By Iman Muttaqin Yusof
Malaysia is looking to speed up its transition into computer chip design and production from merely assembly and testing, as Sino-U.S. tensions put the Southeast Asian nation’s data center industry potentially at risk, some analysts said.
The United States in February put new export restrictions on artificial intelligence chips, which many huge data centers in Southeast Asia rely on, including Malaysia. And these export curbs may be tightened by President Donald Trump, many fear.
Malaysia’s recent agreement to pay a British firm, Arm Holdings, U.S. $250 million over 10 years to acquire its chip designs and technology was spurred by these worries, some analysts said, although one minister said the deal was not part of “some grand geopolitical strategy.”
The agreement, announced last week, was key to his country’s overall strategy to become a chip design hub, said Wong Siew Hai, president of the Malaysia Semiconductor Industry Association.
“The partnership with Arm will accelerate our move up the value chain,” in chip design, he told BenarNews.
“[But] Malaysia must stay neutral in the [ U.S.-China friction] and be ready to respond to developments from both sides.”
For Arm, the agreement with Malaysia was the first the company had made with a country – rather than a company – for the development of proprietary intellectual property for Integrated Circuit (IC) design.
IC design is the process of creating microchip blueprints that define its functions before manufacturing.
Malaysian Economy Minister Rafizi Ramli told reporters last week that its semiconductor push was purely economic, not geopolitical.
“This is not some grand geopolitical strategy to navigate the trade war or outmaneuver global tech competition,” Rafizi said.
“This is simply about Malaysia making the long-overdue transition from backend manufacturing to IP-driven semiconductor innovation.”
He added that the government aimed to accelerate its chip production timeline to five-seven years from the earlier 10, and this agreement with Arm would facilitate that goal.
The agreement will allow Malaysia to procure seven Computer Subsystems licenses from Arm that will enable its companies to use the British firm’s pre-designed processor systems to create their own custom chips. And each license is expected to generate $30 billion in revenue, according to Malaysia’s economy ministry.
Malaysian Prime Minister Anwar Ibrahim, who attended the signing ceremony with Arm Chief Executive Rene Haas last week, described the agreement as a “pivotal moment” for Malaysia’s semiconductor goals.
“[W]e have conceived one of the most ambitious technological plans Malaysia has ever seen: to pioneer Made by Malaysia AI chips,” Anwar said.
“These chips will be designed, manufactured, tested and assembled here, and sold to the rest of the world.”
Geopolitical tensions
Malaysia’s agreement with the British chipmaker comes as the U.S. tightens export controls on AI chips and semiconductor equipment, a move analysts warn could disrupt global supply chains.
Last month during a summit in Paris, U.S. Vice President J.D. Vance pledged to keep America at the forefront of AI. The most advanced AI systems “would be built in the U.S. with American-made chips” under the Trump administration, he said.
An economist with the Institute for Democracy and Economic Affairs in Kuala Lumpur, Doris Liew, told BenarNews that Malaysia was caught in the middle of a deepening tech standoff between Washington and Beijing.
“Measures such as [the previous U.S. President] Joe Biden’s restrictions on advanced chip exports, the U.S. push to bring semiconductor manufacturing back onshore, and China’s ‘Made in China’ policy could threaten Malaysia’s position in the global semiconductor supply chain by restricting access to key markets.”
The U.S. restriction on advanced chip exports, announced in January, may affect Malaysia’s rapidly expanding AI data center industry, which has received billions of dollars in investments from global tech giants like NVidia, Microsoft, and ByteDance.
Farlina Said, a fellow in the Cyber and Technology Policy program at the Institute of Strategic and International Studies (ISIS), had told BenarNews in January that the new chip restrictions were “likely to slow down activities in the semiconductor sector, including those linked to data centers,”
Malaysia approved over 141.7 billion ringgit ($31.9 billion) in digital investments – including data centers and cloud services – between January and October 2024, creating 41,078 jobs, according to government data.
This followed 114.7 billion ringgit (U.S. $ 25.96 billion) in similar investments from 2021 to 2023.
Over the past two years, Malaysia has secured over U.S. $20 billion in investments from tech giants like Google, Microsoft, Nvidia, Oracle, and Infineon. TikTok’s parent company, Chinese ByteDance, has also pledged U.S. $350 million to expand its AI-driven data center operations in Malaysia.
By expanding beyond chip assembly and transitioning to chip design and manufacturing, Malaysia could reduce its dependence, such as on countries like the U.S. for AI chips, analysts said.
It would also enable Malaysia to become Southeast Asia’s semiconductor hub, said analysts.
