Semiconductors, electronics exports to slump 15% this year

The country’s semiconductors and electronics industry expects a 15 percent drop in exports this year compared to last year, even as it warned that the high cost of electricity, labor, and deteriorating quality of education here are forcing many companies to look at the possibility of investing if not transferring totally to China.

The local industry, which accounts for 71 percent of Philippine exports, however expects a recovery to occur starting the middle of next year. The global electronics industry has found itself in the worst slump in four decades, beginning late last year.

The Semiconductor and Electronics Industries in the Philippines, Inc. (SEIPI) revealed yesterday that exports this year are expected to go down to $23.08 billion as against $27.16 billion last year, or a 15 percent decline due to a number of factors, including sluggish demand, the weak US economy, and inventory adjustments.

From January to June of this year, exports of electronics dropped 14 percent to $14.69 billion from $27.17 billion last year. Its share to total Philippine exports also declined, from 71 percent during the first half of 2000 to 67 percent this year.

Many companies that bought additional computers last year as a solution for the Millennium Bug (Y2K) found themselves not buying this year. Also, consumers have not been investing much on high-tech spending, mainly due to very fast changes in technology as evidenced by cellular phones. Demand, however, has been good for new technologies in automotive and digital imaging.

Investments in electronics amounted to $600 million (P29.98) billion as of September this year, which is modest compared to the $1.24 billion registered last year.

SEIPI executive director Ernie Santiago said they expect investments this year to reach $1 billion. "If we go by our rule of thumb where every $1 of investments generates $3 in export revenues, then the $600-million investments should bring in $1.8 billion in exports once these are fully operational in one to two years. That gives us a lot to look forward to," he said.

Santiago said the situation is still very unclear, although they take comfort in the knowledge that in the whole history of the sector, there has been no two consecutive years of a downturn. "If history does repeat itself, then an upturn is to be expected sometime in the second semester of 2002," he pointed out.

Exports are expected to grow by 15 percent next year to $27.16 billion, by 20 percent in 2003 to $32.59 billion, and by 25 percent in 2004 to $40.74 billion.

However, SEIPI vice president and PSI Technologies chairman and CEO Arthur Young said things may change once China joins the World Trade Organization and opens up its market.

Young said that right now, while China is a very attractive market with its 1.2 billion population, electronics companies are not sure whether they want to locate there due to a rule that 80 percent of the produce will have to be exported, leaving only 20 percent in the Chinese market.

"The infrastructure to sell locally in China is not yet there. The rules change from one province to another. And the labor cost is really not that cheap in Shanghai. We don’t want to get to the middle of China to put up the factories. But things will change when China joins WTO and when it opens up its market to imports. And China has good infrastructure for education and the Chinese want to learn English with a passion," he said.

He laments that the quality of education in the Philippines is deteriorating. "We have the second highest cost of power, next only to Japan, of around P5 per kilowatthour compared to Shanghai’s P3 per kwh. Electricity accounts for a large bulk of our cost. Intel pays P50 million a month for electricity while Texas Instruments pays P30 million and PSI, P10 million.