Malaysia’s growing role in advanced semiconductor packaging could help the country capture more value from the artificial intelligence (AI) boom, but the next challenge will be ensuring that foreign investment translates into higher domestic productivity, technology ownership and skilled employment, the ASEAN+3 Macroeconomic Research Office (AMRO) said on Tuesday.

In a commentary, AMRO said Malaysia had evolved significantly since Intel opened its first overseas manufacturing facility in Penang in 1972, when the country’s role was largely focused on assembling chips designed and fabricated elsewhere.

More than five decades later, Intel is completing an advanced packaging complex in Penang, reflecting Malaysia’s move towards more sophisticated semiconductor manufacturing.

Advanced packaging integrates multiple specialized chips into a single package and is becoming increasingly important as conventional transistor scaling becomes more difficult and expensive.

By bringing processors, memory and other specialized chips closer together, advanced packaging can improve data-transfer speeds and power efficiency, which are increasingly important for AI applications.

AMRO said Malaysia participates in several parts of the wider AI hardware ecosystem, although its gains from the AI boom have so far come mainly from the hardware surrounding AI accelerators rather than from producing the accelerators themselves.

The broader ecosystem includes memory, storage, high-speed networking, optical connections, power-management chips, cooling systems, servers and data centers.

Investment by major cloud-computing companies has also driven rapid data-center development, particularly in Johor.

Intel leads advanced packaging push

Intel’s Penang project illustrates the scale of Malaysia’s shift into advanced packaging.

Announced in 2021 as part of a US$7 billion investment in Malaysia, the complex includes a 710,000 square feet cleanroom. Intel’s advanced packaging technologies include EMIB, which connects chiplets within a package, and Foveros, which stacks chip components vertically.

Following delays, the first phase of the complex is expected to begin advanced packaging operations later in 2026, AMRO said.

Other semiconductor companies are also expanding their packaging capabilities in Malaysia.

Taiwan-based Chipbond opened a Penang facility in February 2026 offering advanced wafer bumping and wafer-level chip-scale packaging. These processes involve adding microscopic electrical connections and packaging chips before individual dies are separated from the wafer.

SPIL is developing a major packaging and testing facility expected to introduce similar capabilities, while ASE has continued expanding its established presence in Penang.

AMRO said these investments could move Malaysia’s production frontier by bringing more sophisticated manufacturing, process engineering and testing activities into the country.

They could also create skilled jobs and deepen Malaysia’s industrial capabilities.

However, the research body cautioned that upgrading remains predominantly foreign-led.

Multinational companies generally retain ownership of products, process technologies, intellectual property and major customer relationships.

As a result, Malaysia could move up the semiconductor value chain without necessarily retaining a proportionate share of the profits or strategic control generated by the activities.

Domestic value capture key

AMRO said the economic question should therefore extend beyond where chips are packaged.

The key issue is whether foreign investment raises domestic productivity and wages, strengthens technological capabilities and increases domestic value added.

This will depend on how deeply multinational companies embed higher-value activities in Malaysia and whether those capabilities spread to local companies and suppliers.

AMRO identified two complementary policy priorities.

The first is to deepen the role of multinational companies in Malaysia. Investment incentives could be linked not only to capital expenditure but also to process engineering, package design, product development, workforce training, research collaboration and the qualification of Malaysian suppliers.

The objective would be to make Malaysian operations more technologically important within companies’ global networks, potentially making them more difficult to relocate.

The second priority is to develop capabilities that can be owned by Malaysian companies.

AMRO said opportunities could include specialised chip and package design, testing equipment, automation, inspection systems, precision components, factory software and selected semiconductor materials.

While these activities may attract less attention than a leading-edge semiconductor fabrication plant, they could provide greater opportunities for domestic ownership of technology and intellectual property.

Consortium seeks to build local capabilities

The Malaysia Advanced Packaging Consortium is one initiative aimed at developing these domestic capabilities.

Its members — SkyeChip, Inari Technology, FusionAP, Pentamaster Instrumentation and NSW Automation — bring together expertise in chip and chiplet design, semiconductor assembly, automated testing, precision equipment and advanced packaging process development.

AMRO described the consortium as a promising experiment, but cautioned that it remains an early-stage platform and does not yet demonstrate that Malaysia has established a home-grown frontier capability.

Its success will depend on whether collaboration can result in customer-qualified processes, defensible intellectual property and commercial customers.

AMRO also stressed that technology spillovers do not occur simply because foreign and domestic companies operate in the same industrial ecosystem.

They arise when Malaysian engineers gain advanced production experience, local companies co-develop solutions with multinational customers and domestic suppliers become qualified to participate in global programmes.

Measuring Malaysia’s AI gains

AMRO said Malaysia’s success should not necessarily be measured by whether it eventually manufactures a leading AI accelerator.

A more immediate test is whether the country can use foreign investment to bring advanced packaging, product engineering and research capabilities into Malaysia while connecting these activities with Malaysian-owned companies in areas such as design, equipment, automation and testing.

Intel’s investment could deepen the technological sophistication of semiconductor production in Malaysia, while the Malaysia Advanced Packaging Consortium represents an effort to increase the share of those capabilities owned by Malaysian companies.

The two developments therefore highlight two dimensions of industrial upgrading, AMRO said: how advanced production in Malaysia becomes and how much economic value and technological capability the country retains as the AI investment cycle develops.

AMRO flags resource strains, limited spillovers from Malaysia data centers