Another one from the 11/28/97 issue of the Singapore Business Times...
Recovery in S'pore electronics industry kicks in
Q3 output shows strong rebound to 9.8%;
economists mixed about 1998 outlook
Reports by Jennifer Lien
SINGAPORE's electronics industry is finally looking up -- but not all the storm clouds have disappeared, economists say.
The last quarter's strong rebound in electronics output to 9.8 percent -- lifted by September's surge of 16.3 per cent -- shows that the recovery has finally kicked in, the Ministry of Trade and Industry (MTI) said last week.
This should be sustainable, said MTI, given a strong set of indicators, including a 16 per cent rise in Q3 US new orders for
electronic components, and the Semiconductor Industry Association's forecast of 7.4 per cent growth in the global semiconductor market this year and 17.1 per cent next year.
But looking back on the first nine months, economists say they have been surprised by the sharp gap between expectations and reality. And not all the reasons for this shortfall have gone away, leaving economists mixed about next year's outlook.
The sector only managed 1.2 per cent growth in the first nine months -- far short of the Economic Development Board's 10-15 percent forecast announced in January. Electronics output grew 19 per cent in 1995 and 9 per cent in 1996.
Not only did output not pick up in the first half as expected, several unexpected hiccups in the second half also dampened the full-year showing.
A surprise inventory glut in disk drives, the largest electronics sub-sector, did not help. Stiff competition and overplanning among
drive makers in the lucrative high-end market led to production cuts in June by market leader Seagate. In October, Seagate cut 500 contract staff from its disk drive plant and closed its two media plants for a week each.
In recent months, desktop drives have also been hit: steep price cuts from Seagate and Fujitsu have hurt earnings and production plans at Western Digital, another large drive maker here. The price cuts will have an impact on the dollar value of disk drive exports going forward economists say.
"If not for the disk-drive problems, we would have seen a much stronger Q3," said JM Sassoon's Liew Yin Sze.
Analysts and industry players expect the disk drive industry's high- end problems to persist through the first half of next year. The entry of price-cutting Japanese majors, who "do not play by the industry's rules," according to one analyst, also makes the outlook
uncertain.
Prices of memory chips are still weak, with little respite in sight. Prices of 16-megabit dynamic random-access memory (DRAM) chips have just about halved from US$6.62 (S$10.53) each a year ago to less than US$3.47 now, while 64-megabit DRAM prices have fallen 74 per cent in the past year to under US$18.12. This has been balanced by stronger pricing for non-memory chips.
In terms of geographical demand, the industry's rise in the second half was driven solely by a recovering US market, economists say.
PC demand in Japan recently tumbled following a new sales tax, and Europe has only begun to recover from its recession. The region's currency turmoil has also limited spending power in South-east Asia, which had been touted as one of the world's fastest-growing markets.
Recent figures suggest PC sales in Asia will grow 9 per cent this year, compared with around 20 per cent globally. "That's very, very weak," said Sassoon's Mr Liew.
Thankfully, this has had a muted negative impact, due to Singapore's relatively small trade exposure to the region, and because most of Singapore's regional trade is dominated by intra-firm transactions by electronics multinationals.
Nomura Singapore's Manmindar Singh expects electronics manufacturing to rise 4.2 per cent this year, while Merrill Lynch's Tan Min Lan is more optimistic. "If September's growth continues for the final three months, we could conceivably get 7 or 8 per cent," she said.
But views on next year's outlook are mixed.
"There should be an across-the-board recovery -- we expect improvement in disk drives, the semiconductor outlook has been raised, and with Singapore more involved in (higher-technology) 64-megabit DRAMs, we should gain," said Nomura's Mr Singh. "PC sales should also be spurred by the launch of new software next year."
He expects manufacturing growth of 7.8 per cent next year, spurred by electronics growth of between 7 and 8 per cent.
Vickers Ballas' Chua Piang Sze expects a patchy outlook to persist into next year, with semiconductors still mixed and global PC growth moderating slightly.
The region's problems remain the biggest wild card for most forecasters. Mr Liew from Sassoon expects about 10 per cent growth in electronics next year and 6 per cent growth in manufacturing, adding that this would be stronger if not for the regional crisis.
"Ten per cent for a recovery year is not much," he said. "When the sector took off in 1993, we saw 23 per cent growth." But an expected semiconductor surge in 1999 should power Singapore's electronics growth in the longer term, he said.
"A recovery next year will depend on healthy demand from the US and a strong recovery in Europe, which will hopefully more than offset the slowdown in Asia," said Ms Chua of Vickers. She expects manufacturing to grow 7.7 per cent next year.
Electronics output accounts for 45.5 per cent of manufacturing, which in turn contributes a quarter of gross domestic product.
Some analysts say electronics could account for as much as 55 per cent of manufacturing if supporting industries such as fabricated metals and rubber products are considered. |
