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Introduction

1.1 What is Semiconductor


A semiconductor is a solid whose electrical conductivity can be controlled over a wide range,
either permanently or dynamically. Semiconductors are tremendously important
technologically and economically. Silicon is the most commercially important semiconductor,
though dozens of others are important as well.
1.2 What is Semiconductor Industry
The semiconductor industry is the collection of business firms engaged in the design and
fabrication of semiconductor devices
1.3 Semiconductor Industry In Malaysia
A market-oriented economy combined with a young, educated workforce, an excellent
infrastructure, and a government committed to maintaining a business-friendly environment,
has been Malaysias formula for success in attracting investments into the countrys
electronics sector. Malaysia is now home to MNCs from the USA, Japan, Europe, Taiwan and
Korea, manufacturing products ranging from semiconductor devices to consumer and
industrial electronics. The list of projects reads like a Whos Who of the worlds major
electronics companies. Malaysias electronics industry has certainly come a long way over
the last 30 years. From a handful of companies with less than 600 workers in 1970, the
industry has today attained world-class capabilities and is the largest contributor to the
countrys manufacturing output, employment and exports. There are currently more than 900
companies employing 360,048 workers. The value of exports in 2003 was RM183.2 billion
(US$48.2 billion).
Malaysia is now among the worlds largest exporters of semiconductor devices and audiovisual equipment. Today, Malaysia aims to develop full-fledged electronics and information
and communications technology (ICT) clusters built around the semiconductor sector with
core activities in wafer fabrication, IC design and the manufacture of end-equipment such as
digital audiovisual and ICT products. The ICT products are classified into two broad subsectors:
Computers and computer peripherals and data storage devices; and
Telecommunications equipment/devices.

Malaysia also offers the world her Multimedia Super Corridor (MSC) which brings together a
legislative framework, a high capacity global telecommunications and logistics framework,
and eco-friendly surroundings to create the ideal environment for the growth of multimedia
industries. The types of companies encouraged in the MSC are computer hardware and
software vendors, system integrators, R&D organisations and relevant high-tech service
providers.

1.4 Semiconductor Industry


Malaysia is currently among the worlds leading sites for semiconductor assembly, testing
and packaging, with industry names such as Intel, Motorola, Agilent, AMD, National
Semiconductor, Fairchild, Hitachi, NEC, Fujitsu, Toshiba, Infineon and
STMicroelectronics among the MNCs based in the country. The main activities are the
assembly and testing of semiconductor devices, which include microprocessors, memory
chips, power ICs, linear ICs, opto devices and other logic and discrete devices. Many of these
companies initially came to Malaysia in the early 1970s because of the countrys inexpensive
labour that was good at working on small electronic devices. Since then, the industry has
grown by leaps and bounds, progressing from labour-intensive operations to state of the art
robotics manufacturing sites that produce the latest generation of integrated circuits.
The semiconductor sector today has a major part in Malaysias electronics industry,
accounting for RM78.5 billion (US$20.7billion) or 42.8% of the countrys total electronics
exports in 2003. The semiconductor industry in Malaysia is now moving towards backward
integration into silicon ingot growing, cutting and polishing of silicon wafers, chip design and
wafer fabrication. Currently, three companies are producing silicon wafers, one of which also
has the intention to manufacture silicon ingots. Currently, four wafer fabrication plants are in
operation. SCG Industries wafer fab plant, the first in the country, was established as early as
1988, while MIMOS, a government-funded corporation, operates the second plant. Silterra, a
joint venture between the Government of Malaysia and LSI USA, has invested RM4.5 billion
(US$1.2 billion) in a wafer fab facility in the Kulim Hi-Tech Park in the northern State of
Kedah, while 1st Silicon will operate from Kuching, Sarawak with Sharp Corporation of
Japan as its technology partner.
In chip design, Altera Corporation of the USA has set up base in Penang since 1996, its
engineers working with cutting edge, sub-micron fabrication technology and CAD tools to
design Alteras programmable logic chips. The Malaysian workforce has also grown in
sophistication over the years thereby encouraging additional investments in R&D,
particularly in materials and process technology upgrading, engineering, marketing and
supply chain management. Agilent Technologies Penang plant undertakes in-house R&D
activities which include state of the art product development for optoelectronics, LED and
display products, and RF integrated circuits, while Motorola has a R&D centre and a software
development centre in Malaysias Multimedia Super Corridor. Altera Corporation which
operates as a VLSI layout design R&D centre has designed more than 50 products to-date.
Malaysias semiconductor industry has also spawned several supporting industries such as the
production of leadframes and bonding wires. Three
major bonding wire manufacturers have set up base in Malaysia: Tanaka Electronics
producing gold and aluminium bonding wires. Elektrisola copper bonding wires and
Malaysian Electronics Materials gold bonding wires.

History Of Semiconductor In Malaysia


The primary product of the semiconductor industry is Integrated Circuits (IC) a
set of electronic circuits composed of multiple transistors connected by wires on a plate of
semiconductor material, usually silicon which is an intermediary product composed of
numerous smaller parts used in several consumer and industrial electronics. Semiconductor
sales reached $305.6 billion in 2013 and is expected to continue to grow with the increasing
consumption of final products such as mobile phones, tablets, and other consumer
electronics.10 It is an industry characterized by brutal competition, rapid technological
changes and falling product prices. With the significant improvements in transportation and
communication technology, production stages of semiconductors have been separated across
multiple locations to take advantage of lower labor cost locations especially for the activities
that are labor-intensive. With the globalization of production chains, more firms are relying
on contract manufacturers allowing greater focus on design.
The semiconductor cluster, with semiconductor manufactures at its core, involves
many actors as suppliers, buyers and research institutions etc., and is related to other strong
clusters including information communication technology (ICT), automotive, and healthcare
(Figure 12). The value chains of semiconductor manufacturers start with Integrated Circuits
(IC) design, and extend to wafer fabrication and assembly and testing. Most of the
manufactures concentrate on assembly and testing process in Malaysia.
Foreign
semiconductor manufacturers have strong presence throughout the value chain, mainly
located in free trade zones in Penang and Negeri Sembilan. Institutes for collaboration and
local and central governments have facilitated the development of the semiconductor cluster
and will continue to play essential roles in its deepening especially in the critical areas of
human resource development, technology upgrading and SME development. Concerning key
players of human resource development, Human Resource Development Fund provides
financial assistance of training cost with employers and issues certification for employees.
Penang Skills Development Center has shared training and educational programs with
member firms.
With respect to technology upgrading, Malaysian Institute of Microelectronic
Systems (MIMOS) has led applied research and offered wafer fabrication facility and
technological assistance for local firms. Malaysian Industry-Government Group for High
Technology (MIGHT) brings together industry, government and academia to advance hightech industry research and promote commercialization effort. The SME Corp, as specializing
government agency for SME development, provides various services including: infrastructure
facilities, financial assistance, advisory services, market access and other support programs to
develop globally competitive SMEs. Another important actor of SME development is the
Malaysian Technology Development Corp (MTDC) which provides funding, incubation,
advisory and nurturing services for commercialization activities of new technologies.
The origin of semiconductor cluster traces back to 1970s. Since the establishment of
the first Free Trade Zone in 1972, Malaysia has attracted multinational firms assembly plant,
particularly electronics industry, and promoted export as a way to develop industry with
various financial incentives.
In 1970s, the competition among large semiconductor firms, mainly U.S. and Japan,
caused relocation of their assembly plants to lower labor countries. For example, Intel opened

its first offshore assembly plant in Penang, Malaysia in 1972. Other early foreign firms - such
as AMD, HP, Hitachi and National semiconductor also started operation during 1971-1974.
In 1980s, continuous competition among large multinational firms combined with
rising cost of other East Asian economies - such as South Korea, Taiwan, Singapore, and
Hong Kong - accelerated relocation of their assembly plant into Malaysia. At this time, the
government started to strengthen linkages between foreign and domestic firms and
formulated First Industrial Master Plan (1986-95). The government also revived inward
FDI incentives and opened new export processing zones.
In 1990s, Malaysia faced challenges to upgrade their cluster for higher value added
activities because of competitive pressure from other East Asian countries with ample low
wage labor force including China, Vietnam and Indonesia due to the market-oriented reform
of former communist regime and political stabilization. In fact, some labor-intensive
production process left from Malaysia. The Malaysian government launched several research
and training institutions with the formulation of Action Plan for Industrial Technology
Development 1990 and Second Industrial Master Plan 1996-2005.
In 2000s, with continuous competitive threat posed by other East Asian countries with
lower wage such as China, Vietnam, Indonesia -, the government has been working to
promote higher-value added activities as underlined in Third Industrial Master Plan (20062020) and Economic Transformation Program enacted in 2010. Some semiconductor
firms started upgrading their activities into research and development, whereas the majority
of firms activity is still limited in assembly operation.