ARM-ing for the future

SOMETIMES, the show just must go on.

Irrespective of any political changes, well-thought through policies and agreements need to be seen through for the good of the country.

The agreement that the Malaysian government inked with Arm Holdings Plc in March is one such deal.

In essence, it entails Malaysia spending US$250mil over the next decade to secure heavily discounted intellectual property (IP) for integrated circuit (IC) design from Arm, which in turn will be provided to deserving Malaysian companies.

After the minister overseeing the deal left his post, there had been some grumblings on social media questioning the deal, raising the prospect of questionable practices having taken place.

All financial aspects of the deal and all the officers involved must have been thoroughly vetted. And no proof of any wrongdoing has come out.

No wonder then, it seems as if the show is really taking off – which is great news.

One of Malaysia’s most promising IC design firms, SkyeChip Sdn Bhd, in partnership with a foreign company, has been chosen as the first company to receive Arm IPs from the deal.

Eight others have applied for Arm IP and are being vetted by a committee made up of various government agencies.

Among the criteria being applied is that the applicant has a ready buyer for its eventual chip design and for an assurance that the design house will choose local players for testing and packaging work.

This way, Malaysia gets to capture the value chain.

Currently, foreign design houses decide where to package chips. If they choose Vietnam or Philippines, local players lose out, regardless of capability.

SkyeChip Bhd, enroute to a floatation on the local stock market, saw its revenue grow significantly, from RM57mil in financial year 2023 (FY23) to RM120mil in FY25.

Net profits increased from RM29mil to RM36mil over the same period.

It is also backed by some big name venture capital firms.

Neither these firms or the major shareholder are exiting at the IPO.

All these indicate that SkyeChip is indeed one of the more promising design houses in the country.

What is equally significant is that the company revealed in its draft prospectus that it was applying for some of the Arm IP under the Malaysian government programme.

The software tools are meant to help SkyeChip in its plans to design and develop new high-performance central processing unit and artificial intelligence (AI) platforms.

This explanation is significant because to the uninitiated, IC design and its design software can sound lofty.

SkyeChip’s example is proof that it is very much real and potentially lucrative for Malaysian companies.

Indeed, the deal that the government struck with Arm wasn’t borne out over just a few meetings.

A lot of thought had gone into the early stages of figuring out why this strategy is important.

Going back into history, Malaysia successfully caught the first major semiconductor wave, becoming one of the world’s most important back-end manufacturing hubs.

From the 1970s through the 2000s, multinational giants like Sony, Motorola, Intel and Western Digital built major operations here.

Malaysia became synonymous with assembly, testing and packaging, and this manufacturing base later gave rise to homegrown names such as Inari Amertron Bhd, ViTrox Corp Bhd and Pentamaster Corp Bhd.

It is not for lack of trying, but Malaysia has struggled to progress beyond its long-standing role as a back-end player. Unlike Taiwan, South Korea or even Vietnam in more recent years, Malaysia has not succeeded in building a meaningful front-end ecosystem.

In the absence of a strong IC design ecosystem, there is no demand catalyst to propel Malaysia’s back-end players into advanced packaging.

This structural gap has become sharply visible in the present wave of AI. The global AI boom has unleashed unprecedented investment into next-generation chips and, with it, soaring demand for advanced packaging.

Yet Malaysia has been almost entirely absent from this value chain.

What activity Malaysia does capture remains limited to the lower end of the chain.

Some electronics manufacturing services firms assemble AI servers, but the key components arrive fully-built from abroad.

As a result, Malaysia’s role is largely mechanical.

Even as data centres proliferate in the country, the semiconductor value underpinning them continues to be generated elsewhere.

This is the gap that the Arm deal seeks to address.

Unlike episodic subsidies to multinational chipmakers, the Arm initiative aims to solve the fundamental deficiency in Malaysia’s semiconductor structure – the absence of homegrown IC designs.

Chip technology provider Arm owns a broad portfolio of chip IP used across communications, automotive systems, robotics, cybersecurity, gaming devices and high-performance computing, the world over.

By establishing an Arm presence and supporting local access to its design tools, Malaysia is one step closer to spurring the development of local IC design firms at a meaningful scale.

The Arm deal is also unique, in the sense that it is Arm’s first-ever country-level partnership, where a sovereign government obtains direct access to Arm’s technology and IP to build a national IC design ecosystem.

If successful, it would shift Malaysia from being merely a manufacturing base to becoming a contributor to the technology that powers the world’s next generation of intelligent systems.