25bil earmarked to boost the local semiconductor industry is a potential game-changer. Never has so much been allocated to boost any one industry. It is hoped that this is actual money to be spent and not a calculation of tax receipts that will be forgone in the form of tax incentives.

The funds should be used for matching grants for companies in the ecosystem, for R&D. In addition, they should subsidise the purchase of expensive equipment and intellectual property (IP). In countries like China, the government even subsidises the salaries of top engineers recruited from abroad.

Funding should focus on projects that help local companies develop their own IP.

Ensuring that money is spent transparently and fairly is also critical. This is why perhaps a special task force made up of industry professionals would be a good idea for overseeing how the RM25bil is spent.

This will ensure the funds are administered in a transparent, accountable and outcome-driven manner, addressing real industry problems.

This article first appeared in Star Biz7 weekly edition.

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