IoT and AI buy Silterra some time

TheStar Sat, Jan 16, 2021 08:30am - 1 month ago

Silterra Sdn Bhd is the loss-making wafer foundry that Khazanah Nasional Bhd has been trying to dispose since early last year.

THE semiconductor industry went through a major downturn in 2018 and 2019 due to an inventory glut, but it has since started to bounce off from that situation.

The recovery coincided with the global economy’s enemy number one, Covid-19, which sent almost a third of the global workforce scurrying to work from home, but that saw an increased demand in hardware alongside the wide adoption of digital measures.

The protracting trade tensions between the United States and China have evolved the semiconductor supply chain and created a shortage in the market, forcing China to be more self-sufficient and source for alternatives as demand for chips starts to grow alongside the heightening demand for artificial intelligence (AI) and Internet-of-things (IOT) devices, and this is where Malaysia, among other countries, is set to benefit.

Malaysia’s strength in the semiconductor space lies in the back-end of the chain such as packaging, testing and assembly. The nation’s front-end presence comes through Silterra Malaysia Sdn Bhd, which though not in a very good shape, remains a vital component in the electrical and electronics (E&E) ecosystem.

It is the loss-making wafer foundry that Khazanah Nasional Bhd has been trying to dispose since early last year.

Nuglobal Ventures Sdn Bhd sees an opportunity in Silterra due to the new lease of life for 200mm wafer fabs, which is within the chip maker’s manufacturing capability and beyond.

Its director Md Radzi Din (pic below) tells StarBizWeek that the rise in demand for AI and IOT devices has led to a surge in 200mm wafers since 2015 due to its more mature processes and demand for analogue semiconductors.

NGV is an investment holding company that leads a consortium comprising local and foreign investors bidding for Silterra. The majority of NGV is controlled by local and bumiputra shareholders including Radzi, while its foreign partner, Orient Excellent – a China-based private equity fund – holds the remaining stake.

The local funding for the exercise will be provided by a private equity technology fund promoted by Green Packet Bhd, with access to a funding pool of up to RM500mil. The technology fund has received a committed funding of RM100mil from Green Packet while additional funds will come from third-party investors, including Kendall Court Ventures Ltd.

It will provide funding to local and bumiputra shareholders under an arms-length commercial instrument, which will be paid down over time through returns from the investment or other alternative funding secured in the future.

In return, the technology fund will receive periodic coupon or dividends from the local and bumiputra shareholders. “There’s a shortage of 200mm chips in the marketplace, and in fact, some of the wafer fabs are scrambling to install 200mm lines.

“The challenge is that 200mm line equipment is also hard to come by. So, that’s very good news for Silterra in the sense that they have a new lease of life for the 200mm but it does not preclude Silterra from needing to think about the future. They will need a 300mm line eventaully, ” he says.

Radzi adds that what the NGV consortium brings to the table is ensuring that the majority ownership of Silterra remains in local hands with bumiputra ownership. He stresses that it is of national interest for its control to remain local, as Silterra is a strategic national asset that plays a pivotal role in the domestic semiconductor, and by extension, the larger E&E sub-sector.

“Secondly, the consortium will bring in the critical business and technological partner expertise and financial strength to grow and scale the development of Silterra, to achieve sustainable long-term success and contribute to the buoyancy of the semiconductor and E&E ecosystem.

“We have the necessary instruments in place to carry out the needed cash and capital injection into Silterra to deliver the turnaround business plan and future growth that we have in mind, ” he says.

This includes continued financial support to Silterra to navigate changes in market conditions where the company will need to invest and remain relevant and competitive.

Silterra requires cash and capital injection to scale and turnaround, with further investments needed to fuel its future growth.

“This is where the future funding must be in place. What it does with the current AI and IOT demand for the 200mm type of chips rejuvenates its operations and we must use that time to already plan for what’s next.

“It will probably be a combination of the 200mm and the lines will need to be refreshed to make sure we can still produce the highest quality for the 200mm types but we must also look at the 300mm, ” Radzi says.

Explaining further on NGV’s value proposition, Radzi adds that its local and foreign consortium partners have a firm interest in the development of the 2,428ha (6,000 acres) Asia Semiconductor Hub (ASH) in Kulim, in close proximity to Silterra, to create an end-to-end semiconductor ecosystem that will drive technology innovation and spur regional socio-economic growth.

Green Packet, the promoter of the technology fund, via its associate company G3 Global Bhd, is also planning the development of the first AI Park in Malaysia in collaboration with China’s SenseTime Group and China Harbour Engineering Company.

“Both the ASH and AI Park will form a strategic and synergistic triple node with Silterra that will significantly impact the national agenda of IR4.0.

“We are able to visualise and are committed to the opportunities and potential within Silterra, and the larger growth vision that will allow Silterra to maintain its global competitiveness among the world’s largest foundries, bolster its unique position and thereby increase Malaysia’s value-added contribution to the global E&E sector, ” he says.

While Chinese firms are good in product development, they lack in the area of integrated circuit (IC) design and in Penang, there are close to 6,000 IC designers. “We are strong in IC and the front end is relatively weak, but our back-end is very strong. If we make Silterra strong again, the whole value chain will strengthen and the ASH can create a very vibrant northern corridor in the E&E sector, ” he adds.

Radzi says NGV is able to leverage on Green Packet’s extensive telecommunication and technology devices industry expertise with wide local networks in Malaysia, Singapore and China and operational experience in managing global electronic supply chain.

Green Packet’s internal transformation resource and its subject matter partners will also assist NGV to develop a targeted and robust strategic and execution plan for the turnaround and growth of Silterra.

He adds that NGV can also tap on Orient Excellent and other foreign partners which include some of the largest distributors of semiconductor components and electronic conglomerates in China.

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