Slump worsens as Singapore slips into recession
By Tony Santiago
EE Times
(07/05/01 18:49 p.m. EST)
SINGAPORE — The contraction of the global electronics industry quickened this week with another round of bad news from Europe and Asia, including the fact that Singapore's economy is slipping into a recession.
Elsewhere, U.K. telecom equipment maker Marconi Corp. plc and Taiwan-based LG Philips Displays both announced layoffs. LG Philips said it plans to sack 1,200 workers by the end of July and will close two component plants, while Marconi warned that operating profits were down sharply and that more job cuts were coming.
The global electronics slump hit Singapore hard in May, the government reported, with electronics production plunging 20 percent from the same month last year. The monthly decline was the worst ever here, outdoing a 16 percent drop in June 1985.
Monthly manufacturing statistics released by the Economic Development Board (EDB) showed electronics output plunging 20.1 percent in May, as the slowdown in the U.S. economy and the global downturn in electronics clobbered contract manufacturers here. The report said PC production, IC output and data storage manufacturing all declined.
Contract manufacturing slowed following cuts in export and local orders, the EDB said.
Electronics accounts for nearly half of all manufacturing output for Singapore, said Steve Madden, an economist with consultants GlobalPlus (Hong Kong), and any hit on the sector will automatically affect its manufacturing index. Madden added that the electronics sector here recorded a decline of more than 5 percent in the first five months of 2001.
EDB's figures, which included a 9 percent decline in non-oil exports in May, show that Singapore is already technically in recession, defined as two consecutive quarters of negative growth. "Without having to wait for the June data, we are already in a technical recession," said Song Seng Wun, regional economist at GK Goh Research.
In the first quarter of 2001, Singapore's economic growth contracted 11 percent, a sharp reversal from the 10 percent growth of the previous quarter.
Another closely watched economic indicator, the Singapore Purchasing Managers' Index (PMI), slowed to 46.5 percent last month. According to the Singapore Institute of Purchasing & Materials Management, overall business sentiment is extremely cautious as companies continue to cut back on production and shelve new-hiring plans.
The production index for the electronics sector is currently 39.2 percent, the lowest recorded since the index was begun, in January 1999. "The latest survey conducted suggests that the PMI would not return to the expansion track soon, at least not until the final quarter of 2001," said Philip Poh, the institute's chief executive officer.
Matsushita Electric Co. said recently that it intends to consolidate most of its operations in Asia and close parts of its consumer electronics division here.
Philips Electronics also plans to shut down its highly unprofitable telecommunications unit here, discontinuing manufacture of its mobile phones in Asia due to the increased competition from Motorola, Ericsson and Nokia. Philips also said it would shutter its telecommunications assembly plant in Singapore.
Last month's survey of some 100 purchasing managers revealed that the electronics sector saw a drop in new orders while the rest of the manufacturing segment saw a decline in new domestic orders. The result is growing inventories, slowing imports and declining prices. Those are all key indicators in the PMI index, changes in which are heavily influenced by the global economy, especially in countries like the United States that account for most of Singapore's exports.
Madden, the Hong Kong economist, said the Singapore government would have to downgrade its 2001 growth forecast of 5.5 percent. "At best we are looking at full-year growth of about 3 to 3.5 percent, considering no further slides in the U.S. economy or the other Asian economies," he said.
Widespread gloom
The picture is also bleak elsewhere in Asia. "Demand is very poor," said Peter Chang, president of Taiwan's United Microelectronics Corp. "One month the numbers may be up a bit, but that is too short a time. The next month it could go back down. Right now we are fighting to break even, and our profits are marginal. That is the reality." Weakness in the PC market is the main culprit, and the problems facing UMC and other foundries are a major contributor to Taiwan's economic malaise.
But Morris Chang, founder and chief executive of Taiwan Semiconductor Manufacturing Co., said the foundry market is now showing signs of strengthening. "The downturn will last two or three quarters. We touched bottom in the second quarter," Chang said. "The third quarter will be slightly better than the second, and the fourth quarter will be slightly better than the third."
The problems of Taiwan's foundries pale before the challenges faced by thousands of PC assemblers, motherboard makers and other small to midsize companies. PC production in Taiwan grew by 23 percent in value in 1999 and 16 percent last year, and may grow 8 percent or less this year, according to government forecasts. One hope is that Taiwan will be able to ship more PCs to mainland China.
In the meantime, companies like LG Philips Display are cutting their losses. That company said this week it would close two of three components plants related to CRT monitors, cutting 800 Taiwanese workers and 200 foreign laborers from a Hsinchu-based plant and 200 workers at its plant in Chungli, Taiwan.
Analysts said it is likely that Philips will move high-end CRT monitor assembly to its base in Suzhou, China. Previously, manufacturing was split between Suzhou and the Chungli site. "Labor costs [in Suzhou] for low-end products like monitors are at most one-eighth of what they are in Taiwan," said one analyst.
Elsewhere, Marconi, one of Europe's major telecom equipment makers, was forced to suspend trading of its shares on Wednesday (July 4) after issuing sales estimates sharply lower than expected. The company said sales would decline 15 percent from the previous year, with profits forecast to plummet to $490 million. Another 4,000 workers are expected to be laid off as a result.
Marconi chief executive officer Lord George Simpson said he expected inventories to return to normal levels and for the job cuts to bring costs in line with reduced sales. The group will take a charge of about $770 million this year for the latest round of restructuring, but expects the actions will lead to about $500 million in savings in coming years.
Nevertheless, the value of Marconi's stock was halved a day after the profit warning.
"In the last year European Union governments have taken $100 billion out of our major customers in 3G [third-generation wireless] license fees and late last year the equity markets effectively shut," said Steve Hare, Marconi's chief financial officer. "When balance sheets are constricted, finance directors turn off the taps. This happened first in the United States and hit Europe in the last few weeks."
— Mike Clendenin and David Lammers contributed to this story, as did Nolan Fell of Electronics Times and John Walko of CommsDesign.com. |
