For nearly five decades, Penang has built a strong position in Southeast Asia’s semiconductor industry. The Malaysian state is now looking at the next stage of that journey.
Instead of concentrating mainly on semiconductor assembly and testing, Penang wants to develop stronger capabilities in chip design, system architecture and prototype development. The long-term target is to become one of ASEAN’s leading semiconductor design hubs by 2040.
The plan is part of the Draft Penang State Structure Plan 2040, which is currently open for public feedback until September 9.
The timing is important. Penang’s electronics industry has been growing quickly. The state recorded more than RM350 billion in electrical and electronics exports during the first half of 2026, an increase of more than 80% compared with the same period last year, according to Chief Minister Chow Kon Yeow.
Penang also continues to account for more than 60% of Malaysia’s E&E exports.
The state now wants to get more value from this established industry. Its focus is shifting towards engineering, advanced technology, chip design and intellectual property developed and owned locally.
From Manufacturing to Chip Design
Penang has already started preparing the infrastructure needed for this change.
The Silicon Design @5km+ initiative aims to bring IC design companies, research organizations, training facilities and other supporting infrastructure closer together around the Bayan Lepas industrial area.
The programme includes an IC Design and Digital Park, a chip-design academy, and research and incubation facilities.
The project was initially estimated at RM120 million over five years, with the Penang government committing RM60 million. The state also said the IC Design and Digital Park would eventually provide around 1 million square feet of space for technology companies.
There are already signs that Penang’s chip-design ecosystem is becoming larger.
In July 2025, the state reported that more than 45 local and international IC-design companies were operating in Penang. That was up from more than 20 companies when the design park was announced in 2024.
Five Malaysian companies became the first occupants of the Silicon Research and Incubation Space. The facility gives smaller chip companies access to laboratories, electronic design automation tools and other infrastructure that can be difficult and expensive for young companies to develop on their own.
One of these companies, Silicon X, also attracted attention in November 2025. Penang’s investment agency said the company had developed what it described as Malaysia’s first homegrown field-programmable gate array, or FPGA.
An FPGA can be reprogrammed after manufacturing and used for different computing requirements.
These are still early developments. They do not yet establish Penang as a globally competitive chip-design centre. But they show where the state’s semiconductor strategy is heading.
The objective is to move beyond hosting manufacturing operations and create technologies that Malaysian companies can own, develop and commercialize.
This is an important difference. A region can generate large exports and employment by manufacturing chips for international companies without having many local businesses that control chip designs or intellectual property.
Penang wants to reduce that gap.
New Investments Continue in Manufacturing
The move towards chip design does not mean Penang is stepping away from semiconductor manufacturing.
In fact, major investments continue to strengthen its existing industrial base.
Taiwan’s Chipbond Technology opened an advanced semiconductor packaging and testing facility in Penang in February after investing close to $200 million.
The facility provides wafer bumping, wafer-level chip-scale packaging and testing. Its initial capacity is 10,000 wafers and 100 million wafer-level chip-scale packaging units each month.
Germany’s Aixtron also agreed in May to establish a new manufacturing facility in Penang. The company plans to invest around €40 million during 2026 and 2027.
The facility will support semiconductor deposition equipment assembly and testing, engineering activities and local procurement. According to Malaysia’s investment agency, the project will introduce the country’s first front-end deposition segment for compound semiconductors, including technologies used in gallium nitride and silicon carbide applications.
Then, in June, US-based MKS opened the first phase of a semiconductor equipment supercentre in Penang.
The 350,000-square-foot facility will support wafer-fabrication equipment production. Investment across all phases is expected to exceed RM400 million.
These projects give Penang a strong starting point. The state already has semiconductor manufacturers, equipment suppliers, engineers and a large network of local vendors.
The bigger challenge will be connecting these resources with locally developed chip designs and technologies.
Building Stronger Malaysian Semiconductor Companies
Penang’s plans also support Malaysia’s wider semiconductor ambitions.
The National Semiconductor Strategy targets at least RM500 billion in investment during its first phase, along with RM25 billion in fiscal support.
Malaysia also wants to develop at least 10 local companies in semiconductor design and advanced packaging, with annual revenues between RM1 billion and RM4.7 billion.
The country has another target: building at least 100 semiconductor-related companies with revenues approaching RM1 billion.
Talent is another major part of the plan. Malaysia aims to train and upskill 60,000 highly skilled engineers.
Penang’s draft plan also emphasizes local micro, small and medium enterprises.
The state wants these businesses to become technology vendors through automation, certification and closer integration with multinational companies operating in the semiconductor supply chain.
The broader goal is to increase local content, encourage technology transfer and help Malaysian companies take part in more stages of semiconductor production and development.
However, building a successful semiconductor company is not the same as attracting a global manufacturer.
Chip design needs specialized engineering talent, expensive software, testing and validation infrastructure, long-term investment and customers willing to work with newer suppliers.
Intellectual property also takes time to develop. A factory can be built and investment announced within a relatively short period. Building a strong chip design business and gaining international customers can take much longer.
Penang Has an Important Head Start
Penang’s biggest advantage is its existing ecosystem.
The state has spent more than five decades building its semiconductor industry. It already has multinational companies, local suppliers, engineers, equipment manufacturers and supporting businesses.
For new chip-design companies, this ecosystem can provide access to potential customers, partners, suppliers and skilled workers without having to build everything from the ground up.
That gives Penang a useful foundation as it moves into the next stage.
The real test of the 2040 strategy will not simply be whether more chips are manufactured in Penang. Manufacturing is already one of the state’s established strengths.
The bigger opportunity is to develop more technologies and companies that originate there.
By 2040, Penang’s progress could be judged by how many semiconductor products are designed, engineered and commercially owned within the state, rather than only by the number of chips produced in its factories.
