Penang is Malaysia’s second-largest city, located in the northwest. It has a population of around 1.77 million. Despite this, Penang holds a crucial position in the global semiconductor industry and is known as the “Silicon Valley of the East.” To attract and support more IC design companies, the state offers incentive programs. These include subsidies worth up to 2 million MYR annually for three years. These incentives are available for both local and foreign IC design companies in Malaysia. However, the program depends on securing an additional 60 million MYR from the federal government. This funding is necessary to ensure full implementation and industry growth support.
An Important Hub for Semiconductor Industry Companies
Penang showed strong economic growth in 2023, with a GDP of 11.6 billion MYR, representing 7% of Malaysia’s total GDP. Penang’s per capita GDP is 72,586 MYR, higher than the national average of 54,612 MYR. This reflects a prosperous economy and a high standard of living. In 2022, Penang’s workforce numbered 873,900, with a labor force participation rate of 70%, indicating high employment and an active job market.
The main industries in Penang are electronics, electrical and optical products, metal and non-metal mineral products, and petroleum, chemical, rubber, and plastic products. Notably, in the electronics sector, Penang plays a key role in global chip testing and packaging, contributing 5% of global semiconductor sales. Additionally, services and tourism are significant industries, with medical and heritage tourism being particularly notable.
In 1970, Malaysia established its first free trade zone. Since then, Penang has attracted major global electronics companies like Intel, Dell, and HP. This helped it become a key hub for Malaysia’s electronics industry, particularly in semiconductor manufacturing, information and communication technology, computing equipment, and data storage.
Penang’s semiconductor industry is not limited to packaging and testing. Over time, it has expanded upstream to chip design and wafer manufacturing, and downstream to electronics production and marketing. Currently, Penang’s chip industry spans from chip design to wafer manufacturing, and on to product production and sales. There are over 5,000 experienced semiconductor professionals in Penang.
Advantages of Penang’s Semiconductor Industry
Penang is economically competitive and offers a high quality of life, including rich cultural heritage and leisure activities. These factors attract both domestic and international investment and talent. Furthermore, Penang has successfully positioned itself as a prime destination for foreign direct investment (FDI). Together, these elements drive Penang’s economic development and technological innovation.
– Industrial Excellence and Technical Expertise: Penang has over 50 years of industrial excellence and technical expertise.
– Multinational Companies and SMEs: Over 350 multinational corporations (MNCs), 4,000 SMEs, and more than 200 Malaysian digital status companies operate in Penang.
– Global Business Services and Excellence Centers: Penang provides thriving global business services (GBS) and excellence centers (CoE) for multinational companies.
– Work-Life Balance: Penang offers a vibrant cultural scene and a UNESCO World Heritage city, providing a balanced lifestyle.
– Geographic and Economic Advantage: Penang’s strategic location is close to states like Kedah, Kelantan, Perak, Selangor, Negeri Sembilan, Melaka, and Johor.
– Foreign Direct Investment (FDI): Penang is the top destination for FDI among Malaysia’s states.
– Semiconductor Industry: Penang is home to three of the world’s top ten semiconductor leaders by sales.
– Semiconductor Sales: Penang accounts for over 5% of global semiconductor sales.
Penang showed strong manufacturing investment in 2023, with a total of 63.4 billion MYR, representing 42% of Malaysia’s national manufacturing investment. FDI accounted for 60.1 billion MYR, or 47% of the total FDI in Malaysia. This shows Penang’s significant appeal to foreign investors. Penang’s manufacturing investment is expected to create 17,623 jobs, which is a positive signal for local employment and economic growth.
Notably, Penang’s export performance in the electronics and electrical (E&E) sector is impressive. In 2023, the export value was 34.11 billion MYR, accounting for 58% of Malaysia’s total E&E exports. This reinforces Penang’s position as Malaysia’s electronics industry hub.
Penang’s robust E&E supply chain covers everything from semiconductor design and manufacturing to final product production. The state hosts many internationally recognized E&E companies offering design, engineering, manufacturing, and assembly services. These companies include semiconductor IDMs (integrated device manufacturers), fabless companies, OSAT (outsourced semiconductor assembly and testing), EMS (electronic manufacturing services), and manufacturers of materials, subsystems, modules, and components. This diverse and specialized supply chain in Penang promotes local economic growth and provides high-quality products and services to global customers.
Key Highlights of the Semiconductor Industry
Malaysia’s National Semiconductor Strategy (NSS) has five key objectives:
- Attract 500 billion MYR in investment, focusing on integrated circuit design, advanced packaging, and wafer manufacturing. This will drive the development of advanced chip design, manufacturing, and testing, integrating local champions into the ecosystem of advanced manufacturing companies.
- Establish at least 10 Malaysian companies engaged in design and advanced packaging, with revenues between 1 billion and 4.7 billion MYR, as well as 100 semiconductor-related companies with around 1 billion MYR in revenue.
- Focus on supporting world-class Malaysian semiconductor design, advanced packaging, and manufacturing equipment companies, while attracting major buyers like Apple and Huawei to Malaysia. The aim is to establish Malaysia as a global R&D center for semiconductors, with world-class universities and corporate R&D.
- Train and upskill 60,000 high-skilled Malaysian engineers.
- Allocate at least 25 billion MYR in financial support for targeted incentive measures.
Penang Silicon Design @5KM+
“Penang Silicon Design @5KM+” is a program aimed at promoting the development of integrated circuit (IC) design and technology companies. The core of the initiative is to establish a concentrated area near the Bayan Lepas Industrial Zone in Penang, allowing companies within the area to be within 5 kilometers of each other. This proximity will facilitate collaboration and resource sharing among the businesses involved.
Conclusion
With its strong semiconductor supply chain, innovation-driven economic development, and strategic location, Penang is gradually becoming a key node in the global semiconductor industry. As Malaysia’s “Silicon Valley of the East,” Penang not only holds a critical position in chip design, manufacturing, and packaging but also attracts significant domestic and international investments, driving robust local economic growth. The government’s incentive programs and industry support initiatives further accelerate Penang’s technological innovation and industry upgrades, providing abundant resources and collaboration opportunities for IC design companies. With the implementation of initiatives like “Penang Silicon Design @5KM+,” Penang will solidify its role in the global semiconductor industry, becoming a key hub for attracting international capital and technological talent.
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