MACRO INTELLIGENCE MEMO

MALAYSIA: MANAGING SEMICONDUCTOR SECTOR DISRUPTION AND CURRENCY PRESSURE

CONFIDENTIAL - JUNE 2030

Prepared for: Corporate Leaders, Semiconductor Industry Executives, Manufacturing Leaders

Subject: Malaysian Business Navigation of Semiconductor Disruption and Ringgit Depreciation

EXECUTIVE SUMMARY

Malaysian business leaders face dual challenges: the semiconductor sector is experiencing 30% employment disruption and automation pressure, while the ringgit depreciation (12.8%) is inflating import costs and reducing consumer purchasing power. Unlike the catastrophic disruptions in Philippines, Vietnam, or Thailand, Malaysia's challenges are more narrowly focused and potentially recoverable. Business leaders must manage cost structures for a lower-demand environment while positioning for potential recovery.

THE OPERATING ENVIRONMENT CHANGE

Pre-2030:

• Semiconductor demand: Growing 4-6% annually
• Manufacturing utilization: 85-90% of capacity
• Currency: Stable at approximately 4.38 MYR/USD
• Consumer spending: Growing 5-6% annually

June 2030:

• Semiconductor demand: Down 18-22%
• Manufacturing utilization: 62-68% of capacity
• Currency: Depreciated to 4.95 MYR/USD
• Consumer spending: Down 25-30% in urban centers

The operating environment has inverted from growth to contraction.

THE SECTORAL IMPACTS

Semiconductor ATP sector:

• Facility utilization: Declined to 62-68% of capacity
• Workforce: Reduced 30% (from 280,000 to 195,000)
• Pricing pressure: Customers demanding 15-20% price reductions
• Cost structure: Fixed costs (facilities, overhead) cannot be reduced proportionally

Electronics manufacturing:

• Component demand: Declined 22-28%
• Pricing pressure: Intense, as customers attempt to reduce costs
• Workforce: Reduced 20-26%

Consumer goods companies:

• Sales volumes: Declined 24-32% due to consumer spending contraction and currency inflation
• Gross margins: Compressed by currency-driven input cost inflation
• Pricing power: Limited due to weak consumer demand

THE STRATEGIC RESPONSE OPTIONS

Capacity reduction:

The primary response among semiconductor companies is aggressive capacity reduction—shuttering underutilized facilities, reducing workforce, consolidating operations.

Cost reduction:

Aggressive cost reduction across all categories. However, fixed costs constrain the ability to reduce cost proportionally with revenue decline.

Debt restructuring:

Some companies are approaching creditors for debt restructuring as debt service becomes challenging in lower-revenue environment.

Investment in automation:

Some companies are investing in automation to reduce labor costs and improve competitiveness. However, capital availability is constrained.

Reorientation toward higher-value operations:

Some semiconductor companies are attempting to shift toward higher-value operations (chip testing for AI chips, advanced packaging) rather than commodity ATP operations.

THE CURRENCY ADVANTAGE/DISADVANTAGE

The ringgit depreciation creates mixed impacts:

Advantages:

• Export competitiveness: Depreciation makes Malaysian exports more price-competitive in global markets
• Cost advantage: Depreciation reduces labor costs in ringgit terms for Malaysia-based companies
• Inbound investment: Depreciation makes Malaysian acquisitions more attractive for foreign investors with strong currencies

Disadvantages:

• Import inflation: All imported components, raw materials, and consumer goods become more expensive
• Competitiveness deterioration: Companies importing components face higher costs, reducing margins
• Consumer purchasing power: Depreciation reduces consumer purchasing power, contracting demand
• Debt service: Companies with USD-denominated debt face higher ringgit-denominated debt service

For semiconductor ATP companies, the disadvantages (import inflation, lower demand) outweigh advantages.

THE FINANCIAL SERVICES RELATIONSHIP

Malaysian companies facing revenue/profit deterioration are engaging with banks on debt restructuring:

Dynamic: Banks are simultaneously managing rising non-performing loan portfolios. Creditors are generally willing to work with borrowers on restructuring but have limits to forbearance.

Timeline: Companies should approach creditors proactively now (June 2030) rather than waiting until defaults occur. Early engagement improves negotiating position.

THE LABOR MANAGEMENT CHALLENGE

Malaysian companies are managing workforce reductions:

Scale: Reductions of 25-35% across many companies

Challenges:

• Severance obligations
• Navigating labor laws and union relationships
• Retaining critical skills while reducing workforce
• Community relationships and social license

Wage pressure: Downward wage pressure is evident, but aggressive wage cuts risk losing skilled workers.

THE STRATEGIC POSITIONING

For Malaysian business leaders:

Immediate (2030-2031):

• Preserve cash aggressively
• Right-size operations to match demand levels of 65-70% of 2029
• Approach creditors proactively for debt restructuring
• Evaluate strategic alternatives (consolidation, sale, repositioning)
• Invest modestly in automation where capital-efficient

Medium-term (2032-2033):

• Position for semiconductor demand recovery (if it occurs)
• Have right-sized cost structure for lower-demand environment
• Completed consolidation with competitors or divested underperforming operations
• Built automation capability for competitiveness

Long-term (2034+):

• Positioned to benefit from semiconductor demand recovery
• Have built higher-value operations (advanced packaging, testing for AI chips)
• Have differentiated from commodity ATP competition

THE CONSOLIDATION OPPORTUNITY

For well-capitalized Malaysian companies, the disruption creates consolidation opportunities:

• Acquire underutilized ATP facilities at 35-45% discounts from distressed competitors
• Consolidate operations and reduce fixed costs
• Emerge with larger market share and lower cost structure

Consolidation is a strategic opportunity for strong companies.

THE RECOVERY POSITIONING

Unlike Philippines, Vietnam, or Thailand where recovery prospects are uncertain, Malaysia's semiconductor-dependent companies can reasonably position for recovery:

Thesis:

1. AI chip demand supports semiconductor demand recovery by 2032-2033
2. Malaysian ATP sector benefits from recovery
3. Companies that survive the downturn with sustainable cost structures will be well-positioned

This thesis is conditional on semiconductor demand recovery occurring as assumed.

CONCLUSION

Malaysian business leaders face challenging but potentially manageable conditions. The semiconductor sector disruption is severe (30% employment reduction) but is narrower in scope than disruptions in other markets and potentially recoverable.

Companies must right-size operations for lower demand while positioning for potential recovery. Unlike other markets where business models are structurally broken, Malaysia's challenges are more cyclical and recoverable.

The challenge is to survive the 2030-2032 period with sustainable cost structure and competitive positioning to benefit from recovery.

THE 2030 REPORT June 2030