Penang’s Semiconductor Industry: The Silicon Valley of the East Attracts Major Investments
In recent years, Penang, Malaysia, has emerged as a major hub for the semiconductor industry, earning the nickname “Silicon Valley of the East.” This transformation is a result of strategic investments, favorable global conditions, and a solid industrial foundation built over decades.
Surge in Foreign Direct Investment
In 2023, Penang attracted a staggering US$12.8 billion in foreign direct investment (FDI), surpassing the total FDI from 2013 to 2020 combined. Major multinational corporations (MNCs) like Intel, Micron, and Infineon have made significant investments in the state, highlighting its growing importance in the global semiconductor landscape.
- Intel: Established a US$7 billion plant.
- Micron: Set up its second assembly and testing plant.
- Infineon: Announced plans to invest US$5.4 billion over the next five years.
Right Place, Right Time
Penang Chief Minister Chow Kon Yeow attributes the rejuvenation of Penang’s semiconductor industry to favorable global conditions, particularly the US-China trade tensions. These tensions have prompted many semiconductor producers to seek manufacturing bases outside China, benefiting Southeast Asia and creating new opportunities for Malaysia.
Historical Foundation
Penang’s success in the semiconductor industry is not accidental but rather the result of over 50 years of strategic industrial development. The state’s journey began in 1969 when Chief Minister Lim Chong Eu prioritized economic growth and established the Penang Development Corporation. This initiative laid the groundwork for the state’s robust electrical and electronics (E&E) sector.
The Eight Samurai
Penang’s industrial ascent began with the establishment of Malaysia’s first free trade zone in Bayan Lepas in 1972. The first cohort of MNCs, known as “The Eight Samurai” — including National Semiconductor, Advanced Micro Devices, Intel, Litronix, Hewlett-Packard, Bosch, Hitachi, and Clarion — set up operations in Penang, creating a solid industrial base.
Modern-Day Success
Today, Penang continues to attract significant investments from global semiconductor giants. Bosch, one of the original Eight Samurai, has opened a new semiconductor back-end testing center, one of the most advanced in Asia. Intel has also expanded its operations, investing US$7 billion in a new advanced 3D chip packaging plant, set to be completed this year.
Challenges and Future Prospects
Despite its successes, Penang faces challenges such as land and water scarcity. The state relies on neighboring Kedah for 85% of its water supply, and all available land for development is projected to be used up by 2030. The Penang government plans to address these issues through projects to bolster water supply and land reclamation initiatives.
Competition and Complementation
Other Malaysian states like Selangor, Sarawak, and Johor are also vying for a share of the semiconductor industry. While this competition could potentially impact Penang’s standing, analysts believe that each state can focus on different segments of the semiconductor supply chain, complementing each other and enhancing Malaysia’s overall competitiveness.
Moving Up the Value Chain
Malaysia’s semiconductor industry has traditionally been concentrated on packaging and testing, which are lower-value segments of the supply chain. The authorities aim to elevate the industry’s position to the middle and high ends of the value chain by developing upstream industries such as design and production.
Talent Shortage
A major challenge for Malaysia’s semiconductor industry is the shortage of skilled talent. The relatively lower salaries in Malaysia contribute to a brain drain, with many local talents preferring overseas jobs. To address this, the government is improving technical and vocational education and raising salaries to attract and retain talent.
Conclusion
Penang’s transformation into the “Silicon Valley of the East” is a testament to decades of strategic planning and investment. While challenges remain, the state’s robust ecosystem, strategic location, and continued investment make it a critical hub for the global semiconductor industry. As Penang and other Malaysian states continue to develop their semiconductor capabilities, Malaysia is well-positioned to enhance its role in the global semiconductor supply chain.
