KUALA LUMPUR: Malaysia needs to move upstream both vertically and horizontally to move upstream, to grow its global share of semiconductor exports and market share, according to a policy paper by the Institute of Strategic & International Studies (ISIS) Malaysia.
Upstreaming vertically refers to advancing its assemby, testing and packaging capabilities.
For example, producing advanced packaging in the Outsourced Assembly and Testing (Osat) process.
Upstreaming horizontally refers to moving towards the front-end of the value chain, which includes integrated circuit (IC) design and wafer fabrication.
The policy paper entitled "Malaysia's semiconductor ecosystem amid geopolitical flux", authored by Farlina Said and Angeline Tan, said a fabless integrated device manufacturer could unlock the largest share of economic value, at 57 per cent, compared to Osat, which could be limited to 6 per cent of the value in the supply chain.
"This would articulate the appeal of upstreaming horizontally into activities like IC design, as articulated in the National Industrial Master Plan. However, increasing Malaysia's capacity in this sector would require addressing issues, such as talent and building proficiencies for IC design," the paper said.
Furthermore, as Malaysia already has a 13 per cent foothold in testing and packaging, growing this to advanced packaging would increase its participation in the global semiconductor industry.
The paper said Malaysia's ATP capabilities are primarily on traditional back-end packaging and would benefit from upstreaming vertically towards higher-value opportunities.
"Currently, there are some advanced packaging capabilities being developed in Malaysia, such as through ASE Technology and Intel. Further targeted incentives are required, specifically for players to tap into capital and training necessary for upstreaming on this front. The government should facilitate greater investments to help gain momentum developing advanced ATP capacities," it said.
It added that there is interest within Malaysia's semiconductor industry to move towards advanced packaging. However there may be concerns over the geopolitical risk arising out of the US-China tech rivalry, which would necessitate a coordinated response from the Ministry of Investment, Trade and Industry and Ministry of Foreign Affairs to mitigate the risks to the semiconductor industry.
While acknowledging that public-private partnerships are already present in grooming small medium enterprises to fit in larger manufacturing ecosystem, such as the Penang Automation Cluster in Batu Kwan Industrial Park, the paper said the cluster and park are focused on manufacturing with lesser emphasis on building research and development (R&D), innovation and business synergy.
In upstreaming horizontally, Malaysia should grow talent in integrated circuit (IC) design, which may require exploring knowledge-transfer, training and wage policies that could appeal to multi national companies (MNCs) and universities.
The policy paper said Malaysia also needs to consider investing in the capacity in existing facilities while enhancing its successes.
It said a targeted strategy that encompasses concrete milestones, talent pipelines, incentives and investments is necessary to chart the way forward.