Big designs: A BYD booth at an auto show in Tangerang, Jakarta. Indonesia has semiconductor experts and chip design firms, but has yet to generate a meaningful impact on the broader economy, including the auto industry, a minister says. — AFP
JAKARTA: President Prabowo Subianto has revived the idea of developing a local semiconductor ecosystem amid intensifying competition in the global landscape.
However, analysts have raised doubts over whether the country can commit sufficient capital and maintain the policy consistency needed to scale an industry in a red-ocean market dominated by regional peers.
Coordinating Economy Minister Airlangga Hartarto said the government had earmarked an initial US$125mil to develop the local chip design industry, in partnership with UK-based Arm Holdings.
“The president has prepared the funds to cooperate with Arm, and this could be increased further,” he said last week.
Airlangga described semiconductors as a strategic sector, noting their growing use not only in consumer electronics but also in automobiles, the Internet of Things and data centres.
“This is a catching-up game,” he added. “We are catching up with a market that we have in large size.”
This is not the first time the Indonesian government has pursued the semiconductor dream.
The country hosted semiconductor plants back in the 1970s, through partnerships with American firms such as Fairchild Semiconductor and National Semiconductor, but a shift in industrial policy towards labour-intensive sectors led those investments to relocate to Malaysia by the mid-1980s.
In 2024, Airlangga also revealed a directive from then President Joko “Jokowi” Widodo to prepare skilled workers to build local chip design capabilities.
The renewed focus on semiconductors follows a closed-door meeting earlier this month between Prabowo and senior ministers at his Hambalang residence in West Java.
Arm, whose chip architectures underpin much of the global smartphone and embedded systems market, previously helped draft Malaysia’s semiconductor road map and has expressed readiness to support Indonesia, Airlangga said.
Malaysia, the world’s sixth-largest semiconductor producer, recently announced its own partnership with Arm, committing US$250mil over the next decade for semiconductor intellectual property (IP) and design blueprints, twice Indonesia’s planned outlay.
Ardi Sutedja, chairman of the Indonesia Cyber Security Forum, said Indonesia would face steep challenges in entering a highly competitive industry with what he described as a relatively small initial investment, as regional peers such as Singapore, Malaysia and Vietnam already dominate key parts of the semiconductor supply chain.
“The cost of catching up is already very high without a much stronger and longer-term commitment,” he said, adding that details of the partnership, including how the funds would be used, remain unclear.
Ardi noted that substantial funding is needed to secure IP and build research and development capacity, while the government must also address policy inconsistency and unmet incentives that have undermined investor confidence in the past.
“Indonesia is known for weak consistency in protecting foreign investment,” Ardi said. “That remains a major obstacle to attracting large-scale, deep-tech capital.”
With a US$125mil allocation, Indonesia aims to develop chip design houses and, within three to five years, produce locally designed chips for use in household appliances, with potential expansion into transportation and automotive applications.
Academics involved in semiconductor research said the country still has a window to compete, particularly in chip design, if policy support is sustained and scaled up.
Trio Ardiono, a semiconductor professor at the Bandung Institute of Technology, said the government’s current focus on chip design reflects a more pragmatic starting point, given the capital-intensive nature of manufacturing.
“Being a latecomer does not automatically mean being left behind,” Trio, who also heads the Chip Design Collaborative Centre, a consortium spanning 16 Indonesian universities.
“There is always disruption, and there is still room to compete in South-East Asia, where chip design capabilities are relatively even.”
Indonesia currently has hundreds of semiconductor experts and two chip design firms operating domestically, but the industry “has yet to reach critical mass or generate a meaningful impact on the broader economy”, he said.
“Compared with Malaysia, Indonesia’s chip design capability is actually quite advanced. Many of my students are already working in Malaysia and Taiwan, which shows the talent exists,” Trio said.
The core constraint, however, is not education but the absence of a sufficiently large industry to absorb and develop that talent, he added.
“You cannot expect 10,000 chip design houses without first building the industry. It sounds like a classic chicken-and-egg problem, and clearly, industry has to come first,” he said. — The Jakarta Post/ANN
