AMKR and the chip sector--from a recent WSJ piece
September 2, 1999
Tech Center U.S. and Philippine Companies Have Been Joined at the Chip By ROBERT FRANK
Staff Reporter of THE WALL STREET JOURNAL
CAVITE, Philippines -- U.S. chip companies are giving the Philippines a shot in the arm.
Intel Corp., Amkor Technology Inc., Texas Instruments Inc. and other chip concerns have poured more than $5 billion into this country over the past three years. Even as many companies remain cautious about investing in the region, chip companies and other electronics makers are expected to inject $600 million into the Philippines this year.
The investment has transformed the nation's economy and acted as a buffer against the economic crisis that has plagued the rest of Asia. Once reliant on coconuts and palm oil for foreign cash, the Philippines is now outperforming many of its neighbors and becoming one of the fastest-growing outposts of the high-tech economy.
Exports of chips and electronics grew 33% last year, to $20 billion, and now account for 70% of total Philippine exports. Analysts expect the number to grow to $48 billion by 2004, with most of the products going to the U.S.
A POOL OF LOW-WAGE ENGINEERS
For the industry, the Philippines offers a solution to fierce new cost pressures. With cheaper computers squeezing margins, semiconductor companies are scouring the world for lower-cost manufacturing sites. The Philippines' pool of skilled, low-wage engineers has become a big draw for U.S. and European manufacturers.
Intel recently opened a $500 million plant to assemble its new Pentium III chip and other leading products. A local unit of Amkor, a West Chester, Pa., chip contractor, just expanded one of its three assembly-test plants and now employs 10,000 Filipinos. Texas Instruments has spent $45 million on expansions since 1997, and is using the Philippines as a manufacturing base for its digital processing signal chips -- the core of the company's growth plan.
"The Philippines has a lot of advantages," says Ling Bundgaard, Intel's general manager for the Philippines.
Adds Dan Heyler, semiconductor analyst with Merrill Lynch in Taiwan: "If you look around the world, the Philippines has been winning more and more of the industry. It's become a very important base."
The main attraction: Labor. With its English-language school system and high literacy rate, the country cranks out 30,000 to 40,000 engineers a year. Wages for a high-tech shop worker in the Philippines are at least 30% lower than those in Malaysia and other nearby countries.
"The work force is the main reason we came, and the main reason we're expanding," says Desmond Wong, spokesman for Texas Instruments' Asian operations.
Granted, neighboring countries are also trying to grab the business. Malaysia has launched new incentive programs and built a sprawling high-tech industrial park to lure investment. China has emerged as a new competitor with lower wages, while Thailand, Taiwan and others continue to lobby the industry.
The Philippines also has its share of internal troubles, such as pricey and unreliable electricity, bad roads and an antique phone system. Still, industry executives say forces within the semiconductor industry are likely to continue feeding business to the Philippines.
AN INTEL CAMPUS IN MANILA
Consider Intel, which has helped transform a former rice paddy into a high-tech haven known as the Gateway Business Park. Gateway, about 37 miles south of Manila, is now home to Cypress Semiconductor Corp. of San Jose, Calif., and Analog Devices Inc. of Peabody, Mass., both with $200 million plants, and a host of other smaller U.S. contractors.
Intel's gleaming campus of assembly and test plants opened in 1997, starting with one building and expanding to three last year. The plants churn out the company's Pentium line of chips, including the new Pentium III.
As farmers harvest rice and bananas in nearby fields, the Intel plant buzzes with workers in lab coats monitoring banks of assembly robots. The walls are covered with charts showing yield patterns, productivity trends and output. Productivity at the plant, Ms. Bundgaard says, is now about equal to the company's sister plants in Arizona and Kuala Lumpur, Malaysia, though labor remains a fraction of the cost.
While Intel continues to cut costs world-wide to battle weaker margins, the company's Philippine operations have grown to more than 6,000 workers from under 2,000 in 1994. "It's a credit to the work force here," says Intel's Ms. Bundgaard, a native Indonesian and 27-year veteran of the company.
China offers an apt comparison. When she recently opened a plant in Shanghai, Ms. Bundgaard had to translate all the worker-training materials and courses into Mandarin. "That eats up a lot of time, which is our most precious commodity," she says. In the Philippines, she's needed little translation, and training is often twice as fast.
Having a FedEx hub nearby also helps. In an industry where just-in-time means a matter of hours, Intel can race its chips to FedEx's Subic Bay hub at night and have them arrive in the U.S. the next morning.
SPROUTING SHOPS AND RESTAURANTS
In turn, the Intel plant has helped revive the local economy. The town of Cavite -- once a poor farming village -- is teeming with new shops and restaurants. A luxury housing development, called Governor's Hills, rises up from an old rice paddy. A McDonald's just opened up down the road, along with a golf driving range.
The challenge now for the Philippines is to move up the information chain into design and proprietary technology. Like Taiwan in the 1980s, the Philippines performs basic assembly and test work for foreign investors, but is striving to develop its own technology.
There are already small signs of progress. IMI, a Philippine company, is working on its own software and design system while Fastech, also Philippine, is doing research and development on printed circuit boards and smart cards.
"The foreign investment has been hugely important for the country," says Ernesto Santiago, executive director of the Semiconductor & Electronics Industries in the Philippines Inc., an industry association. "But now we'd like to start developing our own companies."
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