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Penang’s semiconductor industry moves from assembly to R&D

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From low-skilled labour-intensive activities to highskilled product development, Penang’s semiconductor scene has transformed itself – and with great success.

Since the opening of Malaysia’s first Free Industrial Zone in the 1970s, Penang’s economy has been thriving, based on export-oriented labour-intensive manufacturing activities. Since then, a row of mostly American, Japanese and Taiwanese E&E MNCs has been established here – Intel, Motorola, Altera and ASE electronics, to name a few.

It is noteworthy that almost all these MNCs are still operating, and many of them have reshuffled or intensified their traditional manufacturing activities to higher value-added activities, including the employment of high-skilled workers and the domestic outsourcing of noncore activities. This is in line with the fact that some low-skilled labour-intensive assembly activities have gradually shifted away from Penang. Dell, for example, scaled down its operations by shifting relatively more labour-intensive segments in the production process to other low cost locations1. Motorola and Intel, on the other hand, set up their R&D centres in Penang to undertake product development activities.

The E&E factor

The semiconductor industry, together with solar and LED, makes up the three major ecosystems of the E&E sector. According to the Malaysian Investment Development Authority (Mida), the semiconductor industry has been continuously driving the growth of the E&E sector in Penang and Malaysia at large, aided by the increase of global demand in mobile devices (smartphones, tablets), storage devices (cloud computing, data centres), optoelectronics (photonics, fibre optics, LEDs) and embedded technology (integrated circuits, PCBs, LEDs)2.

Electronic components are the largest contributors in exports for the E&E industry, accounting for RM111.19bil (or 47%) in 20132. In 2014, more than 50 companies – largely MNCs – were producing semiconductor devices in Malaysia.

The presence of major MNCs such as Intel, AMD, ASE, Motorola, STMicroelectronics, Texas Instruments, Renesas and Seagate, along with major Malaysian-owned companies such as Globetronics, Inari and Vitrox, has steadily contributed to the growth of

the semiconductor industry in Penang. While Malaysia is responsible for 12% of the global back-end support for the semiconductor industry in 2013, Penang alone accounted for eight per cent that year3. About RM11bil of Malaysia’s total capital investment, involving a total of 96 projects, was attributed to E&E products in 20144.

Source: Malaysian Investment Development Authority (Mida).

Connecting Penang with the worldwide semiconductor industry

Global demand for semiconductor gadgets has been steadily growing; within the past decade, gadgets such as smartphones and tablets have become indispensable. According to Semi, a non-profit global trade association for the semiconductor industry, North American-based manufacturers of semiconductor equipment report the book-to-bill ratio every month, indicating average global trends of bookings and billings in the semiconductor industry.

As can be seen in Figure 1, the book-tobill ratio recorded a stable oscillation before 2012; the industry underwent the highest book-to-bill ratio in March, and the lowest in September. This trend changed in 2013 and 2014; the ratio lingered above one for most months, showing that the semiconductor equipment market possessed strong demand in the first seven months of 2014, but weakened in August, September and December 2014. The book-to-bill ratio of 0.98, as can be observed in December 2014, implies that US$98 worth of orders was received for every US$100 of products billed for the month.

At present, the global semiconductor industry is shifting towards the Internet of Things (IoT). It is a strategic market opportunity for semiconductor vendors, and growth will occur over many years and will present market opportunities at several levels, such as communications infrastructure and computing platforms5. In Penang, many local companies are perceived to have the capabilities to tap into the design and production of sensors, actuators and other components related to IoT. For instance, Globetronics, a Penang-based company, received orders for its sensors from customers in the EU and the US during the second half of 2014. It was therefore investing between RM55mil and RM60mil to develop and manufacture sensors for wearable smart devices and smart mobile electronic products in May 2014 6.

To meet the rising demand for wearable technologies, Penang’s local semiconductor manufacturers should soon be venturing into IoT. It is believed that IoT can convert Penang into a smart city via safer security, intelligent traffic management and smart homes. It can elevate the industries’ value chain in Penang, and enhance the talent pool with higher income brackets such as data scientists and R&D researchers. It will ultimately turn Penang into an intelligent city in the not-too-distant future.

References

1www.intracen.org/BB-2012-03-05-Growingwith- global-production-sharing-in-Malaysia- Part-IV/; www.whatsonpenang.com/index. php/news-views-penang/853-malaysias-ledmanufacturers- expand-production-to-meetglobal- demand
2 www.mida.gov.my/home/electrical-andelectronic/ posts/
3 www.investpenang.gov.my/opportunities. php?cid=4
4 www.mida.gov.my/home/facts-and-figures/ posts/
5 Penang Institute (2014), “Kajian untuk Mengenalpasti dan Meramal Penentu Pertumbuhan Ekonomi Negeri Pulau Pinang”.
6 www.thestar.com.my/Business/Business- News/2014/05/03/Globetronics-upbeat-aboutnextgen- sensors/?style=biz



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