Semiconductors are an essential component in a broad range of electronic products used daily. Without semiconductor chips, modern electronics would not exist.
The semiconductor industry has experienced remarkable growth over the past two decades. According to the Semiconductor Industry Association, a US-based trade body, global semiconductor sales skyrocketed more than 300 per cent – from US$139 billion in 2001 to US$573.5 billion in 2022. This upward trend is projected to continue, with an estimated 56 per cent increase by 2030. The demand for semiconductors in enterprise-driven sectors such as digital infrastructure, which requires greater computing power, will be the driving force behind this growth.
Yet, as the industry grows, the global semiconductor industry is facing several challenges requiring immediate attention. Securing factory spaces, finding skilled talents, navigating the geopolitical environment, and participating in the highly collaborative value chain have increasingly become pressing concerns.
Penang – a major player in the global semiconductor network
The entire semiconductor value chain is a complicated one that involves thousands of suppliers. The global manufacturing chain is also highly diversified, and involves different companies such as Fabless companies, Foundries as well as Outsourced Semiconductor Assembly and Test (OSAT) companies.
Southeast Asia has emerged as a major player in this interconnected network with its long-standing history of semiconductor production dating back to the 1970s. Malaysia, in particular, celebrated the 50th anniversary of its Electrical and Electronics (E&E) industry in 2022. Malaysia’s E&E exports saw an impressive compound annual growth of 16 per cent over 50 years. Recognising the significance of the industry, the Malaysian Government has placed strategic focus on initiatives to help the country move up the semiconductor value chain from back-end assembly to front-end design.
Figure 1: The diversified semiconductor supply chain involves key steps that cut across borders. Based on The Semiconductor Supply Chain by Visual Capitalist / ASE Group
Penang, dubbed the Silicon Valley of the East, has a strong E&E ecosystem, having established its long-standing presence in the industry.
Over the past 51 years, Penang has attracted a diverse range of local suppliers and fostered a comprehensive value chain. This encompasses automation, electronics, packaging, plastics, precision engineering and metal work, software development and more – all supporting the semiconductor manufacturing value chain.
This robust infrastructure has enticed industry giants like Intel, Advanced Semiconductor Engineering (ASE), and Austria Technologie & Systemtechnik (AT&S) to invest billions of dollars in building state-of-the-art facilities on the island.
The proactive steps taken by the local government in accommodating the semiconductor industry's growth are commendable. To support its E&E expansion plans, the Penang Development Corporation has been developing additional industrial land, while programmes like the Penang Internship Subsidy Programme have helped attract skilled talent from other states to the island. Collaborations with local universities further ensure a pipeline of industry-ready graduates.
Penang's strategic location and comprehensive ecosystem have made it an attractive investment destination for global semiconductor companies. By capitalising on its strengths, Malaysia can become an even more vital player in the industry. To achieve this, the Malaysian Government should continue to provide institutional support, create investment-friendly policies, and offer attractive tax incentives to drive the growth of the semiconductor sector in Penang.
Global demand for semiconductors in enterprise-driven sectors has increased. Photo: iStock
Taking stock: Geopolitics dominate chip decisions
The importance of the semiconductor industry extends beyond its economic significance; it plays a crucial role in driving a country’s digital ambitions. Governments worldwide are increasingly recognising the need to minimise the impact of global supply fluctuations by bolstering their domestic chip manufacturing capabilities.
The United States, for example, aims to regain its leadership in chips production and reduce its dependency on other countries. The recently passed CHIPS and Science Act, which allocates US$53 billion to incentivise companies to build and manufacture on American soil, exemplifies this commitment.
However, migrating your supply chain can be an intricate move. As semiconductor companies consider reshoring or friend-shoring strategies, Southeast Asia emerges as an attractive region due to its cost-effectiveness and reduced strategic risks. Strengthening collaborations among suppliers, manufacturers, and distributors will be pivotal for the long-term growth and success of the semiconductor industry.
Facilitating complex chip connections
Financial institutions like UOB recognise the importance of connectivity and sector-specific solutions as they continue to operate in a rapidly evolving landscape.
UOB continues to leverage its industry insights, data analytics, and regional network to offer tailored financial solutions to its customers throughout the semiconductor manufacturing value chain. By studying the entire manufacturing process, UOB aims to help these companies improve their working capital cycles without compromising cash flow, as they seize the region’s immense growth opportunities.
Looking ahead, the semiconductor industry's role in driving emerging technologies like artificial intelligence and Internet of Things cannot be understated. Penang, having already positioned itself as a prominent place in the global semiconductor network, will need to strengthen and capitalise on the industry’s immense potential. It is crucial to nurture and strengthen the ecosystem, ensuring collaboration and innovation at every step of the value chain. Governments, industry players and financial institutions must also work hand-in-hand to create an environment that fosters growth, resilience, and sustainable development for the semiconductor industry.
An excerpt of this article was first published in The Star on 24 June 2023.
Important notice and disclaimers
This article shall not be copied or relied upon by any person for whatever purpose. This article is given on a general basis without obligation and is strictly for information only. The information contained in this article is based on certain assumptions, information and conditions available as at the date of the article and may be subject to change at any time without notice. You should consult your own professional advisers about the issues discussed in this article. Nothing in this article constitutes accounting, legal, regulatory, tax or other advice. This article is not intended as an offer, recommendation, solicitation, or advice to purchase or sell any investment product, securities or instruments. Although reasonable care has been taken to ensure the accuracy and objectivity of the information contained in this article, UOB and its employees make no representation or warranty, whether express or implied, as to its accuracy, completeness and objectivity and accept no responsibility or liability for any error, inaccuracy, omission or any consequence or any loss or damage howsoever suffered by any person arising from any reliance on the views expressed and the information in this article.
Terence Koh
UOB
Terence joined UOB Singapore in 2010 to lead the Bank’s coverage of the Telecom, Media and Technology (TMT) sector, in the Corporate Banking Overseas function, which covers the ASEAN and Greater China markets. Since 2017, in his role as Managing Director, Head of TMT, Sector Solutions Group, Terence is responsible for developing sectoral focused value chain solutions for corporate and enterprise clients.
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