SINGAPORE (Aug 19): Micron Technology’s official opening of its expanded facility in Singapore comes right when the prospects of a technical recession has increased. For the city state, the price of hosting the US semiconductor giant is to widen the exposure of its economy to the volatility of this sector. When demand is strong, export figures enjoy a lift. The converse is happening now.
“Though there appears to be some signs of bottoming-out in recent months in semiconductor equipment billings, shipment growth in semiconductors globally has continued to slip,” warns DBS senior economist Irvin Seah in his Aug 14 note. “Further tariffs by the US on an additional US$300 billion of imports from China, as well as the ongoing trade dispute between Japan and [South] Korea, could derail any possible turnaround in the electronics cycle.”
“The outlook for the manufacturing sector remains bleak. Another quarter of disappointment, which is likely judging from the hostile external environment and weak global demand, would push the manufacturing sector into an outright recession.”
According to estimates by Singapore’s Economic Development Board, the country accounts for 11% of the global market share for semiconductors. Some 60 semiconductor companies operate here, generating more than 7% of the country’s GDP.
Micron focuses on the production of so-called NAND solid-state memory, which is gaining widespread demand in all kinds of electronics products ranging from smartphones to Internet-of-Things-related devices. It replaces traditional hard disks, which work by spinning magnetic drives. While the actual cost of Micron’s expanded plant in Singapore was not disclosed, the company’s cumulative investment of some US$15 billion ($21 billion) so far makes it one of the largest foreign direct investors ever in Singapore.
At the opening ceremony on Aug 14, Micron CEO Sanjay Mehrotra attributed the company’s strong presence and interest in Singapore to not a few good reasons. “We continue to build and expand here for a multitude of reasons — excellent partnership with the Singapore government, which has created a business-friendly climate and understands the value that high-tech jobs can bring to the broader economy. We also have access to the well-educated workforce with diverse backgrounds.”
In a subtle nod that market conditions remain challenging, however, the company, in a separate statement, notes that production from the expanded facilities will commence by year-end. It will “align spending on capital equipment with trends in market demand” and “the facility is not expected to add new wafer capacity”.
Deputy Prime Minister Heng Swee Keat acknowledges that the global semiconductor industry is facing a slowdown yet again. “But these headwinds should be viewed in the context of the ‘semiconductor super cycle’. In the preceding few years, global demand grew more than 35%. Recent forecasts suggest that global demand could return to modest growth in 2020 and grow between 2% and 9% a year in the subsequent few years,” says Heng at the opening ceremony.
He is optimistic that the industry is poised for a turnaround in the near future, as demand is growing for product categories such as smartphones and tablets as well as TVs and wearables. In particular, there is rapid advancement and deployment of new innovative technologies such as artificial intelligence, the Internet of Things, 5G, smart manufacturing and autonomous vehicles.
“Semiconductors are the fundamental building blocks for these technologies. The rapid deployment of these technologies will boost demand for semiconductor components,” says Heng.
The plant’s official opening on Aug 14 came just one day after the government cut its full-year 2019 GDP forecast yet again to between 0% and 1%, leading to heightened worries that Singapore would slip into a technical recession.
However, not all observers are quick to jump onto this doom and gloom bandwagon. “The economy is definitely slowing, but it is far from stagnant,” says Ang Wee Seng, executive director of the Singapore Semiconductor Industry Association. “While demands have recently been muted, owing to conservative consumer sentiment, there is still a fair bit of demand in the market — and this should not be overlooked.” SSIA has around 160 members involved in the local semiconductor industry. According to Ang, a recent survey of SSIA members found that a vast majority were either actively hiring, or adopting a neutral stance towards new hires. He also noted that fewer members had put in place a hiring freeze.
The government has been doing more to woo semiconductor companies to operate out of Singapore. Broader, longer-term plans are being laid to help drive this sector. For instance, the government has announced a $19 billion investment over five years towards its Research, Innovation and Enterprise 2020 plan, in which a domain area is advanced manufacturing. Earlier in 2017, the Electronics Industry Transformation Map was launched to help Singapore diversify into new growth opportunities and transform the current manufacturing base in a bid to attract new investments in high-value sectors, such as semiconductors.
“The government has established a supportive environment for semiconductor companies,” says Su Lian Jye, principal analyst at ABI Research. “In addition, Singapore, being a trade hub, is at the centre of the manufacturing supply chain, which is critical for companies in acquiring the raw materials, human resources and equipment required, and fulfilling their logistical needs.”
RHB Research Institute Singapore lead analyst Jarick Seet observes that the local semiconductor industry has shifted from having a supporting role to being at the forefront. “Singapore has moved up the semiconductor chain — from the low levels of testing, packaging and supporting other countries in the supply chain to being one of the largest foundries in the world,” he says.
To be sure, Singapore is by no means the only country keen to grow its semiconductor industry. Close competitors include China, South Korea and Taiwan. Singapore suffers from relatively higher wages. However, manpower is a relatively small cost component relative to the hefty investments needed in capital equipment.
Even so, Ang of SSIA claims that labour cost is higher in Singapore for a good reason: The productivity of one worker in Singapore could easily be equivalent to five in China. “Labour here is expensive, but we produce better-skilled talents who are competent not just locally, but globally. That explains our higher costs, but companies are willing to pay for this,” he says.
