What Penang is doing to reclaim its title as the Silicon Valley of the East

PENANG: The Malaysian state of Penang, once known as the Silicon Valley of the East, is seeking to reclaim its title.
In line with the national semiconductor strategy, Penang wants to tap into the front end chip manufacturing supply chain – which involves wafer fabrication, advanced testing and packaging and integrated circuit design – to contribute to the country’s target to attract US$115 billion worth of investments by 2030.
Malaysia, currently the sixth-largest semiconductor exporter, has been focusing largely on backend activities. The country commands 13 per cent of the global assembly, testing and packaging market.
To support the industry to move up the value chain, over US$5.6 billion has been earmarked by the government under the national semiconductor strategy unveiled in May last year. 
Penang, located along the northwestern coast of Peninsular Malaysia, is home to over 350 multinational corporations (MNCs). It has already attracted billions in investment from tech giants like Intel, Infineon, Lam Research and Texas Instruments.
In an interview with CNA, Penang’s chief minister Chow Kon Yeow was upbeat about the state’s tech sector and expects more investments in the near future.
“It’s time we start looking 50 years ahead. Penang is set to lead the nation in moving up the value chain,” he said.
He add that the state stands to gain the most from the China Plus One strategy, which allows companies that have been manufacturing in China to also set up operations in another country.
He noted that with the United States and China increasingly jostling over semiconductor intellectual property and manufacturing, Penang has received more enquiries from tech firms looking to invest.
However, the state remains selective, he said. 
“We do due diligence on companies that are intending to invest here, so that they fit into the ecosystem, fill the gaps in certain sectors we don’t have,” he said.
Despite its attractiveness for investors, Penang faces challenges in its ambitions. 
For instance, US tech giant Intel Corp’s financial struggles and talk of potentially downsizing in Malaysia have dampened investor sentiments. According to an industry source, Intel offered employees the option to leave voluntarily in exchange for benefits under a scheme which is widely used in the Malaysian employment landscape.
It is unclear how many employees took up the offer.
Earlier reports said Intel had partially paused its US$7 billion investment in a new advanced 3D packaging and testing facility in Penang’s Bayan Lepas and will possibly cut more than 2,000 jobs. Intel has not issued a statement regarding the media reports so far. 
President of Malaysia’s semiconductor association Wong Siew Hai said that Intel may be facing a temporary setback.
He noted that Intel is preparing for wafer fabrication firms entering the market that will need capacity for advanced testing and packaging. 
AI chips will need Intel’s service, he added.
Mr Chow, however, pointed out a silver lining in the situation if it comes to bear: If Intel staff are laid off, new firms entering the market would have a ready pool of employees, he said. “We are concerned but we will facilitate the transition from the company laying off to companies recruiting,” he said.
Mr Chow added that Penang faces more urgent priorities such as space, water and electricity supply constraints. 
A stable and reliable water and power supply are crucial for the semiconductor industry.
A 275-kV transmission line project that spans the Penang Strait, connecting Butterworth to Penang Island, is being constructed.
It is Malaysia’s first large-scale cross-sea transmission line with towers exceeding 100m in height.
“The project costs about US$100 million. All the power transmission towers are up and when (it’s) ready at the end of the year, (it) can supply up to 2,000 megawatts of power to the island,” said Mr Chow. 
The Penang state government is also building three new water treatment plants and reservoirs to ensure water security.
“We did not anticipate the spike in water demand that happened (between) 2019 and 2023, which also coincides with the boom in semiconductors,” said Mr Zairil Khir Johari, Penang state executive councillor for Infrastructure, Transport and Digital.
An increase in demand that would typically take place over 10 years happened within about five years, he said. 
“We have committed RM1.18 billion (US$27 million) in water infrastructure projects, some (are) already underway, some will be done in the near future. Once complete, we will be fine till 2030,” he added. 
Penang is also set to get more land mass. The long-awaited Penang’s Silicon Island reclamation, which began in September this year, is expected to be completed in 2032.