Analysts have foreseen risk-fraught recovery for Malaysia’s technology sector in 2026, despite positive global growth tailwinds and improving second half (2025) revenue growth momentum amongst domestic backend players.
CGS International said in a recent report that despite third quarter (2025) record turnover delivery and improving orderbook visibility by heavyweights across the supply chain, margin compression from cost elevation and higher tax charges continues to weigh on earnings growth – it expects this to continue into 2026 with higher effective tax rates (ETRs) expected in 2026 as pandemic era tax incentives expire.
“Outsized exposure to a globally weak automotive industry could also weigh on operating margins for some players,” it added.
Meanwhile, the World Semiconductor Trade Statistics (WSTS) has forecasted global semiconductor sales growth to surge by 26 percent year on year in 2026.
“While global growth will largely be driven by sustained demand robustness in leading edge logic/memory ICs, we expect domestic downstream players that are primarily concentrated in lagging edge integrated circuits (ICs) (analogue, micro) as well as discrete, optoelectronics and sensors to only grow modestly – the WSTS expects these five sub-categories to grow by about 5 percent to 10 percent in 2026,” said CGS International.
Meanwhile, the research house expects a more sanguine 2026 on the trade policy front with the recent signing of the USMART post-ASEAN Summit that effectively exempts US-bound semiconductor exports from Malaysia being levied the 19 percent reciprocal tariff.
It noted a dovish US Federal Reserve easing interest rates is also accommodative for the cyclical, high-growth/beta technology sector, albeit partially offset by the impact of a declining US dollar versus Malaysian Ringgit that could weigh on exporters’ toplines.
MBSB Research also said in a recent report that while WSTS’ 2026 projection the global semiconductor sales is expected to grow at a faster pace, the research house viewed that this is primarily contained to the artificial intelligence (AI) space.
“The macro factors are also another element to keep abreast of due to the potential disruption,” it noted.
However, on the local front, it said that Malaysian government are putting efforts to support and growth the semiconductor industry.
This is expected to ease some of the difficulties the local semiconductor companies are facing, it added.
Looking at the end market, MBSB said the smartphone market could face further challenges in 2026, led mainly by the significant hike in memory price.
“Thus, we view that having presence in the premium smartphone segment may be crucial to alleviate this concern,” it said.
On another note, it highlighted that outlook for the automotive segment remains uncertain at this juncture, owing to economic headwinds, trade wars and supply chain challenge.
“We opine that 2026 car production may be stagnant at best,” it said.
While AI remains the key catalyst, MBSB said the local semiconductor companies has limited involvement at this juncture.
“We anticipate that there could be a more widespread positive spillover impact should the growth of AI is being supported by frontier technology,” it added.
While the WSTS’s projected semiconductor growth is anticipated across all products segments, MBSB noted that the pace of growth varied.
The IC product segment is expected to grow at the fastest pace, supported mainly by memory and logic at 39.4 percent year on year and 32.1 percent year on year respectively.
“We opine that AI and high-performance computing (HPC) could be the major drivers for high-end logic process chips, high bandwidth memory (HBM) and high bandwidth flash (HBF),” MBSB said.
Meanwhile, according to the research house, other segments are expected to grow at a more modest pace, with the optoelectronic segments are forecasted to grow by 5.7 percent year on year only.
This could be due to the weakness in the automotive applications.
“Given that the local outsourced semiconductor assembly and test (OSAT) companies have minimal exposure to the AI supply chain at this juncture, we do not expect a strong recovery in 2026,” said MBSB.
The research house also noted that the impact of the tariff war seems to have eased.
“However, there is now a quest for semiconductor self-sufficiency. This is mainly led by growing geopolitical tension, national security concerns as well as the previous incident of supply disruptions emanated from the Covid-19 pandemic,” it noted.
According to MBSB, there is a geopolitical chessboard with the U.S, China, Taiwan, the European Union, Japan, South Korea and India being the key players.
It is noted that the U.S has formed strategic alliance with Japan and the E.U. to limit China’s access to the latest cutting-edge technologies.
“In this regard, Malaysia has positioned itself as a neutral geopolitical hub to attract semiconductor investment amidst the global tech rivalry,
“However, we anticipate any escalation in the geopolitical war could have a negative indirect impact on the local semiconductor industry,” it added.
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