Cracked between a Sino-US trade war, political concerns over China’s Huawei telecommunications firm and slowing consumer demand, chipmakers in Singapore have begun to slow down production and throw hundreds of jobs, Reuters said.
The decline in a sector that accounts for nearly a third of Singapore’s production output last year is reinforcing expectations that the export-led economy may slip into recession over the coming months.
Taking microchips for everything from mobile phones to cars has long been central to Singapore’s success, the small commercial island seen as a carrier to the global economy.
“We are already seeing this decline is different,” said Ang Wee Seng, executive director of Singapore’s Semiconductor Industry Association.
Ang said he was “preparing for the worst” and putting his staff in readiness to help a dismissed worker try and find new jobs.
The semiconductor industry is a broad term for firms that make electronic components including memory chips and microprocessors. Many of the world’s largest chipmakers have operations in Singapore.
John Nelson, executive director of UTAC, a Singapore-based firm testing and collecting chips, told Reuters he had started a “consolidation process” in Singapore, which could result in a 10-20% reduction in the number of by the end of the year.
UTAC, supported by the private equity firm TPG, has 10,280 employees worldwide, of which approximately 1,700 are based in Singapore.
“We are taking the right actions to ensure that there is a future for our Singapore business,” said Nelson, adding that they could add more days to the factory closure and workers receive unpaid leave.
Nelson said that while the global industry was suffering, problems widened in Singapore due to high spending, such as rent, wages and services.
Lim Kok Kiang of Singapore’s Economic Development Board, a government agency promoting the state of the city as a business center, said while the semiconductor industry faced challenges, Singapore remained competitive in the sector and attracted investment.
“The weaker economic environment has affected demand in export-oriented sectors internationally, and the semiconductor sector is no exception,” he said.
Global semiconductor sales are expected to fall by 12-13% in 2019, according to the SEMI industry association, in the course of their biggest drop since the dotcom bubble bursting in 2001.
While the industry has been used to shake the demand for the latest technology products, this decline is exacerbated by trade tensions between the United States and China.
Two superpowers have set trade tariffs for a number of products, while the US has banned firms to deal with Huawei, the world’s largest telecom equipment maker, due to security concerns.
Firms in Singapore have been directly affected by these measures and are caught in the fire, says Angja of SSIA, refusing to give names.
Apple’s AMS provider is another firm that has cut jobs in Singapore this year.
Patricia Moosburger, a company spokeswoman, in response to emails from Reuters said, “We reduce staff to Singapore to adjust to the most loud demand trends in the consumer market in the first half and to reflect improvements on production efficiency “.
Moosburger declined to comment on the specifications, but the Singapore media reported that up to 600 people were cut off.
The semiconductor industry accounts for 28% of Singapore’s total production output in 2018 and 76% of its electronics production, according to official data.
Allen Ang of Aldon Technologies Services Group, a supplier of parts and services for semiconductor firms, said Singapore exports most of its products, is more vulnerable than other chipmaking distributions such as Taiwan and South Korea, which have more electronic demand.
The Ang estimates factories in Singapore operate on average 10 to 15 percent below the rate of their use last year.
Singapore’s exports fell to a low six-year level in June, data showed last week, mainly due to a contraction of 31.9% in electronic exports – the largest decline in the sector over a decade.
It was the latest in a slew of weak data that has reinforced some economists’ expectations the central bank will ease monetary policy in the coming quarters.
Singapore’s economy is seen as a gauge of global growth because international trade dwarfs its domestic economy.
The latest export data suggests Singapore is losing its electronics market share to other Asian countries, said ING economist Prakash Sakpal, citing its underperformance relative to Korea and Taiwan, as well as Malaysia, Philippines, Thailand.
But UTAC’s Nelson said despite the cutbacks, his firm was also making millions of dollars of investments in Singapore on equipment for new customers and projects, including for 5G networks, the next generation of mobile communications.
“I wouldn’t paint a picture that it’s all bad,” Nelson said.
“There is light at the end of the tunnel.”/Investing.com