Malaysia semiconductor industry weathers geopolitical tensions, eyes higher-value growth

KUALA LUMPUR: Malaysia’s semiconductor industry is proving resilient amid an increasingly fragmented global landscape, supported by a well-established ecosystem that has helped it withstand geopolitical tensions and short-term supply chain disruptions.

The country is a key global hub for semiconductor assembly, testing and packaging.

Industry leaders say the sector is relatively insulated from ongoing conflicts in the Middle East, despite concerns over the availability of critical materials such as helium.

Limited reliance on helium-intensive processes has reduced immediate risks. But observers caution that prolonged disruptions – especially along key shipping routes like the Strait of Hormuz – could still pose problems.  

“In the assembly, test and packaging manufacturing, we don't use so much helium. We use more nitrogen. So (in) that aspect, the impact will be very minimal,” said Wong Siew Hai, president of the Malaysia Semiconductor Industry Association. 

However, wafer fabrication plants are more dependent on helium, he added, and Malaysia’s five wafer fabs will need to carefully manage and secure a stable supply. 

If disruptions in the Strait of Hormuz persist, companies may face higher logistics costs, tighter supplies and the need for alternative supply routes. 

“If it prolongs for another couple of months or so, I think the inventory will probably be depleted,” said Wong. 

“They have to pay for the increase in prices and find alternative sources,” he noted. “So the issue is more of how quickly can you get the supply, what is the lead time, and how can you then use your supply effectively?”

He said firms must balance supply constraints with the need to meet customer demand without interruptions.

Despite these pressures, the industry’s resilience is underpinned by a mature ecosystem built over five decades. 

Still, companies face a complex set of external challenges, including the Iran conflict, rising oil prices, geopolitical tensions disrupting supply chains and tariff concerns, Wong said. 

To stay competitive, Malaysia needs to boost productivity. 

The country is pushing to move up the value chain, with plans to expand into higher-value segments such as integrated circuit design. 

It aims to train 60,000 engineers and attract US$125 billion in investments to support this shift. 

Deputy Investment, Trade and Industry Minister Sim Tze Tzin said demand for semiconductors remains strong, with companies looking to expand operations despite global uncertainties. 

“The semiconductor industry in Malaysia is still booming,” he added. “Semiconductor companies are looking beyond the war and doing what is necessary because of the demand globally.”

He added that Malaysia and the larger Southeast Asia region stand to benefit as firms diversify supply chains away from conflict zones. 

Observers say Malaysia’s established infrastructure, skilled workforce and government incentives make it a preferred destination for long-term semiconductor investments. 

Its neutral stance amid United States-China tensions has also strengthened its appeal to investors, said Sim. 

“Of all the unfortunate things that's happening in the whole world, Malaysia is fortunate enough to become the bright spot for the world, in terms of investment,” he said. 

“I think we are ready to take up, to build back better.”