Predictions for Singapore.
Research house Gartner estimates Singapore's semiconductor consumption including chips used locally and those exported - to be worth about US$3 billion (S$5.2 billion) in 2002. Growth in Singapore's semiconductor sector will start picking up.
.
Singapore should also benefit from the surge in sales of mobile phones, digital cameras, consumer electronics and computers - much of it in the Asia-Pacific and Japan. But Singapore is going to be hit even harder by the shift of low-end electronic production out of the city-state.
.
.
Problems in Singapore semiconductor industry
.
Chartered expects a net loss of US$40 million to $48 million (Dec 1, 2003). Compared to other industry, wafer fabrication industry is not doing well. There are not many success stories. And now, with the country in the midst of a painful recession and the electronics industry suffering severely from the global downturn, chipmakers (Singapore's key manufacturing industry) may not be profitable in the near term or the long.
.
In the future, instead of building their own fabs, IDMs will increasingly look to manufacture their chips at pure-play foundries. For cost reasons, they will not want to be tied to any specific foundry, so they will start to contract with library developers to create their own proprietary libraries that are portable among multiple foundries. So, customers of foundries and wafer fabs may want a more diversified source and may look for alternates to Singapore foundries.
.
Like disk drive and PCB industry, rising costs and competition from neighbouring countries such as Malaysia and Thailand leads to movement of wafer fabrication industry also.
.
The tax breaks for high-tech projects in Malaysia are competitive with neighboring Singapore. Singapore is a potential source of employees, estimating that Malaysians make up nearly 40% of Singapore's labor base. If that's true, and enough skilled labor is encouraged to return home, the exodus could threaten Singapore's ambitious plans to attract 25 wafer fabs or roughly $30 billion in investment.
.
China has initiated a program to replicate Taiwan's success in microelectronics on a much larger scale. China is successfully attracting investment through its 17 percent value-added tax (VAT) on imported semiconductors (as opposed to a 3 percent VAT on those made in China). The 14 percent surcharge on foreign chips entering China is enough to force those companies operating in China to seek indigenous sources of supplies. China has created a tax-free environment for semiconductor plants. It has created "very powerful financial incentives to draw in talent from abroad," and it has all the capital and technology needed to put into place a vibrant semiconductor industry.
.
Temasek Holdings, the investment arm of the Singapore government, may divest itself of Chartered Semiconductor Manufacturing Ltd. and its sister company, ST Assembly and Test Services, thereby abandoning the wafer production business [August 2002]. Temasek, which works with Singapore's Economic Development Board, is helping the government in its search for new technology growth markets and for a way to maintain Singapore's status as a telecommunications and routing hub. With over capacity plaguing the global semiconductor industry, Temasek is now looking for new opportunities in telecom and biotechnology.
.
Despite the industry's global woes and move towards diversification, the island state's faith that its economic future is etched in silicon remains unshaken. But to show a profit from its chip making commitment, won't be easy.
.
.