Far East: Malaysia Officially Introduces Semiconductor Competition To Southeast Asia With A Multimillion-Dollar Deal

photo from intel

On January 9th, 2025, Malaysia’s Prime Minister Anwar Ibrahim made the statement “we want to double down on our geographical centrality, as a conduit for electricity, talent, and supply chain diversification.” But what does the Prime Minister really mean by “doubling down” on the country? For him and Malaysia, it means entering the race towards a heads-on semiconductor manufacturing industry in which Malaysia already has a competitive advantage over its neighbors. With 13% of the global testing and packaging of semiconductors already achieved by the country, the PM is looking forward to expanding $100 billion more into the sector with the economy minister Rafizi Ramli noting the goal is to start producing “made-by-Malaysia” GPUs and chips within the next five to ten years.

malaysian prime minister anwar ibrahim by Hasnoor Hussain - REUTERS

Since its initial mention in January, the Prime Minister's vision for Malaysia took a major step forward on March 5th with the finalization of a $250 million deal between the Malaysian government and Arm Holdings—a Japanese-owned British semiconductor company. This agreement grants Malaysia access to Arm’s advanced chip designs and manufacturing expertise, solidifying the country’s position in the semiconductor industry.

What comes with the deal?

The deal was structured with the expectation that the Malaysian government would develop its own graphics processing unit (GPU) chips within the next five to ten years and was meticulously designed to turn this vision into reality. This will include seven of Arm’s high-end chip design blueprints, the training of 10,000 new engineers in Malaysia, and the creation of 10 new local chip manufacturers. From those 10 new local chip manufacturers, the country expects the yearly revenue to reach up to $1.5 to $2 billion per manufacturer which would translate to $15 billion to $20 billion yearly in revenue when accounting for all of the 10 manufacturers.

Malaysia’s objectives

Malaysia has long been eager to accelerate the growth of its tech industries. Considering its location, right in the center of the global trading route between East Asia and Europe via the South China Sea, the country already has a key competitive advantage in terms of logistics. Despite the strategic location, however, Malaysia recognizes that there are still many prospects it lacks to achieve full competency in the semiconductor industry. The semiconductor industry will require more skilled workers in areas such as artificial intelligence fields. The semiconductors themselves are also expensive to design and manufacture. Hence the country’s plans as announced on 22nd April 2024, where it aims to recreate Kuala Lumpur, the nation’s capital, as the regional digital hub, hoping to be among the top 20 countries in the global startup ecosystem index by the year 2030. The goal towards 2030 doesn’t end there, the country has also been planning towards increasing the total high-tech manufacturing export from 5% to 6% as well. To achieve this, Malaysia has announced plans to provide sophisticated infrastructure, the integrated circuit design park, as well as offering tax breaks, subsidies, and visa exemption fees to attract international companies and investors into the country.

johor industrial park, a core model for the new integrated circuit park

Looking at the bigger picture, this deal between Malaysia’s government and Arm Holdings is simply the finishing touches in a gigantic project that aims to dramatically elevate Malaysia up the semiconductor industry ladder within the next decade.

Impact within the region and beyond

Competition within the semiconductor industry has recently intensified to new levels as a result of multiple supply chain disruptions and geopolitical issues. From the US-China trade conflict to the Taiwan Strait conflict, implementing such a strategy will allow Malaysia to accumulate more benefits as companies from China, the United States, and Taiwan expand their operations and outsourcing internationally in an effort to mitigate geopolitical risks, while European companies are looking to diversify their manufacturing away from China.

As the demand for semiconductors has exponentially risen due to the development of Artificial Intelligence companies such as Intel, Western Digital, or Unisem, are looking forward to reevaluating their supply chain strategy to keep the supply of semiconductors constant. From a geographical standpoint, the new key policies and deals initiated by the Malaysian government have proven to be the most competitive yet, surpassing those of its neighboring countries. From Thailand’s Eastern Economic Corridor initiative to Singapore’s massive investment in semiconductor research and development programs, Malaysia's policy has been widely discussed as one of the most promising within the region as a result of the country’s commitment towards the industry.

Challenges ahead

malaysia’s capital, kuala lumpur

Although many experts believe this deal could elevate Malaysia’s semiconductor industry to an unprecedented level of competitiveness, it is not without significant challenges ahead.  Implementing this initiative heads-on means a direct competition to countries with high capital availability such as Vietnam or India. Not to mention that the initiative’s main goal, to attract foreign direct investment into the country’s semiconductor industry, will not even be guaranteed to succeed as many foreign firms are now more focused towards the environmental, social, and governance (ESGs) metrics to make investments. The metrics in which Malaysia is substantially lacking in comparison to its neighbors in the region.

Meanwhile, Malaysia is highly dependent on natural gas and non-renewable energy sources with the 2022 overall energy consumption sources consisting of 47% natural gas, 25% oil, and 23.6% coal. This is in contrast with some tech company’s commitment to environmental impact such as Nvidia’s partnership with YTL Power International to provide its data centers with 500 megawatts of on-site solar energy facilities.

Despite the challenges, Malaysia is determined to become the world’s next largest semiconductor powerhouse. Through policies that drive rapid expansion and push the economy to its limits, Malaysia aims to showcase its true potential—not only due to its strategic geographical location but also its ability to learn, adapt, and innovate in the semiconductor industry for sustained economic growth.