Electronics exports continue nosedive

The local semiconductors and electronics export industry is bracing for an even worse first quarter of 2009, a top player in the sector said Tuesday.

The industry projects a further slowdown in orders especially as the global economy is expected to further contract this year, Arthur Young, the chairman of Semiconductors and Electronics Industries in the Philippines Inc., told The Manila Times during a telephone interview.

Young said that electronics exports for the first three months of this year could be “at best, at least [performing] the same as in the fourth quarter of 2008, or worse.”

Although he declined to say how weak the orders have become, he noted that “orders for January and February are very soft across segments such as phones, computers and other consumer electronics products and parts, and also automobile accessories and parts.”

Young earlier said the last quarter of last year was “terrible” for the local electronics export sector, and the industry estimates total electronics exports in 2008 to have a flat or even negative growth of between 5 percent and about 8 percent compared to the previous year.

The Philippines’ electronics exports are slumping as their major destinations, such as Japan and the US, are in recession.

Latest data from the National Statistics Office (NSO) showed that $2.336 billion in electronics exports in October last year was 18.9-percent lower year-on-year, as compared to the $2.879 billion during the same period in 2007. The same month’s shipment of electronics goods out of the country also posted a month-on-month decline of 9.9 percent, compared to September’s $2.592 billion.

Semiconductors and electronics products accounted for 58.9 percent of the total exports revenue in October 2008, NSO said.

It does not help that the initial quarter of a new year presents a typically low demand from a high demand during the holiday season, Young said. “And our situation is exacerbated by the already weak global markets because of the downturn.”

Credit crunch

During a previous interview, he explained that the recent drop in orders was not entirely caused by slower demand but by tighter credit that arose from the global financial crisis. “[Importers of electronics products] are not ordering because of the credit squeeze. There’s actually always a demand, but there is also an ongoing credit crunch.”

The slower demand and the credit squeeze, Young said, have affected investments of local players in the electronics industry. “But we have not heard of any current investors pulling out either.”

The weakening orders might impact on the sector’s labor pool, Young warned.

Also earlier, he told The Times that if the global economic meltdown persisted, companies could resort to cutting down their workforce.

US microchip maker Texas Instruments Inc. last month told the Labor department that it would retrench 400 people in its Baguio City plant. It said it had to cut costs, citing declining orders.

Taiwan’s electronics export sector was also badly hit by the global crisis, resulting in the displacement of thousands of workers, including Filipinos, in its factories.

Cutting costs

Young maintained that semiconductors and electronics manufacturers here are still trying to minimize the impact of the downturn on their employees. “The softening would cause companies to reduce costs. But everyone’s trying not to lay off people. We are trying to protect our workers as much as we can. I can’t tell you there won’t be layoffs, there would be right sizing in some firms.”

To save on production costs, some electronics companies are already implementing shorter workweeks, subcontracting some work and also momentarily shutting down plants, he said. Young cited some companies temporarily stopping operations during the holidays, others giving employees a chance to exhaust their vacation and sick leaves, although some without pay.

“Of course, workers would only get paid when they go to work. But such is better at the moment than our employees entirely losing their jobs,” he said.

According to Young, more adjustments in the industry’s workforce could be expected this year, but he said that since laying off employees is their last resort, it is still too premature to project the number of potential job losses in the sector.

He added that the sector is suggesting to the Trade and Labor departments that the government assist workers who would be displaced by putting them under retraining for jobs that require higher skills. “Upgrading the skills of our engineers and technicians amid this downturn could better prepare us for the upturn, and keep them partially busy in the meantime.”

Optimistic outlook

Despite the current gloomy situation it is in, Young said the sector is still optimistic it could rebound by the second half of next year.

He added that the industry hopes that the second quarter of 2008 could get better than the projected bad first quarter, and expects that the industry would be back on track starting the third quarter of this year. “We are hopeful that once the demand comes back, the US credit market improves and consumer confidence goes up, hopefully the industry would recover.”

Young projected overall electronics export growth for this year to be between minus 8 percent and minus 10 percent because of the deep negative impact of the crisis in the beginning of this year. –Ben Arnold O. De Vera, Reporter, Manila Times