Asia's semiconductor industry reeling

Agence France-Presse

Posted at Feb 08 2009 04:45 PM | Updated as of Feb 09 2009 12:45 AM

SINGAPORE - Charmaine Decena and her family had always dreamed of buying their own apartment in Singapore, but they are now staring at the possibility of returning to their hometown in the northern Philippines.

The 35-year-old quality engineer for a semiconductor firm saw friends and colleagues fired in recent weeks as their company responded to the worst global economic crisis since the Great Depression of the 1930s.

Traditionally the vanguard of the region's exporters, Asia's chipmakers are reeling from the impact of falling global demand. Decena, like thousands of other industry employees, is wondering whose job will go next.

"It feels like there's a sword hanging by a thread over your head," the mother of two told AFP. Her husband also works in the technology sector.

"We have already started packing our things just in case. We have also scrapped plans to buy an apartment," said Decena. She asked AFP not to use her real name or mention which company she works for.

Global sales of semiconductors fell 2.8 percent to 248.6 billion dollars in 2008 from 2007, the first year-on-year drop in seven years, the US-based Semiconductor Industry Association (SIA) said this month.

In the Asia Pacific region, sales were down nearly 22 percent in December 2008 from the same month in 2007, figures on the association's website show.

"Weakening demand for the major drivers of semiconductor sales -- including automotive products, personal computers, cell phones, and corporate information technology products resulted in a sharp drop in industry sales that affected nearly all product lines," said SIA president George Scalise.

The trend is seen continuing this year, and Asia is expected to feel the economic impact more severely because much of the world's production of electronic equipment is concentrated in the region, analysts said.

They predict more job losses, company mergers and bankruptcies in the semiconductor industry, a major employer of skilled workers.

"For 2009, we do see the market being affected quite substantially," Philip Koh, a vice president at market research firm Gartner, told AFP.

Japanese electronic giants have announced thousands of job cuts, and as demand for microchips softens, company earnings have plunged.

Taiwan Semiconductor Manufacturing Co, the world's leading contract microchip maker, said last month that its net profit in the fourth quarter plunged 63.9 percent against the same period a year earlier.

Singapore-listed Chartered Semiconductor, another major global chipmaker, announced a fourth-quarter net loss of 114 million US dollars.

The industry should hit bottom this year, with a feeble recovery likely to begin in 2010, Koh said. However, this scenario will depend largely on global economic conditions in the first six months of 2009, he added.

"Of course if the situation gets worse over this quarter or into the next quarter, the recovery will be much slower," he said.

Gartner forecasts global semiconductor sales to plunge by more than 20 percent this year from 2008, and the Asia Pacific region is likely to mirror that decline, Koh said.

Another market intelligence firm, IDC, expects worldwide semiconductor revenue to contract by an annual 22 percent to 192 billion dollars this year.

Shane Rau, a research director at IDC, said that overall, the recession in the chip sector should bottom out in the first half followed by a gradual recovery later in the year, although some segments may take longer to rebound.

Companies that make memory chips are likely to be the first to seek mergers, Rau added.

"Qimonda in Germany and certain memory companies in Taiwan are in the throes of pending consolidation," he said.

Qimonda, which declared bankruptcy in January, said this month it will close a US factory in Richmond, Virginia that employs 1,500 workers.

Struggling Japanese computer chipmaker Elpida Memory Inc has said it is in talks with chip companies in Taiwan to boost cooperation, while Japan's Nikkei business daily reported last month that Toshiba and NEC Corp have been holding discussions on integrating semiconductor operations.

Matt Walker, an analyst with research firm Ovum, said consumer confidence is important for the industry's rebound, while Gartner analyst Koh added that a recovery in the recession-hit US economy is key to lifting the battered chip sector.

"For spending at all levels to really rebound, there needs to be much more certainty and confidence than there is now," Walker told AFP.

Koh added: "Ultimately... most of the region depends on the US market, whether it is China, Taiwan, Singapore or Malaysia."

Filipina chip engineer Decena hopes the recovery comes sooner rather than later.

"There are also no jobs back home," she said.