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Tengku Zafrul Urges Local Chip Firms to Use Budget 2027 Support to Move Up the Value Chain
Malaysia's semiconductor companies have been told to aim higher. Speaking on 14 October 2026, MIDA chairman Tengku Datuk Seri Zafrul Abdul Aziz urged local firms to use Budget 2027 incentives to move beyond assembly and testing into higher-value activities such as integrated circuit (IC) design, according to Malay Mail and Bernama.
Why the push matters
Malaysia has long been a major player in the back end of the semiconductor industry, especially assembly, testing and packaging. These activities created many jobs, particularly in Penang, Kedah and Selangor. But the highest margins in the chip industry are usually found in design, intellectual property and advanced manufacturing.
Moving up the value chain means building capabilities that are harder to replicate and that capture more value per chip. This has been a recurring theme in Malaysia's National Semiconductor Strategy and recent budgets.
The Budget 2027 support
According to the reports, Budget 2027 includes support for local semiconductor firms through:
- RM1.2 billion to be invested by Khazanah Nasional and KWAP in local semiconductor companies, including a fund focused on Selangor
- A RM100 million Strategic Investment Fund by Khazanah and InvestPenang for early-stage semiconductor and advanced manufacturing firms
We covered the Penang fund in our earlier report on Penang's tech finance plans.
Key takeaway: the money is aimed at helping Malaysian-owned firms grow into design and advanced manufacturing, not just attracting more foreign assembly plants.
Challenges on the road
Moving into IC design is not easy. It requires highly skilled engineers, expensive design software, access to advanced fabrication partners and long development cycles. Talent is often the biggest constraint, with global competition for experienced chip designers.
Policymakers have tried to address this with IC design parks, training programmes and incentives. Selangor, for example, has its Malaysia Semiconductor IC Design Park in Puchong, and the state's leadership has spoken about shifting towards "Designed and Engineered by Malaysia". We look at that in our Selangor IC design report.
Linked to global demand
Global demand for chips, especially those used in AI and data centres, has boosted Malaysia's exports this year. September exports jumped 54.5%, led by electrical and electronic products. This strong demand gives local firms a window to invest in new capabilities while orders are healthy.
Why local ownership matters
Malaysia's semiconductor sector has long been led by multinational companies, which brought investment, jobs and technology. Local firms have grown alongside them, especially in automation, test equipment and services. Encouraging Malaysian-owned companies to move into design and advanced manufacturing aims to keep more intellectual property, profits and decision-making in the country. It also helps build firms that can compete globally on their own, rather than depending entirely on the investment decisions of foreign headquarters.
What it means for Malaysians
For Malaysians, the push to move up the value chain could shape careers and businesses:
- Engineering graduates: demand for IC design, verification and embedded systems skills is likely to grow.
- Universities and TVET: more programmes may align with semiconductor design and advanced packaging needs.
- Local tech SMEs: funding from Khazanah, KWAP and state funds could help promising firms scale.
- Wages: higher-value activities generally support better-paid jobs, though this takes time to filter through.
What to watch
Watch for details on how the RM1.2 billion will be deployed, which companies receive investment and how success will be measured. Progress in attracting and training chip design talent will be the clearest sign of whether Malaysia is truly moving up the value chain.