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2025-03-17 
Malaysian Prime Minister Anwar Ibrahim's government is attempting something few developing economies have successfully managed: climbing the technology value chain from basic manufacturing to high-value design and innovation.
The country's latest move in its semiconductor strategy is an attempt to transform the Southeast Asian manufacturing hub into a significant chip design and intellectual property development player, with a $250 million partnership with UK-based Arm Holdings.
For Western technology firms and investors, the partnership could create a new node in the semiconductor supply chain, coming at a time when diversification beyond Taiwan and China has become a strategic priority at national level. Malaysia is betting that its decades of manufacturing experience combined with new investment in design capabilities will position it as a viable alternative in the increasingly geopolitically complex chip industry.
The agreement was formally signed on March 5, 2025, in Kuala Lumpur, and saw Prime Minister Anwar Ibrahim and Arm CEO Rene Haas seal the decade-long deal. The Malaysia-Arm partnership emerged from discussions beginning at the KL20 tech conference held last year, and has evolved into a RM1.1 billion ($250 million) collaboration that aims to position Malaysia in the semiconductor value chain.
Under the agreement, Malaysia will access Arm's intellectual property and develop Arm-based chips, which power the world’s smartphones and billions of connected devices.
From assembly lines to intellectual property: Malaysia's semiconductor strategy
The timing of the deal is opportune and challenging. With the global semiconductor industry projected to hit $1 trillion in value by 2030, Malaysia's agreement comes as the sector undergoes significant restructuring amid US-China tech tensions.
The partnership with UK-based Arm Holdings gives Malaysia access to the intellectual property needed to develop its chip designs rather than manufacturing others' innovations. This signals a departure from Malaysia's traditional semiconductor playbook, which since the 1970s has comprised of chip assembly, packaging, and testing for companies like Intel and HP.
Malaysia has excelled at these essential but lower-value supply chain operations, but the Arm deal targets the higher-value design segment, which Economy Minister Rafizi Ramli noted, captures over 60% of the supply chain value. "We don’t want factories any more; we want IPs [intellectual properties]," Ramli stated at a recent briefing, signalling the shift in national economic strategy.
Licensing seven compute subsystems (CSS) – essentially the fundamental building blocks of modern chips – gives Malaysia access to the architectural foundations needed to develop sovereign semiconductor chipsets.
The stakes are substantial. Each CSS license represents up to $30 billion in annual revenue if Malaysian companies can use them to develop marketable chips, something that could reshape the country's $400 billion economy: The automotive sector alone offers potential demand worth $110 billion for Arm chips over the next seven years.
Catching up with Asia's semiconductor giants
Arm CEO Rene Haas cited Malaysia's "decades of experience in the semiconductor industry" as a key factor influencing the deal. The country's expertise has created what Haas calls "a rich ecosystem in semiconductor design, assembly, and manufacturing" that positions the Malaysia-Arm collaboration "not just for success, but for transformation."
Beyond the licensing deal, the arrival of Arm's first ASEAN office, in Kuala Lumpur (KL), signals the chip IP company's long-term commitment to the region. The KL regional hub will expand Arm's presence across Southeast Asia, Australia, and New Zealand, potentially creating network effects that benefit Malaysia's broader tech ecosystem and its emerging position as a more prominent chip supply chain player.
Prime Minister Anwar Ibrahim spoke at the signing ceremony, calling the deal the start of a "second semiconductor wave" and a "revolution."
"This marks a fundamental shift in our approach to semiconductors and technology that will define our future," he said, adding that the plan to pioneer "Made in Malaysia" AI chips represents "one of the most ambitious technological plans Malaysia has ever seen."
The collaborative approach inside the Malaysian government was credited for helping finalise the deal, with Anwar noting the joint work between the Ministry of Investment, Trade and Industry, the Economy Ministry, and the Finance Ministry. He also called for action from academic institutions and universities, requesting “monthly reports on the plan, in collaboration with Arm and […] industries.”
Roadblocks on Malaysia's route to silicon independence
There remains the issue of a significant talent gap in the country. While the country aims to educate 10,000 semiconductor specialists, training chip designers takes years of specialised education. In this respect, Malaysia will be competing with established education hubs in Taiwan, South Korea, and India.
Secondly, the semiconductor industry is notoriously capital-intensive and competitive. Even with Arm's support, Malaysian companies will face entrenched competitors with decades of experience and billions in research and development funding behind them. The government's goal of producing "a Malaysian-designed, Malaysian-made chip" inside five years sets an aggressive timeline that industry veterans might view sceptically.
Thirdly, Malaysia's neutrality on US-China tech tensions could prove a challenge to maintain. The country's recent investigation into possible violations of US sanctions regarding Nvidia AI chip shipments highlighted the delicate balancing act required.
As the Malaysian International Trade Ministry stated at the time, "Malaysia stands firm against any individual or company that attempts to circumvent export controls or engage in illicit trade activities" while maintaining the country's adoption of "a neutral position on unilateral sanctions."
The Arm partnership represents a contrast to neighbouring countries' approaches. While Malaysian officials insist it isn't motivated by US-China tech rivalry, the comparison with Shenzhen's evolution in the sector is telling.
As Rafizi Ramli pointed out, Penang’s semiconductor hub predates Shenzhen by nearly seven years, yet the Chinese metropolis pivoted toward increasing local IP ownership in around 2005, so reducing its reliance on foreign technology. Malaysia now seeks to make a similar transition, albeit fifteen years later.
How the Arm initiative will benefit Malaysia's broader economy beyond the semiconductor sector remains unclear. The government has emphasised "prioritising domestic firms in the supply chain" and including "technology transfer and localisation requirements." But the mechanisms for ensuring these benefits extend beyond a small circle of tech companies haven't yet been fully articulated.
For Malaysia to succeed in its silicon ambitions, the $250 million investment in Arm technology has to be matched with sustained commitment to education, infrastructure, and business environment reforms.
The country's ability to convert this latest opportunity into a genuine transformation of its economy will ultimately determine whether this is a pivotal moment in Malaysia's development or another technology initiative that fails to deliver on its promises.
The Arm partnership signals that Malaysia does not wish to be relegated to the sidelines of the semiconductor revolution. In a region increasingly defined by technological competition, Malaysia's silicon gamble has the potential to reshape its economic future, and, potentially, the broader technology and economic landscape across Southeast Asia.
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