[Asia Report] "Singapore, Malaysia, Indonesia" Semiconductor Rivalry: Which Will Become Southeast Asia's AI Capital?

Malaysia Supplies 13% of Back-End Processes
Taiwanese and Chinese Diaspora Connection Forms Semiconductor Alliance
TSMC-ASE Group Leads Globally
Strategic Non-Alignment Also Targets China
Indonesia, Rich in Renewable Energy,
Emerges Rapidly in the Global Data Center Market
Singapore Aspires to Become a 'Smart Nation'

"These days, Southeast Asia is also buzzing with talks about AI and semiconductors. Everyone competitively emphasizes their ties with Nvidia, which has become the world's best. Especially since CEO Jensen Huang is of Taiwanese Chinese descent. The Chinese diaspora is centered in Southeast Asia."

It is an era where the rise of artificial intelligence (AI) and the semiconductor industry is reshaping the global economy everywhere in the world, prompting rapid restructuring of industrial policies. Usually, the US-China conflict takes center stage, with East Asian countries like South Korea, Japan, and Taiwan quietly joining the competition. It is interesting that Europe is absent, and at the same time, there is a strong stereotype that Southeast Asia is completely unrelated to the semiconductor war. But is that really the case?

At the end of last year, Nvidia CEO Jensen Huang toured Southeast Asia, drawing attention by emphasizing the importance of Southeast Asia in terms of technology and environment. In fact, Southeast Asia's presence in the global semiconductor industry is hard to ignore and is actually growing day by day. For example, in the semiconductor industry, Malaysia supplies about 13% of the 'assembly-packaging-testing' sector, commonly called the back-end process. Singapore accounts for about 11% of the world's semiconductor production, making it a strong player. Although most of this is limited to mid-to-low-end automotive semiconductors, it is not negligible. Additionally, Indonesia, a resource and manpower powerhouse, is stepping up its challenge. There are more reasons than expected to pay attention to the 'Southeast Asian semiconductor' industry, which may still seem like a toddler stage to Korean eyes.

◆Strategic Non-Aligned Region＝Malaysia's semiconductor industry began in earnest in the 1970s centered on Penang Island, accumulating know-how in the labor-intensive back-end process sector. In 2021, Intel invested $7 billion to build advanced packaging facilities in Penang, which has now been elevated to Southeast Asia's Silicon Valley. AMD, led by Taiwanese Lisa Su, also has a large factory here.

Among various multinational companies, ties with Taiwanese IT firms are especially strong. It is no exaggeration to say that TSMC, the world's number one system semiconductor company, and ASE Group, a back-end process leader, have led Malaysia's semiconductor industry since the 1990s. Many experts analyze TSMC's recent outstanding achievements in AI semiconductor chips as due to "Malaysia's back-end process capabilities." This implies that Samsung's sluggishness is due to neglect in investment and management in the back-end process sector. Taiwanese companies have partnered with Malaysia to overcome their weaknesses. The so-called 'Taiwan-Malaysia alliance' dominates the global semiconductor industry.

[Asia Report] "Singapore, Malaysia, Indonesia" Semiconductor Rivalry: Which Will Become Southeast Asia's AI Capital?

Malaysian Prime Minister Anwar Ibrahim and NVIDIA CEO Jensen Huang (right) are meeting in Putrajaya, the administrative capital of Malaysia, in December last year. Photo by Anwar, Malaysian Prime Minister's official Facebook.

The primary reason Taiwanese companies prefer Malaysia is the "Chinese diaspora connection." Malaysia has a high proportion of Chinese diaspora population, approaching 40% of the total. Thanks to this, both Chinese and English are used, making talent attraction easier. The country also has good infrastructure such as ports, airports, and highways, and an efficient logistics network, which is advantageous for attracting advanced manufacturing industries. Above all, its geopolitically neutral position is one of the attractions preferred by global IT companies. Malaysian Prime Minister Anwar Ibrahim has promoted his country as the most suitable 'neutral' nation in the global semiconductor industry amid the intensifying US-China tech war.

"I propose Malaysia as the most neutral and non-aligned semiconductor production site to build a safer and more resilient global semiconductor supply chain."

Prime Minister Anwar announced a national semiconductor strategy earlier this year, presenting a vision to secure at least $160 billion in new investments. No matter how much the US emphasizes containment of China, China remains one of the largest chip consumers worldwide and an indispensable second market for companies like Nvidia and TSMC. Despite US checks, Malaysia's geopolitical status as precisely neutral underpins calculations of long-term benefits. As a result, the entire Southeast Asia region is attracting attention as a strategic investment destination for global IT companies targeting both the US and China simultaneously.

◆Surging Demand for Renewable Energy＝Recently, Southeast Asia has gained attention as an IT investment destination partly due to its abundant renewable energy resources. The hot sunlight, abundant water sources, and vast land are essential environments for semiconductor assembly and data center operations. Especially, data centers require enormous power, and renewable energy rather than fossil fuels is essential. This is also why Indonesia has recently emerged as a strong dark horse in the global data center market.

Last year, Nvidia announced a comprehensive partnership including a $4.3 billion investment with Malaysia's infrastructure giant YTL Power to build AI infrastructure. YTL is a public infrastructure company comparable to a combination of Korea Electric Power Corporation and KT (Korea Telecom) in Korea. The AI infrastructure at YTL's Green Data Center in southern Johor is a state-of-the-art facility powered by 500MW of solar energy. Malaysia has also expressed ambitions to build data centers powered by renewable energy throughout its industrial complexes.

Jensen Huang stated, "AI computing requires comprehensive access to infrastructure such as land and power, which is why Malaysia's YTL is essential," and added, "Combining Malaysia's excellent manufacturing environment with Nvidia's data center technology can make Malaysia a hub for manufacturing AI."

Singapore is enticing Nvidia in a somewhat different context from Malaysia and Indonesia. Singapore is famous for its world-class infrastructure and status as a global financial and technology hub. It already hosts major semiconductor companies like GlobalFoundries and STMicroelectronics, and recently, companies such as the US's GlobalFoundries, Germany's Siltronic, and major semiconductor firms from China and Taiwan have invested billions of dollars.

Furthermore, in AI industrial policy, the Singapore government and universities support innovation and research and development (R&D) generously. Through this, Singapore aims to transform its status from a traditional oil and commodity trading hub to Asia's representative "smart nation" as an AI and semiconductor technology hub.

Indonesia, which recently focused on relocating its capital, has admittedly fallen behind in the recent fierce industrial transformation competition. It lacks existing advanced chip manufacturing facilities and experience in large-scale electronics industries. However, the Indonesian government is also rapidly pushing changes, fearing that falling behind the changing trends would lead to a decline in national competitiveness. First, it plans to leverage its overwhelming raw materials, i.e., natural resources. Last year, it received a $11.5 billion investment from Chinese glass company Xinyi to build a large-scale sand-quartz processing plant on Rempang Island. Quartz is an indispensable core raw material for semiconductor and solar processes.

In addition, the Indonesian government is actively promoting data center construction. It advertises that it can provide more efficient renewable energy and larger center sites than neighboring Malaysia, tirelessly seeking investors. The Prabowo administration, which will take office this October, is expected to be more proactive in this field. This urgency stems from the realization that without leadership in AI and semiconductor industries, the country's future cannot be guaranteed. The 'semiconductor war' among Singapore, Malaysia, and Indonesia in Southeast Asia is unfolding as fiercely as that among South Korea, China, and Japan.