As a critical part of many
capital and consumer goods, the E&E industry has been a key catalyst for
productivity gains and innovation in most other industries and economic
sectors. At 18.8% share of global trade in 2024, the global E&E industry is
also highly integrated across regions, leveraging free trade to move inputs and
products between nations.
At its core, semiconductors are
the ‘brains’ of all modern electronic devices, accounting for 32.7% share of
global E&E exports. They are critical components that provide essential
functionality to process data, store information and control the function and
communication with other devices in various end-segments. Semiconductors are
typically divided into three main types of chips: logic, memory as well as
discrete, analogue and others (DAO) (Diagram 1). Meanwhile, the complexity of
semiconductors is determined by their process node size.2 Much of the current
technological breakthroughs involve making nodes smaller. This allows for the
development of highly advanced and cutting-edge chips with greater performance
and efficiency. Nevertheless, older or legacy chips remain integral in most
end-segments due to their cost-effectiveness and reliability. Given its
intricacy, semiconductor manufacturing is distinguished by a highly specialised
and often geographically dispersed but interconnected value chain. This value
chain, along with a host of supporting activities, form a complex and
globalised semiconductor ecosystem.
In general, the value chain can
be divided into two main sections: the front-end and the back-end (Diagram 1).
The front-end of the value chain consists of research and development
(R&D), integrated circuit (IC) design and wafer fabrication of the different
types of chips. These processes usually require highly skilled expertise and
are both capital- and technology-intensive. Meanwhile, the back end of the
value chain comprises assembly, testing and packaging (ATP) activity. This is a
crucial step to ensure that the chip’s function and performance are reliable,
durable and ready for integration with other E&E components in various
devices of the end-segments. ATP activity is relatively more labour-intensive
and less technically intricate. However, this activity has progressed to become
more complex and capital-intensive because of advances in packaging technology.
At the final stage, once these devices are integrated, they are then handled by
business services entities for marketing, distribution and sales. Complementing
this value chain is an extensive support ecosystem that produces the materials,
specialty chemicals, machinery and equipment, software design and core
intellectual property for semiconductor manufacturing activities.
Global demand for semiconductors
is mainly dictated by the growth trends of the various end-segments. In terms
of breakdown by type of chips, the end-segments collectively comprise 42%
logic, 32% DAO and 26% share in memory chips. However, the exact composition of
chips differs for each end-segment respectively. Therefore, the growth trend in
the demand for each type of chip will also vary over time depending on
market-specific factors influencing the various end-segments.
E&E has been one of the major
drivers of the nation’s industrial development. Over the past five decades,
Malaysia’s E&E industry has experienced rapid progress. The E&E
industry now accounts for 40% of Malaysia’s total gross exports, contributing
3.7% to global E&E exports and capturing a notable 7.3% share of global
semiconductor exports in 2024. It is also a vital source of employment,
supporting 614,051 jobs with an average monthly wage of RM4,019, well above
the manufacturing sector’s average of RM3,448. It also makes up 7.4% of total
output, with a compounded annual growth rate (CAGR) of 6.4% between 2015 and
2024, higher than the GDP CAGR of 3.8%. Overall, Malaysia is now the world’s
ninth largest E&E exporter.
Malaysia has gained a comparative
advantage within the global semiconductor ecosystem by developing specialised capabilities
in the E&E value chain. It has an entrenched presence in the back end
particularly the outsourced semiconductor assembly and test (OSAT) players,
holding 13% share of global ATP activity, as well as some presence in the
front-end. Further supporting the value chain is a wide array of domestic
automated test equipment (ATE) makers.
In terms of products, 64% share
of Malaysia’s E&E exports are semiconductors while 36% are comprised of
devices such as parts for computers and telephones. Within semiconductor
exports, logic chips make up the largest share at 49.5%, followed by DAO (43%)
and memory (7.5%). Given the product mix, the recovery for Malaysia’s E&E
exports was broadly gradual in 2024. The initial recovery in the early part of
the year lagged regional peers. This was primarily due to Malaysia’s limited
presence in advanced high-bandwidth memory chips. Nevertheless, the recovery
took hold in the second half of 2024 as the memory, logic chips and devices
segment began to significantly improve.
Reference:
Economic and Monetary Review
2024, Bank Negara Malaysia