PETALING JAYA: Technology companies in Penang and Johor recently met by Kenanga Research are gearing up for a fresh surge in demand, with order books among those companies collectively expected to jump by 20% to 40% quarter-on-quarter.
The strength was especially pronounced among equipment and component suppliers, where several customers appeared to be ramping orders simultaneously, pointing to firmer demand visibility ahead.
Kenanga Research’s meetings covered both listed and privately held companies across the equipment, precision engineering and machining segments.
“From our meetings over the past month, we noticed a clear change in how companies talk about demand.
“The discussion has moved beyond whether orders will improve to how quickly they can add capacity and deliver what customers are asking for.
“One non-listed vision inspection equipment company told us that this is the strongest upcycle they have seen, and that missing the opportunity now could mean losing a business that may not return.”
One of the key observations from its meetings is that the improvement in demand does not appear concentrated in a single product or customer
Instead, the sector is seeing stronger activity across semiconductor equipment, inspection, storage and data-centre infrastructure, suggesting that the upcycle is gradually filtering through a wider part of the supply chain.
Overall, Kenanga Research believes that 2027 is shaping up to be a stronger year than 2026, as new capacity comes online and customer programmes move into volume production.
It also highlighted that demand is coming in faster than some companies can respond, rendering readily available and qualified capacity increasingly valuable.
Suppliers have turned to outsourcing to ease some of these constraints, but the strength in demand has now filtered down the supply chain to a point where even subcontractors are seeing capacity tighten.
“In our view, the near-term constraint for parts of the supply chain is increasingly dependent on how much companies can produce rather than how much customers are willing to order, putting a premium on suppliers with capacity that has already been installed, qualified and ready to ship.
“A key risk, however, is the longer lead time for new equipment, which could slow capacity expansion and constrain suppliers’ ability to capture the full extent of the demand upside.”
Capacity expansion is accelerating as companies position to capture the upcycle. With existing capacity tightening, the natural response has been to expand.
Importantly, the research house observed that much of this investment appears to be backed by visible customer demand rather than companies simply building ahead in anticipation of a recovery.
It added that customers also appear eager to absorb the additional capacity, with some pushing suppliers to commission new equipment within a month of delivery.
“The bigger challenge, however, is getting the equipment in the first place, with lead times stretching six to 12 months.
“This could constrain how quickly suppliers respond to the current surge in demand, although once the equipment arrives, the short commissioning timeline suggests incremental capacity could translate into revenue relatively quickly.”
In a separate note, Hong Leong Investment Bank (HLIB) Research also pointed out that Malaysia is entering a structurally stronger phase of semiconductor investment.
However, it said the industry is running into a critical constraint: it may not have enough talent to keep up.
The research house added that semiconductor companies, be it the local companies or global multinational corporations (MNCs) expanding in Malaysia, are competing for the same pool of engineers, technicians and experienced manufacturing staff.
“We believe talent availability can constrain how quickly semiconductor companies convert customer demand and capital expenditure into productive capacity, and ultimately into revenue and earnings delivery.
“Our analysis of employment-related environmental, social and governance data across 12 local companies points to these findings: local companies’ attrition of 14% to 26% is well above the 7% to 10% at MNCs operating in Malaysia, and above levels in Taiwan, South Korea and Singapore; and hiring effort is largely directed towards backfilling departures rather than adding incremental growth headcount.”
HLIB Research noted that while most companies grew their workforce in 2025, it estimated about 84% to 90% of hiring was to backfill departures, leaving only about 3% net workforce growth, excluding outsourced semiconductor assembly and testing players.
“More tellingly, the under-30s age group account for 57% to 70% of departures and 69% to 84% of new hires among companies with disclosed data.
“In other words, turnover is concentrated among younger workers, and replacement hiring is similarly skewed towards early-career talent.”
This shows that headcount stability does not necessarily equal capability stability, as replacements are rarely like-for-like, particularly in a tight labour market.
This also means a longer productivity curve, higher training costs and the loss of institutional knowledge.
“We believe this is a key, if less visible, cost of the talent shortage for Malaysian semiconductor companies.”
With consensus expecting a sharp sector ramp up, HLIB Research believes workforce data can offer a useful cross-check on execution risk.
“In our view, companies with lower attrition merit a valuation premium, while those with persistent high attrition face rising risk of execution slippage,” it added.
