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
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