Laser-focused vision driving semiconductor growth in Malaysia and Singapore

The Malaysian and Singapore governments are laser-focused on fast-tracking semiconductor output by 2030 as a way of propelling both Southeast Asian nations up the worldwide semiconductor value chain.

In this article, Daniel Lam, Associate Director at Linesight, shares insights on the demand-driven investments, history and opportunities in the semiconductor sector in Malaysia and Singapore.

As outlined in Linesight’s recent Construction Market Insights Report, Malaysia is poised to become a regional hub for the electric vehicle industry, stating that its existing industry offers a strong foundation for Malaysia to be a crucial part of global EV supply chains. Further, big chip makers from the US and other western countries are moving to increase production in Singapore as they work to meet growth in demand and spread their supply chain risk.

In January 2024, Malaysia established the National Semiconductor Strategic Taskforce which will focus on encouraging wafer fabrication — the base materials for semiconductors — and in particular, electric vehicle (EV) production. In EVs, semiconductors are used in safety, powertrain and infotainment systems and the Malaysian Government is banking on a projected 11.8% growth in the automotive semiconductor market to $114bn by the end of 2030.[1]

The country’s semiconductor taskforce was formed off the back of the government’s 2023 New Industrial Master Plan 2030 which outlines its mission to encourage investment in electrical and electronics as one of five priority sectors of development. Special incentives to foster growth are expected to be announced in the Budget on 13 October 2024.[2]

International companies have long been tapping into Malaysia’s back-end chip assembly, testing and packaging prowess, driving the country’s market share of global chip testing and packaging to 13%. Multinational companies across the globe, both with current presence in Malaysia and planning to expand to the country, have committed over US$8 billion in future investments.[3]

Chinese companies, too, have rushed to expand their footprint in Malaysia – a byproduct of US trade sanctions on upstream Chinese semiconductor technology with China reportedly fearing that may extend in future to downstream services.

Now, with Malaysia’s focus also on a front-end model that incorporates integrated circuit design, wafer fabrication and manufacturing, other tech leaders have signalled their confidence in Malaysia’s ability to engage in the chip industry’s more complex activities. Among the investments are by Infineon ($5.5b) and Texas Instruments ($3b) joining homegrown company Oppstar, a specialist in integrated circuit design.[4]

Meanwhile, Singapore’s ‘Manufacturing 2030 vision’ to grow advanced manufacturing by 50% is also realising dividends with the world’s third-largest contract chipmaker, GlobalFoundries, having opened a $4b semiconductor fabrication plant in the island-nation in September 2023.[5]

By the end of last year, German manufacturer Siltronic had unveiled its first wafers generated from the company’s Singapore fabrication plant – a €2b greenfield project first started in 2021, United Microelectronics Corporation is expected to ship wafers from its new Singapore wafer fab early next year after a $5b investment, and other major players had also signalled their intent to expand or build, such as Soitec ($430m) and Applied Materials ($450m).[6][7][8]

Demand-driven investing and future-proofing supply chains

Much has been written about the seemingly exponential demand for semiconductors which are the brains of most modern electronic systems, from cloud services and medical devices to navigation systems and laptops. Moreover, chips are now a critical part of smart appliances and amenities that were once traditionally seen as purely analogue — think kettles, toasters, vacuum cleaners, refrigerators and even lightbulbs.

It takes time and appropriate infrastructure to manufacture chips and in the recent past (immediately post-pandemic), demand far outstripped supply. The sector-specific insights in Linesight’s report highlighted that high-tech manufacturing projects need cutting-edge equipment and materials which often require the procurement of these in advance, due to their long lead times. Currently, some materials and equipment have lead times of over a year.

Then there are the risks associated with disrupted supply chains.

While the pandemic was a high-profile disruptor of global logistics and distribution, other factors have also contributed. Issues such as talent shortages, conflicts that have led to raw materials shortages, export controls, storm and fire impacts on factories, and even droughts that have impacted an extremely thirsty industry. [9][10][11][12][13][14]

Consequently, companies are looking for greater geographic diversification as a way of mitigating the risk that future semiconductor manufacture is limited to a handful of countries and regions.[15]

And where once Malaysia and Singapore’s potential was confined to the downstream assembly and testing process, there is now much more interest in their capabilities for the upstream wafer fabrication and probing.[16]

Malaysia and Singapore’s long history with semiconductors

The burgeoning semiconductor industry was supercharged in the US in 1947 with the development of the first transistor; a semiconductor device used for amplification.

From the 1960s, semiconductor technology was being used in everything from spaceships and scientific instruments to calculators and hearing aids. By 1966, sales of semiconductors passed the $1b mark.[17]

As the cost of labour rose and in the face of competition from Japan, US semiconductor companies in the late 1960s began to examine the cost-savings from moving some of their assembly operations offshore. Singapore and Malaysia were on their radars because of the tax breaks, ready labour forces, political stability, transit routes, land and factory space they offered.

Free trade zones were the mechanisms that brought all these elements together.[18] Host countries, like Singapore and Malaysia, provided infrastructure, while raw materials and capital equipment used in manufacturing processes were given duty-free access into zones. Finished products were exempt from export duties and other taxes.

What do Malaysia and Singapore have to offer today?

Fast forward to present, both nations continue to be an attractive destination for foreign investors in the semiconductor industry with key strengths that include:

Mature ecosystems: Combine their long history of involvement in the semiconductor industry, plus the presence of likeminded global companies, and an increasing number of in-country subcontractors and research institutions, and both Singapore and Malaysia have a robust foundation for industry expansion.
Tax advantages and incentives: In both countries, investment strategies are aimed at promoting the sector’s growth. Malaysia offers companies in priority sectors tax emptions on statutory income. Singapore has grants for talent development, tax benefits for R&D and, more recently is revisiting its incentives to entice advanced chip manufacturing.[19][20]
Stable business environments: These Southeast Asian country’s well-established legal frameworks, intellectual property protection and regulatory stability provide investor confidence in long-term operational viability.
Critical infrastructure: In addition to the need exceptional facilities, dedicated industrial parks and proven transit zones, an often-overlooked element of semiconductor production is a reliable high-voltage power supply. The global measure of system reliability (the System Average Interruption Duration Index) places Singapore and Malaysia at the top of the table of regional peers.[21]
Skilled workers: In Singapore, a focus on the digitalisation of manufacturing industries has seen the continued roll out of the Industry 4.0 Human Capital Initiative (IHCI) Enabler Program aimed at ensuring companies have employees with the right skillsets to support digital transformation. Meanwhile, in Malaysia, the government’s national industrial master plan aspires to see manufacturing median wages double to incentivise retention of skilled workers.[22][23]
Strategic location: Geographically, both countries provide direct access to growing markets in the Asia–Pacific region and proximity to these markets smooths logistics and distribution and reduces transportation costs, and lead times.
Water resources: During semiconductor manufacturing, chips must be rinsed with ultra-pure water, and cooled. Singapore is proactively tackling that demand with heavy investments in desalination and wastewater recycling for industrial use. Malaysia is turning to cloud seeding and investigating the potential for new dams.[24][25]

So, when it comes to the future of the global semiconductor industry, both Singapore and Malaysia will inevitably be key players in the larger picture as they seek to shore up their ecosystems against regional rival countries and continue to diversify in a bid to woo investors.

Linesight and our expertise in the Semiconductor sector

Linesight is a global leader in providing and delivering professional construction consultancy services (including Cost Management and Project Management) and strategic support across a range of sectors.

Linesight is currently working on some of the largest and most complex projects in the high-tech industrial and semiconductor sectors. Our experience covers all phases from site preparation works, design development, construction, clean room dry equipment, production equipment, installation, and commissioning. Our subject matter experts are knowledgeable in the complex processes and requirements of FAB construction and delivery.

We have full understanding of the standards, processes and procedures required, as well as the global experience, in-house expertise and regional knowledge needed to support and successfully deliver the planned projects in this space.