As Malaysia’s chip goals morph into a multi-state model, are they outgrowing Penang?

[KUALA LUMPUR] When AT&S, one of the world’s leading manufacturers of advanced circuit boards and integrated circuit (IC) substrates, was considering Malaysia for its next-generation substrate plant in 2020, Penang seemed to be the natural choice.

There was just one obstacle: finding a site large enough.

The Austrian electronics manufacturer instead crossed the state border to Kulim about 40 km away, where it secured the land, infrastructure and utilities needed for a plant that now produces IC substrates for AMD’s high-performance computing products.

AT&S Malaysia managing director Ingolf Schroeder said that space constraints drove the move to Kulim, which offers ample land, reliable infrastructure and access to Penang’s workforce in less than an hour’s commute.

While Penang retains its crown as Malaysia’s semiconductor powerhouse, the country’s chip ambitions have become too large and technologically diverse to be contained within a single state.

Intel’s own 54-year journey in Penang illustrates how far the state’s ecosystem has evolved. What started with assembly and testing has expanded into advanced design, validation, advanced packaging, automation and next-generation product development.

“It’s not possible for Penang to absorb all this investment by itself,” InvestPenang CEO Loo Lee Lian told The Business Times.

She noted that the spillover of multinational investment beyond Penang is “not at the expense of shrinking” the northern state’s role; it is becoming more selective as it targets higher-value activities including IC design, advanced packaging and automated test equipment.

“Each state has its own competitive advantage... You cannot do everything because of the limited resources that we have,” she added.

Kearney Malaysia country head Keat Yap described Penang as the industry’s “gravitational centre”, but no longer its only meaningful one.

He sees Malaysia transitioning towards a multi-state semiconductor ecosystem, with Kedah handling front-end manufacturing and substrates, Selangor leading IC design and R&D, Melaka focusing on assembly and testing, and Johor driving digital infrastructure and logistics.

Penang-Kulim corridor

The Penang-Kulim corridor offers perhaps the clearest example of how this division of labour is already working.

Schroeder described the relationship between Penang and Kulim as “symbiotic”.

He noted that Kulim initially benefited as semiconductor manufacturers crossed the state border in search of larger industrial sites, while retaining access to Penang’s engineers, suppliers and industry know-how.

“Penang laid the foundation, but investment is increasingly moving towards Kulim. You can already see how scarce industrial land has become within Kulim Hi-Tech Park,” he added.

Malaysia is AT&S’ fastest-growing location and central to its global strategy. Its Kulim site features more than 230,000 square metres, two operational mega-factories, a third under expansion, and newly leased land for further growth.

AMD Penang site lead Khoo Chuang-Li noted that spreading capabilities across locations provides scale and resilience, as Malaysia’s semiconductor ecosystem is “maturing into a multi-node, complementary network”.

Operating across Penang and Cyberjaya, AMD balances advanced engineering, R&D and labs in Penang with Cyberjaya’s finance and IT functions.

“The two sites allow us to draw on different talent markets and capabilities, while operating as part of one integrated global organisation,” Khoo added.

Selangor bets on design

Selangor, meanwhile, is testing whether decentralisation can move Malaysia further upstream into higher-value activities.

The two-year-old Malaysia Semiconductor IC Design Park is preparing to unveil up to eight chip products in October, spanning data centres, autonomous driving, drones, power management and transportation.

“They are already commercialised,” said its CEO Yong Kai Pin, adding that some were designed locally alongside overseas partners.

With its Puchong and Cyberjaya sites fully occupied, the ecosystem now hosts 17 companies and more than 400 engineers – up from 15 companies and 302 engineers in April. Yong expects to reach 500 engineers by year-end and 1,000 by 2030.

“Selangor’s role is unique. We create practical use cases that help local companies commercialise their technologies,” said Yong, highlighting the state’s proximity to key clients across data centres, automotive manufacturing, Port Klang, airports and Subang’s aerospace cluster.

That momentum is drawing Penang-linked firms, such as SkyeChip and Oppstar, to Selangor.

Yong stressed that this is not a zero-sum game for Penang: More local design companies will ultimately generate higher demand for fabrication, packaging and testing operations nationwide.

A “positive-sum” mindset

Chu Jenn Weng, group CEO of Penang-based semiconductor and electronics vision inspection technology firm ViTrox, noted that Malaysia needs greater collaboration among home-grown technology companies if it wants to reduce its reliance on overseas equipment and capture more value locally.

“We operate on the philosophy that while one company can go fast, a group of aligned companies can go far,” Chu told BT.

This philosophy drives local groups, such as the Penang Automation Cluster and Advanced Technology Equipment Cluster (Atec), to boost capabilities in robotics, artificial intelligence and advanced packaging.

Under Atec, Greatech Technology and Pentamaster are spearheading anchor customers and pilot lines; Aemulus is managing shared laboratory facilities; and Walta Engineering, Sophic Automation and the Penang Skills Development Centre are leading training and talent development.

The harder part is convincing competitors to cooperate, said Chu. “The primary hurdle is shifting the paradigm from ‘zero-sum’ thinking to ‘positive-sum’ thinking.”

InvestPenang’s Loo noted that Penang itself is also repositioning, with local automated test equipment companies moving beyond legacy equipment for AI chips and advanced packaging. Its new Automation, Test and Equipment Campus aims to cluster 30 to 40 equipment companies and another 70 to 80 supporting firms.

Capital for the next generation

Beyond engineering, capital remains crucial for transforming Malaysian startups into global tech players.

Cambrian Fund – managed by Southern Capital Group with ViTrox’s co-founders – has made three investments, with a fourth expected soon, targeting Industry 4.0 businesses spanning robotics, AI software and machine vision.

Southern Capital CEO Kenneth Tan sees potential in Malaysia’s pipeline.

“Malaysia has some of the most exciting startups anywhere in the region right now,” he said. “Startups want to grow, which means they need capital and they need a chance.”

The next capability gap

Intel Malaysia managing director Lee Wei Chern believes the continued growth of Malaysia’s semiconductor industry will depend on strengthening the broader national ecosystem.

Capturing the next wave of growth, he said, will require more specialised talent and deeper supplier capabilities in areas such as advanced materials, high-density packaging and AI-enabled manufacturing.

“Talent development and retention of skilled talent remains one of the most important priorities,” said Lee, who is also the vice-president of Intel Foundry.

In Selangor, Yong is trying to lure 20 to 40 senior Malaysian engineers working overseas back to the country by year-end. Their biggest consideration, he said, is not necessarily salary but whether Malaysia can offer sufficiently challenging work.

“It is whether they would be able to excel over here,” he added.

Emerging global business services industry

Penang’s five-decade semiconductor build-up has created spillovers well beyond the factory floor, fuelling demand for global business services (GBS) and the higher-specification offices that house them.

What began as back-office functions, such as payroll and accounts payable for multinational manufacturers, has expanded into human resources, procurement, supply chain management and, increasingly, data analytics and AI-enabled functions.

Peh Seng Yee, senior director for the northern region at CBRE | WTW, estimated that Penang now has about 90 companies with GBS operations, employing more than 20,000 people.

GBS, he said, has become embedded throughout the semiconductor ecosystem rather than occupying a single part of the value chain.

He said that GBS occupiers typically require floor plates of 10,000 to 15,000 sq ft, with some technology companies increasingly incorporating laboratories and testing facilities alongside offices.

The state-owned Penang Development Corporation initially led the development of dedicated GBS buildings as multinational investors communicated their requirements through state agencies. But strong occupancy eventually provided proof of demand for commercial developers.

Private-sector developers subsequently entered the market with projects targeted at multinational occupiers, said Peh.

A similar trend could eventually take shape around Kulim’s booming high-tech industries, although replicating Penang’s ecosystem will take time.

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