• Following our recent engagement with Selangor Information Technology & Digital Economy Corporation (SIDEC) at the IC Design Park 1.0, Puchong, we believe the initiatives led by the Selangor State Government will play a key role in enhancing Malaysia's position as a preferred global semiconductor hub in a long-term.

• Strategically located at the Puchong Financial Corporate Centre (PFCC), the IC Design Park has already secured commitments from 6 companies, comprising both local and international players from Taiwan, China, the United States (US), and France.

• This 45,000 sqft facility, with potential expansion to 60,000 sqft, is set to be the largest IC design park in Southeast Asia, with targeted commencement in 2Q25.

Selangor Information Technology & Digital Economy Corporation (SIDEC)

We recently visited the IC Design Park 1.0, located at the Puchong Financial Corporate Centre (PFCC). During our visit, we had the opportunity to meet with the representatives from the Selangor Information Technology & Digital Economy Corporation (SIDEC):

1. Lee Wai Meng, Manager for Startup & SME Division, and

2. Dr Edwin, Technical Director

As a key government agency under the Selangor Standing Committee of Trade and Investment and a subsidiary of Invest Selangor Berhad, SIDEC leads the state’s digital transformation, aiming to establish Selangor as ASEAN’s digital hub. Their work focuses on developing local digital talent, accelerating startups to regional prominence, promoting SME digitalization, and attracting investments in emerging technologies. Through these efforts, SIDEC is shaping a dynamic digital ecosystem that fosters innovation, empowers entrepreneurs, and strengthens Selangor’s status as a regional technology leader.

Selangor’s Integrated Circuit (IC) Design Park; the Largest in Southeast Asia

Over 5 decades, Malaysia has established itself as a significant player in the semiconductor industry, with focus strengths has been largely on the back-end process, such as Outsourced Semiconductor Assembly and Testing (OSAT) and Electronic Manufacturing Services (EMS). Nevertheless, the country is still lagging on the front-end process, especially in Integrated Circuit (IC) design. In bridging this gap, Selangor is stepping up by focusing on nurturing the growth of the IC design companies, demonstrated by the launch of Malaysia’s first Semiconductor IC Design Park on last 6th August 2024, located at the PFCC. This 45,000 sqft facility, with potential expansion to 60,000 sqft, is set to be the largest IC design park in Southeast Asia, with operations targeted to commence in 2Q25.

Moving Up the Value Chain

We believe this IC Design Park initiative is integral to Malaysia’s strategy to elevate its position in the global semiconductor supply chain, with the ultimate ambition goes beyond developing a strong semiconductor ecosystem — it seeks to transform Malaysia from a "Made in Malaysia" to a "Made by Malaysia" nation. By housing affordable Electronic Design Automation (EDA) tools, servers, Intellectual Property (IP) resources, and offering Multi-Project Wafer (MPW) services, the park will serve as a hub for innovation and talent development. Specialized training programs will be provided to ensure the constant upskilling of local engineers, addressing the industry's growing demand for advanced IC design capabilities.

By 2029, the park aims to attract RM40bn in foreign direct investment (FDI) and domestic direct investment (DDI), as well as to contribute RM100bn of increase in electronics and electrical (E&E) exports. Banking on 3 main strategy pillars – Talent, Company, and Fund – the park will be instrumental in training over 5,000 IC engineers and 15,000 high-growth, high-value specialist, creating 5-8 unicorn IC companies, developing over 30 semiconductor supply chain companies, as well as nurturing 40 public listed companies, each generating RM1bn in revenue. It is also set to create over 300 high-skilled jobs with competitive starting salaries.

The IC Design Park has secured commitments from 6 companies, representing both local and international players from Taiwan, China, the US, and France (refer to Figure 1), and is currently at full capacity. Following this success, Selangor has planned for its second IC Design Park in Cyberjaya, with targets to establish 4 IC Design parks in total within the next 5 years. We believe this will position Selangor as a key player in Southeast Asia’s front-end semiconductor design landscape, creating a robust platform for local talent and attracting more global semiconductor companies to establish a presence in Malaysia in the long-term.

Aligning with the National Semiconductor Strategy (NSS)

Selangor state’s initiatives are aligning with the National Semiconductor Strategy (NSS), which seeks to position Malaysia as a leader in semiconductor design and advanced packaging. While the NSS targets the establishment of 10 Malaysian companies generating revenues between RM1bn and RM4.7bn, alongside upskilling 60,000 engineers, Selangor plans to contribute one-third of this talent pool, supplying 20,000 engineers by 2029, through the 6-Year Talent Roadmap for the Malaysia Advanced Semiconductor & AI Academy. This roadmap includes collaborations with over 20 universities and 12 industry partners, with 4 main programs: on job training, lecturers’ upskilling, hackathon, and boot camps.

Potential Complementing Penang’s OSAT Strengths

Malaysia’s growing semiconductor ecosystem will be built on the complementary strengths of its key players. Penang, known as the "Silicon Valley of the East," has long been a leader in the back-end semiconductor process, particularly in OSAT. The state’s expertise and well-developed infrastructure make it an essential node in the global semiconductor supply chain, handling the critical stages of assembly, testing, and packaging for major semiconductor companies.

Meanwhile, Selangor’s focus on IC design represents the front-end of the supply chain, also critical in developing advanced chips and technologies. By establishing a strong IC design ecosystem, Selangor aims to enhance Malaysia’s semiconductor value chain, not only within OSAT space but also offering IC design expertise. Although the immediate synergy between OSAT and IC Design players may not materialize due to the different existing and targeted clienteles between the two, this development paves the way for Malaysia to position itself as a comprehensive global semiconductor powerhouse, attracting high-value investments and driving technological innovation across various industries.

Future Outlook: Malaysia’s Role in the Global Semiconductor Landscape

The ongoing trade tensions between the US and China, particularly with sanctions on semiconductor technologies, has pushed many companies to seek alternatives and relocate to safer jurisdictions. Malaysia’s strategic location in Southeast Asia, coupled with its growing semiconductor ecosystem, has made it a prime destination for foreign semiconductor companies looking to diversify operations. Malaysia, alongside Vietnam, Singapore, and India, forms part of the "Chip-8" alliance, an extension of the "Chip-4" alliance, underscores its growing role in the global semiconductor supply chain.

As foreign semiconductor companies relocate to Malaysia, drawn by the competitive costs, skilled workforce, and government-backed incentives, the industry is set for strong growth. The potential collaboration between Selangor and Penang, offering both frontend and back-end capabilities, makes Malaysia an appealing destination for global semiconductor companies. With rising demand in AI, autonomous vehicles, and data centers, Malaysia’s integrated ecosystem is well-positioned to capture a larger market share, in our view. Selangor’s push into IC design, combined with Penang’s OSAT strength, creates a balanced and resilient semiconductor ecosystem that could boost Malaysia’s global competitiveness and supports its ambition to lead in advanced manufacturing and innovation.

Maintain OVERWEIGHT on Technology Sector

We remain positive on the sector outlook, as the development of Malaysia’s IC design capabilities is expected to complement the existing OSAT strengths. The closer integration between design and manufacturing could streamline production, reduce lead times, and drive innovation, enabling the manufacturers to offer a more comprehensive solution to their global clients. Hence, we maintain our BUY recommendation for Inari (TP: RM4.45), MPI (TP: RM40.36) and DNeX (TP: RM0.52).

Source: BIMB Securities Research - 10 Oct 2024