netv@luer o : 4 THEEDGE TALAYSTA I FEBRUARY2l,2OA

cross##trffi

Should Khazanah sell a stake in Silterra?Silterra, the country's first wafer foundry that is saddled with huge debts after a

decade of operations, is at a crossroads, Khazanah Nasional Bhd, which owns morethan 90% of the company, has annnounced that it is looking for a strategic partner. Butthe entry of a foreign entity could derail Silterra's mission to build a Malaysian brand and

grow the local semiconductor industry,

ver since it first started producingwafer chips in December 2ooo,Sil-terra Malaysia Sdn Bhd has beenrunning at a loss.But the govern-ment knew itwould andwas pre-pared for that - it had a larger

goal in mind.After20years as a manufacturingbase for

the semiconductor industry and then a test-ing and packing base with some R&D, mainlyfrom Intel, Silterra represents a RMs billionbet on a dream to move up the value chainas a player in its own right and not merelya host to others.

Therewas also a national securityelement.with the belief that chips will be embed-ded in everything in the future [with termsranging from "smart dust" to "the Internetof things"], it was believed that controllinga wafer fabricator and building the capabil-ity to run and manage such a high-tech fa-cility would stand the nation in good steadin the future.

pliers of hardware and software for the highprecision machines used inwafer fabrication,to the real high-valuework of thosewho makethe integrated chip [IC] designs to those whomake the lithographic masks or the tool dyekits.ell highly complicated work,but then thisis what high value and high income are allabout.This is why Silterra pays its engineersglobally benchmarked salaries. Naturally itwas assumed that Silterra would turn profit-able once this ecosystem took hold.

Plus,there are so manyflexible financingmodels today through which to acquire thetools and technologies for expansion.Thecost is no longer as jaw-dropping as Khaz-anah believes.

But this does not take away from the criti-cism that none of the components of thevalue chain took hold in and around Kulim,where silterra is based. Not true, will arguethe die-hards at Silterra. They will point tothe 2oos setting up of InfineonTechnologies'wafer fabrication plant next door, with its

alaysia's first semiconductorfoundry Silterra is indeed in aprecarious position.On the onehand,it is considered a thom inKhazanah Nasional Bhd's sideas it is without doubt one of

the worst performing companies in its stable.On the other, the government's investmentarm faces much criticism over the handlingof the company.Although much has been in-vested in the foundry overthe last decade,it isstill in the red.Thus,anyproposed corporateexercise, such as selling it, will upset morethan a few MPs and things could get roughin Parliament.

Before I get into why Khazanah should sella strategic stake in Silterra,oreven give up thecontrolling stake,let me go over the nature ofthe industry.On this,I do agreewith some ofthe points made by my colleague.

First, Silterra's addressable market size isindeed big.And compared to the other com-panies in Khazanah's stable, Silterra has had

years, it could be a case of too little too late.Globally, small foundries have found it

difficult to survive.According to a 2oo9 re-port by iSuppli, smaller foundries such asSilterra, Altis and Landshunt could becomepart of a consolidation process as they arestruggling to get by on their own.Altis wasput up for sale last year, while our very ownSarawak-based foundry called rst Silicon fol-lowed a similar path in 2oo6when it mergedwith Europe-based x-rab.this exercise dou-bled x-Fab's capacity, and the results are nowshowing - X-Fabwas listed as one of the top20 foundries in 2oo9, surpassing Silterra in asurveyby IC Insight.

Silterra needs money,and it needs to be apart of a global chain of foundries in order togrow.Astrategic partner can offer this.Ah,butI hear voices of dissent. Why should we sellour national asset to a foreigner that mightiust come in and scoop our investment? Fur-thermore,we have no guarantee that theywillhelp keep our mission of growing the local