Malaysia invests USD 250 million to purchase Arm technology to promote domestic semiconductor industry upgrade

According to Zhitong Finance APP, Arm (ARM.US) has agreed to provide chip design and technology to Malaysia over the next decade to help the Southeast Asian country transition from chip assembly to more valuable semiconductor production.

Malaysia has signed an agreement with ARM to pay the company $250 million over 10 years for a range of semiconductor-related licenses and technologies. Malaysia's semiconductor output accounts for about one-tenth of the global total. The government plans to use this funding to help local companies design their own chips, aiming for semiconductor exports to reach 1.2 trillion ringgit (approximately $270 billion) by 2030.

Malaysian Minister of Economy Rafizi Ramli stated in an interview on Wednesday, "We have always wanted to shift from the backend of testing and assembly to the frontend." "The government has taken an aggressive approach" to collaborate with Arm, "from the perspective of building an entire ecosystem."

The minister noted that with the help of this deal, Malaysia is accelerating its goal of manufacturing its own chips, aiming to create up to 10 chip companies with a total annual revenue of up to $20 billion. The agreement could help increase the country's GDP by one percentage point.

Malaysia is already an important center for chip testing and packaging, but the country has yet to make significant attempts in chip design. It currently provides numerous chip packaging facilities for Intel, GlobalFoundries Inc., and Infineon Technologies. Local chip equipment manufacturers are also striving to enter the global equipment supply chain, attracting companies like Applied Materials to establish factories in India.

Last year, this Southeast Asian country committed to investing at least 25 billion ringgit to support its semiconductor industry. Rafizi had previously expressed hopes that Malaysia could start producing its own chips within the next five to ten years, but on Wednesday he advanced that timeline to the next five to seven years.

He stated that the deal with Arm accelerates the achievement of new goals, as developing local chip technology "organically" would take too long.

A vibrant local tech ecosystem led by domestic chip manufacturers will enhance Malaysia's image in a changing global supply chain and promote the development of advanced manufacturing processes domestically. Given the geopolitical uncertainties, supporting local chip manufacturing has become a priority in a country where about two-fifths of exports consist of electrical and electronic products.

At the beginning of this year, Malaysia held an optimistic outlook on its growth prospects, expecting the economy to potentially accelerate to over 5% again due to resilient spending and investment. However, officials are increasingly concerned about the impact of the U.S. plan to impose widespread tariffs, which could harm this trade-dependent country.

Last month, U.S. President Trump indicated that he might impose tariffs of about 25% on imports of automobiles, semiconductors, and pharmaceuticals, with an announcement as early as April 2. The U.S. is Malaysia's third-largest semiconductor export market. His imposition of tariffs on Canada and Mexico on Tuesday wiped out all gains in the S&P 500 index since election day.

More and more countries are trying to produce domestically components that are crucial for future technologies and national security, and Malaysia is one of them Even the United States is now trying to revitalize its domestic semiconductor manufacturing industry. However, establishing production bases requires not only incentives and funding but also attracting the necessary talent and hundreds of small suppliers to form a viable chip ecosystem.

In the face of imminent threats, the Malaysian government has begun to lower expectations. Zafrul Aziz, the Minister of Investment, Trade and Industry, expects that after a 14.9% growth in 2024, the approved investments this year will only grow by 5%. After a 9% growth last year, his department has also set the trade growth target at 5%.

The Bank Negara Malaysia is expected to maintain its benchmark interest rate on Thursday, as the country's economy and inflation remain under control. The last adjustment to borrowing costs by the central bank was in May 2023, when it raised the rate by 25 basis points