Equities

Malaysia's Semiconductor Sector Faces Challenges Amid Global Demand Fluctuations

NEGATIVE

Malaysia's semiconductor sector grows amid U.S.-China tensions, facing challenges like brain drain and global market volatility.

By Mackenzie Crow

4/3, 20:36 EDT
GlobalFoundries Inc.
Intel Corporation
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Key Takeaway

  • Malaysia is becoming a key player in semiconductor manufacturing amid U.S.-China tensions, attracting investments from Intel and GlobalFoundries.
  • The country faces challenges such as brain drain, with 3 out of 4 Malaysian workers in Singapore being skilled, threatening sector growth.
  • Despite a competitive edge in labor and costs, Malaysia's semiconductor exports saw only a marginal increase to $81.4 billion in 2023 amidst global demand fluctuations.

Semiconductor Shift

Malaysia is increasingly becoming a focal point for semiconductor manufacturing, a move driven by the escalating U.S.-China technology tensions. While the country boasts a rich history in the semiconductor "back end" processes and has attracted significant investments from global giants like Intel and GlobalFoundries, underlying challenges could dampen the optimistic outlook for Malaysia's burgeoning semiconductor sector.

Talent Exodus Concerns

One of the most pressing issues facing Malaysia's semiconductor ambitions is the persistent problem of brain drain. The country's skilled workforce is being lured away by better job prospects and higher salaries abroad, a situation that could undermine the sector's growth. "This may well be the case if companies invest in upskilling the workforce in Malaysia, only to lose them to other competitors around the region once they have the skills," noted May-Ann Lim, director of the data governance practice at public policy consultancy Access Partnership. An official study conducted in 2022 revealed a stark reality: 3 out of 4 Malaysian workers in Singapore are skilled or semi-skilled, highlighting the severity of the country's brain drain issue.

Competitive Pressures and Operational Costs

Despite Malaysia's competitive edge in skilled labor for packaging, assembly, and testing, and its lower comparative operating costs, the global semiconductor market remains fraught with uncertainties. The Malaysian Investment Development Authority reported a marginal increase of 0.03% in exports of semiconductor devices and integrated circuits to 387.45 billion Malaysian ringgit ($81.4 billion) in 2023, amid a backdrop of global chip demand weakness. This underscores the volatile nature of the semiconductor market and raises questions about the sustainability of Malaysia's growth in this sector.

Strategic Shifts Amid Global Tensions

The U.S.-China tech war has indeed positioned Malaysia and Asia as potential beneficiaries, with countries in the region poised to capitalize on the geopolitical strife. "Malaysia and Asia in general is poised to benefit from the China-U.S. tech war, where access to advanced semiconductor chips are being weaponised as a tool to establish global technological supremacy," Lim added. However, this strategic advantage is not without its risks, as the global landscape for semiconductor manufacturing is rapidly evolving, with countries like India and Japan also vying to become major chip hubs.