After Building a Chip Manufacturing Hub, Penang Wants a Bigger Slice of the Value Chain

Penang, the Malaysian state that has spent five decades building one of Southeast Asia’s key semiconductor manufacturing hubs, now wants to capture more of the value created before chips reach the factory floor.

Its latest development blueprint targets a shift from established strengths in semiconductor assembly and testing to chip design, system architecture and prototype development, with the ambition of becoming a leading semiconductor design hub in ASEAN by 2040. The Draft Penang State Structure Plan 2040 is open for public feedback until September 9.

The shift comes as Penang’s electronics industry is expanding sharply. The state recorded more than RM350 Bn in electrical and electronics exports in the first half of 2026, up more than 80% from the year-ago period, chief minister Chow Kon Yeow said on August 14. Penang consistently accounts for more than 60% of Malaysia’s E&E exports, he added.

The next phase, therefore, is not about replacing the manufacturing base that made Penang important to the global semiconductor supply chain. It is about using that base to capture more proprietary value through design, engineering, advanced technologies and locally owned intellectual property.

From Factory Floor to Design Desk

Penang has already begun building the infrastructure for that shift.

Its Silicon Design @5km+ initiative is intended to cluster IC design companies, research, training and supporting infrastructure around the Bayan Lepas industrial area. The programme comprises an IC Design and Digital Park, a chip-design academy and research and incubation facilities, creating an ecosystem alongside the multinational manufacturers and suppliers already operating in the state.

The initiative was projected at RM120 Mn over five years, with the Penang government committing RM60 Mn. At the time, the state said the IC Design and Digital Park would eventually provide about 1 Mn sq ft of space for technology companies.

Early indications suggest the design base is expanding. Penang said in July 2025 that more than 45 local and international IC-design companies were operating in the state, up from 20-plus when the design park was announced in 2024. Five Malaysian companies also became the first occupants of its Silicon Research and Incubation Space, which provides access to laboratories, electronic design automation tools and other infrastructure that smaller chip companies may struggle to build independently.

In November 2025, Penang’s investment agency said one of those companies, Silicon X, had developed what it described as Malaysia’s first homegrown field-programmable gate array, or FPGA. This chip can be reprogrammed and used for different computing tasks after manufacturing.

Such milestones remain early evidence, not proof, of a globally competitive design industry. Still, they show the direction of the state’s industrial policy: from hosting semiconductor production towards developing technologies that can be owned and commercialised locally.

That distinction matters. A semiconductor ecosystem can generate substantial exports and employment through manufacturing without necessarily producing many domestic companies that control chip architectures, designs or intellectual property. Penang’s 2040 push aims to narrow that gap.

Manufacturing Is Still Part of the Bet

Moving further into design does not mean Penang is turning away from the manufacturing base that made the transition possible.

Taiwan’s Chipbond Technology opened an advanced semiconductor packaging and testing facility in Penang in February after investing close to $200 Mn. The plant offers wafer bumping, wafer-level chip-scale packaging and testing, with an initial capacity of 10,000 wafers and 100 Mn wafer-level chip-scale packaging units a month.

In May, Germany’s Aixtron agreed to build a new manufacturing facility in Penang, planning to invest around €40 Mn in the site during 2026 and 2027. The facility will support assembly and testing of semiconductor deposition equipment, engineering activities and local procurement. Malaysia’s investment agency said the project would introduce the country’s first front-end deposition segment for compound semiconductors, including technologies used for gallium nitride and silicon carbide applications.

A month later, US-based MKS opened the first phase of a semiconductor equipment supercentre in Penang. The 350,000 sq. ft facility will support wafer-fabrication equipment production and is expected to represent an investment of more than RM400 Mn when all phases are completed.

Together, those projects show why Penang has an advantage over locations trying to build semiconductor capabilities from scratch. It already has manufacturers, equipment suppliers, engineers and a network of local vendors. The challenge is whether those assets can bridge to locally developed design and technology rather than remaining the foundation for multinational production.

Penang’s 2040 targets do not envisage a straightforward acceleration in headline manufacturing growth. Instead, with manufacturing growth targeted at 4.4% and overall GDP growth at 4.6% by 2040, the plan’s ambitions appear to rest more on what the state produces and the value it captures than on how quickly factory output expands.

The Harder Test Is Building Local Champions

Penang’s ambitions mirror Malaysia’s broader semiconductor strategy.

The National Semiconductor Strategy targets at least RM500 Bn of investment in its first phase and RM25 Bn of fiscal support. Malaysia also wants to create at least 10 local companies in semiconductor design and advanced packaging with annual revenues of RM1-4.7 Bn, alongside at least 100 semiconductor-related companies with revenues approaching RM1 Bn.

The government has also set a target to train and upskill 60,000 highly skilled Malaysian engineers. That makes talent and local company formation as important as foreign direct investment.

Penang’s draft plan calls for local micro, small and medium enterprises to become technology vendors through automation, certification and closer integration with multinational supply chains. The stated aim is to increase local content, technology transfer and participation deeper in the semiconductor value chain.

But producing globally competitive semiconductor companies presents a different challenge from attracting global manufacturers. Chip design requires specialised engineers, costly software and validation infrastructure, patient capital and customers willing to entrust critical products to relatively young suppliers. Intellectual property also takes longer to build than factories and is considerably harder to measure through headline investment announcements.

Penang, nevertheless, starts with something many aspiring semiconductor hubs lack: an ecosystem built over more than half a century. Its multinational companies, local suppliers, engineering workforce and manufacturing infrastructure give fledgling design businesses potential customers, partners and talent within the same industrial cluster.

The 2040 strategy is, therefore, less a wager on whether Penang can remain an important place to make semiconductors. Its position in that part of the supply chain is already well established.

The harder question is whether Penang can use that position to produce its own technologies and companies.

By 2040, the most consequential measure of success may not be how many more chips pass through Penang’s factories, but how many of them were conceived, engineered and commercially owned there.