By Ying Xian Wong

KUALA LUMPUR, Malaysia--Malaysia has entered a pact with British chip designer Arm Holdings for access to its advanced technology, as the Southeast Asian country seeks to strengthen its role in the upstream semiconductor supply chain and shift into high-tech industries.

The country signed an agreement Wednesday to pay SoftBank Group-owned Arm $250 million over 10 years for intellectual-property access, covering seven compute subsystems and the Arm Flexible Access program.

The deal is expected to drive Malaysia, whose semiconductor sector has traditionally focused on midstream and downstream operations, toward its goal of advanced chip production.

As part of the collaboration, Arm will train 10,000 chip engineers and support the development of locally designed semiconductor products, Prime Minister Anwar Ibrahim said in a speech.

Arm will also set up its first Southeast Asian office in Malaysia's capital to strengthen its presence and expand its reach to the region, Australia and New Zealand, Anwar said.

Malaysia is the world's sixth-largest exporter of semiconductors, accounting for 13% of the global assembly, testing and packaging market, according to Maybank analysts. Major players like Intel and Infineon have operations in the country that mainly involve chip production.

Economy Minister Rafizi Ramli stressed the need to move beyond manufacturing to upstream activities, such as developing intellectual property. Malaysia must shift from back-end semiconductor operations, which capture just 5%-10% of value, to integrated circuit design, which holds over 60% of the supply chain value, and expand into emerging fields such as artificial intelligence, robotics, autonomous vehicles and Internet of Things, he said.

Government-subsidized frontier IPs will help local semiconductor companies by reducing research and development costs, accelerating time to market and reducing design risks, Rafizi told a media briefing before the signing ceremony. The initiative has a target of producing a Malaysian-made chip within five years, he said.

According to his ministry, each of the seven compute subsystem licenses could generate up to $30 billion in annual returns if successfully commercialized by Malaysian companies.

Rafizi dismissed speculation that the partnership was a response to the U.S.-China trade war, saying it was "purely academic" and essential for Malaysia to boost its position in the global chip supply chain.

As tensions between Washington and Beijing rise, Malaysia has become one of the destinations for many tech companies seeking to diversify away from China. The country has attracted the likes of Microsoft, Google and ByteDance, with recent large-scale investments focused on AI infrastructure. Last May, the government committed at least $5.3 billion to develop its semiconductor ecosystem, including AI initiatives and integrated circuit design parks.

Yet, potential U.S. tariffs under the Trump administration pose risks.

Malaysia ranks third in Asean for a trade surplus with the U.S., and a proposed 25% tariff on high-tech products could hit chip exports, HSBC economists Yun Liu and Madhurima Nag said in a recent note. However, Malaysia's strong domestic consumption and investment growth could help offset external risks, they said, projecting GDP growth to moderate to 4.8% in 2025 from 5.1% last year.

Write to Ying Xian Wong at yingxian.wong@wsj.com

(END) Dow Jones Newswires

March 05, 2025 05:49 ET (10:49 GMT)

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