Worst seen over for semiconductor industry

THE global economic slowdown may not have hit the Philippines as hard as developed nations such as the United States and Japan, but it has almost crippled the country’s biggest export dollar earner—the semiconductor industry.

Even at the start of 2009, it was obvious that things were not going right for the industry.

Intel Corp., the world’s largest semiconductor vendor, announced the closure of its 35-year-old plant in Cavite. The Cavite facility—which manufactured Flash memory, microprocessors and chipsets—ceased operations in the second half of 2009, leaving some 1,800 employees jobless.

But even without the Intel plant closure, the industry was already in dire straits, according to Semiconductor and Electronics Industries of the Philippines Inc. chair Arthur Young.

In an interview, he said the industry’s woes began in the fourth quarter of 2008 when orders started to decline. The situation even worsened in the first quarter of 2009, making it the worst period for the industry.

“The market started coming back slightly around April, and started a slow comeback on a month-to-month basis since then,” he said.

Comeback kid

By the third quarter, as demand for smart phones and netbooks started to pick up, the industry also registered growth that it was not expecting to post until later in 2009 or early 2010, he said.

The fourth quarter came as an even bigger surprise, he said, with sales volumes surpassing those posted the quarters before.

“The market’s strength is in smart phones, laptops and mini notebooks, as well as in energy-efficient products in the solar market,” he explained.

According to data from the National Statistics office, for October 2009 alone, exports of electronics products fell by only 7.4 percent to almost $2.2 billion from the same month a year ago. This was mainly due to the decline in shipments of components and devices.

Electronics accounted for 59.1 percent of total outbound cargoes in October 2009, the NSO said.

Overall, the value of merchandise exports slid 27 percent as of end-October to $31.3 billion, from $42.89 billion in the same period a year ago.

These positive developments had removed the industry from its “zero visibility” situation. When earlier in 2009 it was impossible to predict where exactly the industry would go, he said industry players could now make clearer projections up to two quarters into the future.

“We are seeing strong bookings through the first quarter, and even now we are also starting to see the second quarter numbers. We have not seen that far (into the future) in a while,” he related.

Despite these positive developments, he said Seipi would be keeping its forecast of an at least 20-percent decline in export shipments for 2009.

“This (2009) will definitely be a down year for our industry—I would say in the low 20s,” he said. “The Intel (closure) has obviously affected us and has made it harder for us to have better than the negative 20s that we are seeing for this year.”

Global trend

Globally, the industry also registered monthly sales decline, prompting research firm Gartner Inc. to project an 11.4-percent revenue drop to $226 billion in 2009 from $255 billion the year before. This decrease in revenue would only be the sixth in the last 25 years.

“Revenue dropped precipitously in the first quarter of 2009, continuing a deterioration which started in the last quarter of 2008,” Gartner semiconductor research director Stephan Ohr said in a statement. “A small uptick, noted toward the end of the first quarter, led to significant quarter-over-quarter growth in the periods that followed.”

He said 2009 would go on record as “one of the worst years for the semiconductor industry since the burst of the dotcom bubble in 2001—and the first year the semiconductor industry posted declines two years in a row.”

Young agreed, saying the first half of 2009 was probably the worst for the local semiconductor industry.

Japanese semiconductor vendors were hit harder. Not only did the global recession drastically reduce orders, the strong Japanese yen throughout most of 2009 also made Japanese products more expensive than American or European products.

Better days

But 2010 should be better for the industry, Young said, noting how Texas Instruments’ steady ramp-up of its operations could help compensate for what the industry lost as a result of the Intel plant closure.

“We do expect 2010 to be a much more robust year for us, as we are seeing double-digit growth. I think we could be in the 10-15-percent growth range for 2010 compared to 2009. Many of us are back to selective hiring to beef up our workforce, and we expect to continue to see that trend continue through the new year,” he said.

“At this stage, it looks almost like a V-shaped recovery, which has really surprised us. With any luck, we may even get to see higher than 15-percent growth, but again, it’s too early to tell right now,” he added. –Abigail L. Ho, Philippine Daily Inquirer