Beyond the current down cycle, can Singapore’s key electronics cluster continue to be competitive?
By Lynette Tan Nov 9 2019 / The Business Times
IT all started 51 years ago, and throughout the half century or so, Singapore’s key semiconductor industry has had its ups and downs. It is currently in the throes of yet another down cycle amid slow consumer demand. This time, it’s exacerbated by ongoing tensions between the US and China.
Chipmakers in Singapore, such as UTAC and AMS, have started slowing production and laying off hundreds of jobs, media reports said in July. Some companies have also reportedly been directly affected by the tit-for-tat trade tariffs imposed by the two economic powerhouses.
Meanwhile, latest industrial production numbers showed Singapore’s factory output growth easing year-on-year again in both the overall electronics cluster and the key semiconductor segment. In September, the electronics cluster registered a 9.6 per cent year-on-year decline, while output from semiconductors fell 13 per cent versus the previous year.
Beyond the slump, is Singapore’s semiconductor industry losing its competitive edge? Some industry observers seem to think so.
Today, Singapore’s global credentials are in jeopardy, according to Raj Kumar, founder and group chief executive officer of Innovative Global Solutions and Services (IGSS) Ventures, a technology investment holding company primarily focused on developing and commercialising semiconductor solutions.
“The nation is still a respected regional semiconductor hub, but falls behind world leaders such as the US, Taiwan, South Korea, Germany and China,” Mr Kumar wrote in a May opinion piece for The Business Times.
Likewise, DBS senior economist Irvin Seah believes the local semiconductor industry is facing immense challenges. It’s not just because of the ongoing global industry down cycle, he says, but also, “tremendous competition coming from some of the key regional players”.
Global semiconductor companies invested in Singapore in the past to leverage the nation’s hub position to deliver products to other countries in Asia.
But now, with China’s move into the global industry, those companies are shifting investments there instead, wooed also by subsidies or support from the Chinese government, explains Roger Sheng, vice-president and analyst at Gartner Research’s semiconductors and electronics group.
One concern appears to be how Singapore is one of the most expensive high-tech manufacturing locations globally, unlike Taiwan, South Korea and China, according to the industry watchers.
“Electricity costs, manpower levy, building rental costs are examples where Singapore’s semiconductor players face substantial challenges compared to global competition,” wrote Mr Kumar, who was previously a senior vice-president of operations and general manager for GlobalFoundries in Singapore.
Compared with other countries, Singapore also now sits further from key electronics products manufacturing sites, like Foxconn, Samsung or Huawei, notes Shanghai-based Mr Sheng.
Most product development and business allocation decisions are also made by American or European companies located far from Singapore. “The information or decision chain is much longer than (that of) the local companies in East Asia. It will cause a late response to emerging market trends,” Mr Sheng says.
A firm rebuttal
“Based on engagements with prospects and existing customers, I don’t think we’re not competitive. I think we are, (and) we’ll continue to be so,” says Cheong Wee Lee, director of JTC Corporation’s biomedical and electronics cluster.
“The recent openings by companies like Micron, as well as STMicroelectronics, I think these are testament that we are competitive,” he tells BT at the sidelines of JTC’s inaugural Electronics Industry Day at the Tampines Wafer Fab Park. “In fact, if you look across the road – AAC Technologies – that is another company that actually started building late last year.”
Asked if persuading the world’s biggest semiconductor players to set up shop and stay here has become a more uphill task, Mr Cheong says: “I think the task has always been uphill against the global competition, which is getting more and more intense.”
But where Singapore’s niche remains, he says, is in providing very specialised spaces that cater to the needs of the industry, where operational requirements become increasingly stringent as technologies get newer and more advanced.
For example, before JTC opened JTC nanoSpace in 2017, they did a “worldwide scan” and did not find any developer, be it private or government, that provided vibration-sensitive spaces. Now they are building a new semiconductor facility in Tampines that will feature even higher standards of vibration control.
Like Mr Cheong, there are other industry stakeholders who believe the Republic still has its edge in various aspects, thanks to investments in advancing manufacturing capabilities, and research and development (R&D).
Ang Wee Seng, executive director for the Singapore Semiconductor Industry Association (SSIA), concedes that cost competitiveness may not be one of Singapore’s fortes, but highlights the government’s push towards Industry 4.0.
“A lot of companies knew a long time ago that unless you start to automate your line, you start to produce more for less in a sense, we cannot compete with countries like China. So, a lot of factories in Singapore today are fully automated,” Mr Ang says.
The semiconductor sector has ranked among those leading the way in adopting Industry 4.0 technologies, based on a Singapore Economic Development Board (EDB) study of 200 firms that have undergone Smart Industry Readiness Index (SIRI) assessment. The report serves as a stock-take of Singapore’s current state of manufacturing transformation.
In addition, Singapore’s semiconductor sector has been progressing towards developing more advanced technology and proprietary know-how, which bodes well with upcoming trends in semiconductors that require such sophistication, Mr Ang adds.
Staying put for now
To be sure, there are global semiconductor players that still find it worthwhile to operate in Singapore.
“Moving out of Singapore has never been a thought,” says Alvin Ng, general manager for Jabil, an American manufacturing solutions provider which set up shop on local shores in 2002. The company employs more than 700 people locally.
Singapore – where Jabil occupies some 350,000 square feet of space across Tampines and Changi North – remains a “very strategic location”, even if it’s not one of the company’s largest bases in terms of staff strength and space, says Mr Ng.
For one, the government has provided them with a conducive environment to do business not just in Asia, but globally as well. Being here also allows Jabil to tap an established, regional supply chain ecosystem to optimise its supply chain.
At the end of the day, “it’s not all about outbidding the other people with the lowest price, it’s giving them the total solution,” Mr Ng says. “That matters more than anything else.”
Sanjay Mehrotra, chief executive of Nasdaq-listed Micron Technology, also tells BT that the company will “continue to make appropriate investments here in Singapore”, as it launched a purportedly multi-billion dollar wafer fab expansion here in August.
“Singapore is our centre of excellence for NAND technology and production, and we don’t produce NAND wafers anywhere else,” he affirms. NAND products make up about 30 per cent of Micron’s sales.
And while the downturn may have led to factories here operating at undercapacity, players note that there have not been large-scale retrenchments in the industry.
Meanwhile, Singapore is set to continue investing heavily to boost the local semiconductor industry, especially in light of upcoming trends.
The emergence and growing adoption of new technology applications in fields such as artificial intelligence, autonomous vehicles and smart manufacturing are long-term growth drivers that will fuel strong and diversified demand for semiconductor solutions, says Pee Beng Kong, executive director for semiconductors at the Singapore Economic Development Board (EDB).
Those new technology markets are expected to account for more than 50 per cent of Singapore’s semiconductor sector by 2030.
In 2018 – considered a banner year for Singapore’s semiconductors – the sector generated a value-add of S$35.2 billion, up by close to 90 per cent from a year ago.
“Singapore is positioning ourselves to capture growth opportunities arising from these trends, leveraging our existing capabilities in manufacturing and R&D,” says Mr Pee. “We are also investing strongly in public research to enable our research institutes and institutes of higher learning to participate in these growth areas.”
Professor Dim-Lee Kwong, executive director of A*STAR’s Institute of Microelectronics, says Singapore is taking a “holistic view” in enhancing the competitiveness of the semiconductor industry.
“The local R&D ecosystem, including the A*STAR research institutes and universities, has been pivotal in supporting the industry in moving up the value chain and responding to rapid changes in technology developments,” he says.
In October, GlobalFoundries, Nanyang Technological University (NTU) and the National Research Foundation (NRF) jointly pledged S$120 million in cash and in kind to look into memory solutions that can store data for a long time without needing a power supply.
The three parties did not disclose the breakdown for the investment in the four-year project, but some of the funding comes out of the advanced manufacturing and engineering arm of the national S$19 billion Research, Innovation and Enterprise 2020 master plan.
Going forward, the semiconductor sector will also continue to “fuel the needs of the many other sectors that are growing and being disrupted”, said NRF chief Professor Low Teck Seng at an industry event in October.
Hence, the money ploughed into the sector is “very, very big, and for good reasons”, he said.
Nevertheless, DBS’ Mr Seah urges a pragmatic approach towards what he sees as constant evolution in Singapore’s semiconductor and overall manufacturing sectors.
“We can’t just say we want to preserve the semiconductor industry… if we do that, what we forget is actually the bigger picture. The bigger picture is to continue to have a vibrant manufacturing sector that can create meaningful jobs for Singaporeans,” he says.
If the nation is losing its comparative advantage, in the semiconductor industry or otherwise, “does it make sense to spend taxpayers’ money to try to salvage the situation and try to save a dying trade?” he questions. “The answer is ‘no’.”
A decades-old engine
SEMICONDUCTORS were identified as a key segment of Singapore’s economic development shortly after independence in 1965, according to the Singapore Semiconductor Industry Association.
In 1968, American microelectronics company National Semiconductor set up shop in Singapore, opening what would be Singapore’s first semiconductor facility. Two more big names, Fairchild and Texas Instruments, followed soon after. More than 7,000 jobs were created in just three years by those three semiconductor companies.
Singapore’s semiconductor industry has faced its share of booms and busts.
A major recession hit the US in 1970, leading to a glut of semiconductors in the global market. This was followed by a global recession in 1974.
The double whammy hit Singapore’s fledging industry hard, as many players, like Teledyne and Texas Instruments, cut shifts and retrenched hundreds of workers in Singapore.
In the years spanning the Asian Financial Crisis, the dot-com bust and regional SARS outbreak, the global semiconductor industry also saw demand shrink as companies cut back on their output. The local semiconductor sector’s value-added stood at S$7.8 billion in 2000 but fell to S$4.3 billion in 2001, and remained at that level in the following few years.
Today, the efforts to move up the value chain after the lean years have clearly paid off. The semiconductor sector is one of the largest industries within the manufacturing sector, employing around 35,000 people. In 2018, the sector generated a value-add of S$35.2 billion, up from S$18.8 billion in the preceding year. Singapore also accounts for 11 per cent of the global market share for semiconductors.