Stepping into the IC design fast lane

This article first appeared in Digital Edge, The Edge Malaysia Weekly on April 14, 2025 – April 20, 2025

Something big is taking shape in Puchong — a strategic initiative aimed at elevating Malaysia from a back-end player in the semiconductor supply chain to a force to be reckoned with in the global chip design arena. At the heart of this effort is the Puchong Integrated Circuit (IC) Design Park, a state-led initiative to anchor higher-value semiconductor activities.

The plan is firing on all cylinders, says Yong Kai Ping, CEO of the Selangor Information Technology and Digital Economy Corporation (Sidec), in an interview with Digital Edge. With a vision backed by government support, international semiconductor firms and venture capitalists (VCs), Sidec is driving efforts to secure a procurement agreement with Taiwan Semiconductor Manufacturing Co Ltd (TSMC) for advanced chip production and roll out policies that would require 30% to 40% local content in servers used by data centres in Selangor.

Established last year, the park is a collaboration between the state and federal governments, international semiconductor firms and VCs, all working together to position Malaysia as a potential powerhouse in the global IC design industry.

Sidec, the agency mandated to lead the digital transformation in the state, is the entity in charge of the park. It is also the secretariat for the Selangor Data Centre Task Force and Selangor Semiconductor Task Force.

As at early April, the park housed several local, global and joint-venture companies. Among the global firms are two launched by Malaysian founders: MaiStorage, a subsidiary of Phison Electronics Corp, which was founded by Pua Khein-Seng; and Weeroc, a French semiconductor firm founded by Dr Salleh Ahmad that specialises in chips for satellites, drones and Airbus planes.

SkyeChip, a local firm that designs artificial intelligence (AI) and high-performance computing chips, also secured a space in the park. It could be aiming for an initial public offering in the second half of this year, according to news reports. 

Clearly, the initiative, which has secured industry players based in the US, China, India, Australia and Brazil as tenants, is not relying on its Malaysian ties for success. Although the exact number of investments in the park remains undisclosed, its tenants are eligible for a range of subsidies to support their businesses. 

According to Yong, companies based in the park are provided with fully fitted spaces at no cost and exempt from utilities and internet charges for the first three years. They also enjoy complimentary access to electronic design automation (EDA) tools, testing equipment, intellectual property (IP) resources, infrastructure and multi-project wafer services. To support talent development, the Advanced Semiconductor Academy of Malaysia (ASEM) — formerly AI Nusantara — was established in the park in 2023.

The EDA tools by Synopsys, Siemens and Cadence alone cost RM5 million a year, says Yong. “We have only 60 accounts. [With fewer resources], we can’t be like China, which provides an account to almost everyone [in its technology park].”

Malaysia is set to invest US$250 million over 10 years to acquire IP from UK semiconductor design firm Arm Holdings for semiconductor-related licences and know-how, which can also be accessed by the members. 

In exchange, certain players operating in the semiconductor industry in Selangor, such as data centre companies, need to increase the local content of their products in the future.

“What we are proposing is a 30% local content policy for data centres in Selangor [for now]. It applies only to the equipment, such as servers and graphics processing units (GPUs). 

“We want them to apply local content. They have to be OEMs (original equipment manufacturers) or ODMs (original design manufacturers) here, so that our local vendors can break into the [IC design] supply chain. We may start with OEM and ultimately reach the ODM stage, which means technology transfer needs to happen. 

“Similar initiatives have been done in Taiwan, China, India and Indonesia. All of them started with 40% local content. So, 30% is low in comparison,” Yong says.

The percentage is not set in stone, though.

“We are still negotiating with the foreign data centre players. There is space for it; we are just starting,” he says. 

Yong says the Puchong IC Design Park prioritises large and established companies for admission (at the time of writing). These are typically firms that own the IP of their IC designs and are responsible for the sales of their chips or products.

The manufacturing of these advanced chips is usually outsourced to foundries such as TSMC, but testing, packaging and some design work can be done locally.

“The companies that apply to join the park need to have ready products, whether for businesses or consumers. They must have them before entry, rather than developing them after coming in,” says Yong.

Having said that, start-ups and smaller firms are not excluded. While the park reserves some slots for them, they are not the current priority.

Yong explains that the goal is to create market demand and stimulate domestic direct investment (DDI), rather than rely solely on foreign direct investment (FDI) — and this is where the local content policy plays a crucial role.

For example, Malaysia is targeting 5gw of data centre capacity by 2030. This is estimated to require two million GPU servers, with each server costing around RM1 million — translating to a total market size of RM2 trillion.

A 30% local content policy would give Malaysian businesses a foothold in a RM600 billion market over the next five to six years.

(These figures were provided by Yong prior to the reciprocal tariff announcement by US President Donald Trump on April 2.)

Yong believes local companies with sufficient resources, including public-listed entities, are more than willing to invest in Selangor — or elsewhere — once demand materialises.

“In fact, we’ve spoken to some of them. They have said they were ready to invest to meet new demand. And if data centres in Selangor require local content, which creates opportunities for servers and chips, they’re prepared to set up shop here.”

A long-standing pain point in Malaysia’s semiconductor industry is its limited access to the global supply chain, beyond chip testing and packaging.

“What the state government can do is implement the local content policy. We’re not forcing companies to buy from us — we’re offering extremely low water tariffs and various subsidies. They won’t be surprised by this requirement, as they’re already subject to similar policies in other countries, often at higher percentages.

“This approach makes more sense for the country. Data centres consume significant electricity and water but employ very few people. By mandating local content and encouraging technology adoption, we create more business opportunities for local firms,” he says.

Electric vehicles (EVs) represent another area that has significant demand for IC chips, particularly in design work that can be done locally. Yong says Chinese EV companies are already engaging with Sidec to join the park.

Semiconductor chips are essential for self-driving or autonomous vehicles, which are advancing rapidly. Several Chinese EV companies operating in Malaysia are adopting Advanced Driver Assistance Systems (ADAS) and pushing towards full autonomy. This shift presents meaningful opportunities for local chip design businesses, especially since many EV companies and their factories, mostly Chinese-owned, are based in Selangor.

“Their assembly plants are here. So, their IC design teams must be based here as well,” Yong says.

Another key growth area is the aerospace industry. Selangor is home to two major airports — Subang Airport and Kuala Lumpur International Airport (KLIA) — both of which already have maintenance, repair and overhaul (MRO) facilities, which are expanding. Yong notes that aircraft increasingly rely on semiconductor chips.

“These three major industries — data centres, EVs and aerospace — will be the key drivers of Malaysia’s semiconductor industry,” he says.

Other sectors with strong potential include factory automation, video surveillance, kiosks, gaming and digital signage, transportation and medical devices.

Would foreign companies choose other states over Selangor in which to set up shop? Yong is not too concerned. He says Selangor boasts some of the best infrastructure in the country and is already home to numerous data centres and EV players.

Malaysian companies have proven their capabilities in semiconductor testing and packaging, and the country is home to IC design firms such as the public-listed Oppstar Bhd (KL:OPPSTAR), SkyeChip and Infinecs Systems Sdn Bhd. But what about manufacturing advanced semiconductor chips?

After all, chips built on cutting-edge nodes of seven nanometres (7nm) and below can be produced by only a handful of players globally. Excluding Chinese companies, the main foundries include TSMC, Samsung and Japan’s Rapidus Corp, says Yong.

On this front, Yong is confident that the Puchong IC Design Park will secure a production quota from TSMC, allowing park members to send their advanced chip designs to Taiwan for fabrication.

The park’s strategy is to aggregate chip designs from its members and submit them to TSMC for batch production. This model enables smaller firms, which may lack the volume to access world-class manufacturing.

“Many companies are small and cannot offer competitive pricing. By bringing everyone under one umbrella, we improve our negotiating power and create a better chance to work with TSMC,” Yong explains.

He adds that TSMC allocates 5% of its production capacity globally to start-ups and smaller firms, recognising that innovation often comes from new players that disrupt the market every 18 months or so.

“We’re aiming to be included in that 5% quota — and we’re very confident of getting it,” he says.

Yong also hopes to secure similar arrangements with other leading foundries capable of processing advanced chips, such as Samsung, Rapidus and GlobalFoundries in Singapore.

“With the Arm partnership, we’re shifting further into AI chip development, which relies on more advanced nodes. That was the main reason behind the Malaysian government’s deal with Arm. [At this point in time,] we have seven IPs ready for tape-out — that’s what we’ve been briefed on,” he says.

To support this growth, the Selangor state government has established the Selangor Semiconductor Fund, which aims to raise RM100 million in capital through contributions from state and venture capital partners, including BlueChip VC Sdn Bhd.

BlueChip was founded by semiconductor veteran turned VC Datuk Lai Pin Yong, and had reportedly raised US$200 million as at the first quarter of last year.

“We’re also in talks with regional VCs. All partners will contribute to the RM100 million fund, with the state government expected to inject RM60 million to RM70 million. The capital will be invested in eight to nine identified companies, with each receiving RM10 million to RM12 million,” says Yong.

He adds that the fund intends to invest in these companies at the angel or seed stage in exchange for an equity stake of 3% to 10%.

From a broader perspective, Yong says the biggest challenge for the Puchong IC Design Park is not execution but scale.

“We’re no longer asking whether the plan works. We’ve already made it work. The real question is how to scale it up. The pace has been fast, driven by surging global demand for semiconductor products and services,” he says.

On April 2, however, Trump announced a recipro­­cal tariff of 24% on about 90 countries — including Malaysia — triggering a sharp downturn across global markets. The US saw its worst market decline since the Covid-19 pandemic, with widespread losses elsewhere.

Could this derail the Puchong IC Design Park’s momentum?

Yong remains optimistic. He notes that Malaysia still offers one of the lowest effective rates in the region, which should help the country remain competitive in attracting foreign investment and stimulating domestic capital deployment.

Meanwhile, the Ministry of Investment, Trade and Industry has said it is actively engaging with US authorities to seek a solution that supports free and fair trade. The Malaysian government has indicated that it will not retaliate, but will continue to negotiate diplomatically.

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