BRIEF ON THE INFORMATION AND COMMUNICATIONS

TECHNOLOGY (ICT) INDUSTRY

Overview of the ICT Industry

The ICT industry is a growth industry in Malaysia and worldwide. The

trend towards extensive application of the electronics and the
development of the multimedia/information and communication
technology industries, provide ample growth potentials for the industry
in Malaysia. Among the potentials growth areas are in computer and
computer peripherals, multi media products and telecommunication
equipment.

The ICT industrys export performance has been increasing

steadily over the years from RM35.3 billion in 1998 to RM46.9
billion in 2002 and RM51.8 billion in 2003. Major export destinations
were the traditional markets such as USA, Japan, Singapore and
Hong Kong. Malaysia is a net exporter of ICT products of RM28.3
billion in 2002 and RM33.8 billion in 2003. Imports of ICT products
which

consist

of

computers,

servers,

mainframes

and

telecommunication equipment totalled RM18.6 billion in 2002 and

RM18.0 billion in 2003. Major imports for computer and computer
peripherals were sourced from China, Singapore and USA, while
telecommunications products were imported mainly from China,
Japan and Korea.

Current Status

Industry Structure

The ICT industry covers hardware, software and Research and

Development (R&D) sectors. These sectors are further classified
into sub-sectors as follows:-

Hardware
-

Computer and computer peripherals and data storage

devices (products such as computer, monitors, keyboard,
printers, disk drives);

Telecommunications

equipment/devices

(such

as

telephone, mobile phone, switching equipment and

transmission equipment).

Software

Software development activities (such as accounting

software,

management

software

and

geographical

software).

R&D

Design and development activities of hardware and

software system.

P ho t on ics /Op t oelec tro nics/ Opt ic al Fibr es an d Ca ble s

Computer and computer peripherals

P r oje cts ap pr oved

13 9

P la nt s in Op er at io n

54

Computer and computer peripherals are

produced mainly by two

major global computer manufacturers, Dell and NEC. These

companies started manufacturing personal computers (PCs) but have
since then moved up the product value chain to diversify into
higher value added products such as laptops/notebooks. Dell,
currently the worlds largest PC supplier has shifted most of their
manufacturing facilities including the manufacture of high end network
computer servers to Malaysia. Presently, Dell Malaysia supplies up to
98 per cent of the Dell PC market in the USA. To further strengthen
their competitiveness, Dell and NEC have positioned their operations
in Malaysia as premier sites in the Asia Pacific region by
integrating manufacturing related services such as R&D, logistic
supply chain capabilities, treasury and fund management activities,
technical services and support facility,

and sales and marketing

centre. Such activities were undertaken to add value to the core

manufacturing activities in order to improve their supply chain, reduce
inventory levels and to enhance customer services.

Other multinational companies, namely Inventec and SCI are

contract manufacturers producing notebooks for Hewlett-Packard
and PCs for IBM respectively, for the local and ASEAN market. The
presence of MNCs has made Malaysia a net exporter of computer
and computer peripherals valued at RM22.1 billion in 2002 and
RM22.6 billion in 2003. Exports in 2002 and 2003 were valued at
RM27.6 billion and RM28 billion while imports were valued at RM5.5
billion and RM5.4 billion respectively. Local participation in this

sector is represented by four (4) Malaysian companies, namely

Nascom (PCs), FTEC (PCs, notebooks and servers), MIMOS
(PCs) and i-Berhad (PCs and notebooks). These companies are
producing Malaysian brands for both the domestic and export
markets. There are also a number of smaller companies undertaking
assembly operations mainly for the domestic market.

The presence of these manufacturing establishments with a combined

output of about 5.1 million units per annum, have encouraged other
leading MNCs to cater to their requirements for processors
(Intel), motherboard (SCI), hard disk drives (Western Digital),
keyboards (Fujitsu and Mitsumi), printers (Solectron, Flextronics)
and batteries (Sony and Matsushita). Some have expanded their
operations in the country to cater to their requirements. More
importantly, it had helped to develop local competency among a
number of local vendors and component parts suppliers such as
Unico Technology (motherboards, monitors); Qualitek (PCB);
Likom Casings (computer casing); ENG Technology and LKT
Automation (precision parts and components); Sanmatech, KESP
and Globetronics (system integration and ICs); and Professional
Tools and Dies (casing). The benefit of a pool of suppliers in this
sub-sector is reflected in the high local content for PCs, which is
about 55 - 60 per cent and 30 - 40 per cent for laptops/notebooks
as LCD monitors are mainly imported. In the case of servers, it is
close to 14 per cent since HDDs, motherboards and processors are
all imported.

The fairly established supplier base in the computer and computer

peripherals sub-sector has encouraged the production of higher end
products such as computer servers, personal digital assistant (PDA),
multifunction printers, hard disk drives for notebooks and servers,
digital versatile discs (DVD) and DVD drives.

Malaysia currently ranks third in the world for the production of

HDD for desktop computers. The recently approved expansion
project with an investment of RM1.2 billion would be the first project in
Malaysia for the production of new generation and higher technology
HDDs for servers and laptops and it will also increase the companys
local sourcing to about 50 per cent.

Telecommunicat ion

P r oje cts ap pr oved

12 6

P la nt s in Op er at io n

80

In the telecommunication sub sector, the modernization of

telecommunication infrastructure in Malaysia and the surrounding
region has provided excellent opportunities for the development of the
telecommunication industry. The continuous upgrading of the
technology by Telekom Malaysia, the main telecommunication
service provider, Celcom, Maxis and Digi has created opportunity for
local companies such as Sapura Telecommunication and Alif
Telecommunication; joint venture companies such as Pernec,
Alcatel, KUB-Fujitsu and Marconi to established themselves as
major manufacturers in the country producing switching
equipment, transmission equipment/devices, radio base stations
and digital wireless transceivers. Initially catering for domestic

markets, these companies have steadily ventured into export markets

and together with MNCs such as Motorola, Ranger Communication,
Flextronics, Matsushita and Sanyo have contributed significantly
to the Malaysian exports. Exports in this sub-sector were valued at
RM19.3 billion in 2002 and RM17.8 billion in 2003. It is important to
note that Malaysia is a net exporter of telecommunication
products, whereby import was RM13 billion in 2002 and RM10.6
billion in 2003.

Motorola

Technology,

one

of

the

worlds

leading

telecommunication technology companies has an operation in

Penang since 1974.

Starting with the production of pagers and

walkie-talkie, the company is now producing world class made in

Malaysia digital radio communication systems. The company has
integrated value added activities such as product development,
manufacturing, distribution, service and support functions at the
existing facility. It has a strong R&D set-up that produces locally
designed digital walkie-talkie for the world market. Motorola has also
been very active in the local vendor development program and has
created

several

established

local

vendors

such

as

BCM

Electronics Corp. (printed circuit board (PCB) assembly, mobile 2 way

radio and microphone), Qualitek Electronics and MFS Technology
(multilayer PCB), Green Point Precision (precision plastic parts), Qdos
Flexcircuits (flexible PCB) and Centurion Wireless Components
(antenna and battery).

Flextronics Shah Alam is the first major producer of mobile phones in

the country since taking over the operation from Ericsson in 2001. The
company is a major contract assembler of leading brands of mobile
phones and is the biggest producer in the South East Asia region.
Most of the products are for export market. The companys exports in

2003 was RM2.1 billion and is projected to increase to RM2.6 billion in

2004.

New and emerging telecommunication technology capabilities like the

2nd generation (2G) and 3rd generation (3G) broadband networks,
wireless application protocols (WAP) and Bluetooth are expected to
enhanced the usage of wireless communications. Wireless technology
will be the high growth sector offering opportunities for the
manufacturing of its devices, equipment and software.

IC T Softw ar e

P r oje cts ap pr oved

76

P la nt s in Op er at io n

45

In ICT software, as at 2003 there were more than 40 non MSC

companies which were approved with incentives for software development
and were producing various software such as engineering and specific
applications and business applications, content development, internetbased business ( e-c omm erce s er v ic e/ s olu t ion p ro vid er s an d
ap plic at ion

se rvic e

pr od uc t ion / pos t

p ro v ide rs ),

sys t ems

pro duc t io n/ an im at io n.

int e gr at io n

an d

Among the major

Malaysian companies which produce software are Computer Protocols

and

Prestigious

Discovery,

S of tw ar e

A ll ian c e

an d

O ris of t

S ys t ems .Most of the software products cater for domestic demand with
the exception companies such as Computer Protocol and Prestigious
Discovery which market more then 80% of their products overseas.

Growth of software development is expected to be stronger in tandem with

the development the information and communication technology. Higher
value-added

software

development

activities

will

continue

to

be

encouraged.

P hoton ics/Opt oelect ronics/Opt ical Fibr es and Cables

(i)

(ii)

(i ii)

P hot onics
P r oje cts ap pr oved

P la nt s in Op er at io n

P r oje cts ap pr oved

12

P la nt s in Op er at io n

O p t o e l ect r o n i c s

Op ti ca l fi br es a nd ca bl es
P r oje cts ap pr oved

17

P la nt s in Op er at io n

10

The photonics sub sector has been identified by the Government as a

new growth industry, strongly driven by the growth in ICT industry.
Dominated by MNCs, products manufactured include photonics/optoelectronic components and optical fibres/fibre optic cables for
telecommunications. Finisar, one of the major world producers of
photonics components from the USA has set up a facility in Ipoh, Perak
to produce photonics components such as optical transceivers, passive
optics components, and optical filters. Nichia Japan a leading player in
LEDs technology had set up the first integrated project in Malaysia
under Nichia Malaysia to undertake fabrication of LEDs to produce LEDs
for export market. Osram Technologies is the first company in
Malaysia and one of the leading companies in the world in organic

LEDs (OLED), a new generation of LEDs used to make bright flat panel
display for high technology products such as measuring instruments,
PDAs and cellular phones. Agilent Technologies is producing LEDs for
displays while Lumiled Lighting, a joint venture project by Phillips and
Agilent has combined the LEDs and lighting technologies to produce
lighting systems utilizing the lights from LEDs. Their products include
lighting system for automotives, traffic lights as well as domestic and
industrial lightings. PWB Technologies, a German company is producing
optical encoders and optical modules, major components for laser printers
and copiers.

Photronix Technologies, a wholly Malaysian-owned company,

produces photonics

components such as

erbium-doped

fibre

amplifiers (EDFAs), fibre fused tap, fibre Bragg gratings and

wavelength

division

multiplexing

(WDM)

couplers

for

telecommunication. Photronix has a number of local and foreign

engineers specialising in R&D to develop new products and
applications. Two (2) new Malaysian-owned projects were for the
production of hermetic glass-to-metal sealed packages and to
undertake thin film coating activity. Both projects, the first of its
kind in Malaysia will provide important packaging and supporting
activity in photonics. Their involvement in supporting activities for
photonics companies will further enhance the development photonics
clusters in the country.

Other

companies

like

Optical

Communication

Engineering,

Gunung Fiber Optik, Fujikura Federal Cables, Opcom Cables,

Leader Optic Fibre Cables and Photon Technologies are
producing optical fibres and fibre optic cables. This sub-sector is
dominated by local and joint venture companies catering mostly for
local consumption.

ICT (R&D)

P r oje cts ap pr oved

P la nt s in Op er at io n

:
:

10
10

To-date, 10 companies are currently undertaking R&D in ICT of

which nine (9) are Malaysian-owned companies, The importance of
R&D activities is well recognized in the stimulus package which
provided for special R&D grants and second round R&D incentives for
eligible companies undertaking R&D in ICT.

Current Incentives

ICT companies can apply for the following incentives:-

High Technology
Strategic Projects
Prepackaged, i.e., customized incentive packages that cover
tax and non-tax incentives
Software Development
Knowledge-Based Economy
Incentives for R&D

Funds and Grants under the Stimulus Package are meant to

encourage further development of the industry. These are:

New Technology Investment Fund to acquire equity in

foreign companies or invest in start-up companies in new
growth sectors.

10

Matching Grants
o

To meet training costs

To undertake R&D activities in Malaysia

To commercialise the R&D research findings and

innovations

Funds for development and promotion of Malaysian Brand

Names for Malaysian companies
Venture capital fund for seed investment

Promoted ICT activities are:Manufacture of:

o

Computer, parts and peripherals

Telecommunication equipment/devices

Antennae for communication equipment

Voice/pattern/vision

recognition

or

synthesis

equipment
o

Data terminal displays

Global positioning system

Electronic tracking aid

Software development and production

11

Strategies and Future Investment Opportunities

Companies have shifted their focus along the value chain by

engaging in the production of high-end products and extending into
other high value added activities such as design, development and
manufacture of advanced electronics equipment and devices like
tablet PC, data network services, high density data storage
devices, network servers and photonics equipment/devices.

Government

will

continue

to

promote

new

products

and

technologies in ICT. New hardware and internet appliances such

as multi-functional mobile phones, personal digital assistants
(PDA), portable computers, global positioning system (GPS)
devices and data networking equipment/devices (ATM switches,
hubs, routers and wireless LAN devices); using wireless, bluetooth
and convergence technology are promoted products and activities.
Investors are encouraged to take advantage of these opportunities
to enhance their manufacturing capabilities.

To encourage companies to undertake higher value added

activities, the following strategies have been implemented:

Organised Specific Project Mission (SPM) on targeted

product clusters to targeted countries/ companies with the
participation of representatives from Penang development
Corporation

(PDC),

members

of

Penang

Photonics

Consortium (PPC) and the private sector for outsourcing

opportunities and to seek joint venture partners and attract
new investment in targeted sectors.

12

Held

dialogues

Multimedia

and

discussions

Development

Corporation

with

universities,

(MDC),

PDC,

Malaysian Industry-Government Group for High Technology

(MIGHT) and the associations such as Malaysian American
Electronics Industry Association (MAEI), The Electrical and
Electronics

Association

of

Malaysia

(TEEAM),

PPC

members and other the private sectors on promotion of ICT

and photonics.

Organised a workshop/seminar on ICT and photonics to

update and disseminate information on the latest technology
and market opportunities in the industry among local
investors.

Invited foreign experts and MNCs engaged in ICT and

photonics, to give briefings on technology and market
opportunities to local companies.

Undertake specific studies to identify high value products

in the ICT and photonics industries and targeted local SMIs
and foreign companies for more aggressive promotion.

Other proactive measures include:

o

Dialogues, meetings and discussions with MNCs

companies to encourage them to increase their
local content and outsourced from local companies.

Discussions with Telekom, Maxis and Time dotcom

on procument from the local manufacturers with the
roll out of Third Generation (3G).

13

Provide grant/soft loan to Malaysian companies to

develop and promote Malaysian brand.

Develop database on local/foreign potential investors

to promote joint venture projects.

Dialogues with Malaysian Venture Capital Association

(MVCA) to encourage more funding in targeted high
value added activities in ICT and photonics projects
and in the commercialization of R&D findings.

ICT & Electrical Industries Division

MIDA
Feb 2004

14