ELECTRONIC SECTOR NEWS

ELECTRONIC COMPANIES HARDEST HIT BY OUTAGE

The power outage recently caused an outcry among local and foreign investors, especially electronic factories, which lost millions of ringgit.  International Trade and Industry Minister Datuk Seri Rafidah Aziz said the ministry as well as the Federation of Malaysian Manufacturers (FMM) are still studying the impact of the power failure.  Speaking to reporters after launching the 24^th Engineering Society's Study Scheme Conference in University Malaya, Rafidah said not all factories have a back-up system, thus Tenaga Nasional Bhd needs to ensure there is no surge or ebb in supply. 

Asked about losses incurred by industries, Rafidah said:  "We are still getting feedback and the figures are not available yet, but companies are reporting losses of RM18 million, RM3 million, some RM1.5 million – it depends on the activities.  But electronics companies are sensitive to loss of electricity supply because in their process, even if there is an interruption lasting a second, they have to throw away the products."  Rafidah said she had asked TNB to station teams of engineers and technicians in industrial areas.  "It must be understood that the needs of the industrial sector are not the same as general consumers and the engineers and technicians need to be there to provide immediate help to minimise losses," she added.

(Source:  The Sun, 17 January 2005)

LG ELECTRONICS AIMS FOR TOP SPOT

LG Electronics (Malaysia) Sdn Bhd is investing RM60 million this year in marketing and customer service as part of its plan to emerge as the biggest seller of consumer electronics in Malaysia by 2007 with total sales exceeding RM1.5 billion.  Its managing director I G Kim said the company had set a target of RM1 billion sales in 2006, up from this year's target of RM796 million, and aimed to achieve RM1.5 billion sales in 2007.  "LG Electronics aims to be the No. 1 in Malaysia in terms of sales of consumer electronics," he told reporters who were taken on a tour of the company's headquarters in Kelana Jaya recently. 

Citing a GfK Market Research Institute market survey of electrical appliances in Malaysia in 2004, he said LG had a 38 per cent share of the plasma TV market, 10 per cent of the DVD player market, 53 per cent of the side-by-side refrigerator market and 20 per cent each of the air-conditioner and washing machine markets.  Kim said this year, the company would be spending RM40 million on its marketing drive and RM20 million on improving its customer service and logistical support.  "Customer service and quality products are our priorities.  While product leadership is always important, it now comes with quality service network," he said.  He said as part of its market expansion strategy, LG Electronics would focus on attracting the younger generation of consumers to its products.  "The younger generation is more into new things and innovations, whereas the older generation has a fixed perception of products.  That is why our image is always young and fresh."  Kim said LG Electronics products were now distributed through the company's network of 200 service centres and 800 authorised dealers.  The company terminated its distribution agreement with DRB-Hicom Bhd's 70 per cent subsidiary Scott and English Electronics Sdn Bhd on Jan 31, 2005.

(Source:  The Edge Financial Daily, 16 March 2005)

PHILIPS MALAYSIA UPBEAT

Philips Malaysia, supplier of the world-famous brand of electronic and consumer products, is confident of maintaining healthy business growth this year through its environment-friendly sustainable products, which have received good response from both government and private hospitals in Malaysia.  Its chief executive officer R. Kumar said Philips Malaysia recorded about RM1 billion revenue last year.  "We don't intend to cut cost or downsize our employees as we build our business and strive towards producing innovative products in Malaysia," he said at a graduation ceremony recently for underprivileged children who have completed their education in Philips Kindergarten in Batu Arang, Selangor.

(Source:  Business Times, 21 March 2005)

China to become world's top chip market this year:  researcher

China, which had the world's third-largest market for semiconductors in 2004, will become the biggest this year as demand grows in the nation and shrinks elsewhere, according to market researcher IC Insights.  China's chip market will grow 11 per cent to US$34.3 billion in 2005, the Scottsdale, Arizona-based researcher said in an emailed report.  The North America market, the largest in 2004, will shrink 9 per cent to US$33 billion, the report said.

"China's telecommunications industry will still do pretty well in 2005," helping fuel local demand for chips, said Bill McClean, the chief analyst with the researcher.  "After TCL (Corp) and Alcatel (SA) merged their cell-phone businesses they're going to become a big chip buyer."  TCL, based in Guangdong, China, is the nation's largest consumer electronics maker.  Demand for chips from local manufacturers such as Lenovo Group Ltd, which in December said it will buy the personal computer business of IBM Corp, is "drawing even" with overseas electronics producers in China, McClean said.  The world chip market will shrink about 2 per cent next year to US$175.4 billion as the global economy slows, the researcher said.  Strong demand for semiconductors in China will help boost orders for domestic makers such as Semiconductor Manufacturing International Corp, the nation's biggest supplier of made-to-order chips, McClean said.

"China's total chip production last year was only US$2.4 billion, so with a US$33.3 billion market, they're supplying way under 10 per cent of demand," McClean said.  Semiconductor Manufacturing "is going to be a good company to turn to.  They're very aggressive in pricing their products."  The company's sales in the fourth quarter last year probably exceeded revenue during the period for Chartered Semiconductor Manufacturing Ltd of Singapore, McClean said.

(Source:  Business Times, 8 January 2005)

global chip sales up 28% on-yr

Global sales of semiconductors reached a record US$213 billion (RM809.4 billion) in 2004, a 28 per cent on-year increase from US$166.4 billion in 2003, driven by strong demand from a very broad spectrum of end markets, according to the Semiconductor Industry Association (SIA).  SIA president George Scalise said this was the first time since 2000 that global chip sales had surpassed US$200 billion.  However, for 2005, he expects sales to be flat at the record level of 2004 as the entire supply chain continues to reduce excess inventories amid a very competitive market environment.  In a statement posted on the SIA website, he said the industry's growth over the past three years was remarkable when viewed in a broader perspective.

"Worldwide sales of semiconductors fell to US$139 billion in 2001 following the collapse of the dot-com boom, the 9/11 terrorist attacks, and a mild economic downturn.  Fears that high gasoline prices would seriously dampen sales of consumer electronics during the holiday season did not materialise," he said.  He added that moderation of gas prices coupled with good economic growth appeared to have bolstered consumer confidence, an increasingly important consideration for the semiconductor industry, as purchases by individual consumers now account for more than half of all chip sales. 

However, in December, chip sales declined by 3.5 per cent sequentially to US$18.4 billion from the US$19.0 billion reported for November, in line with historical seasonality.  When compared with December 2003, sales were 14.6 per cent higher.  Fourth-quarter sales, at US$55.1 billion, declined by 0.8 per cent from the immediate-prior quarter sales of US$55.5 billion.  Scalise said very strong year-on-year growth during the first half of 2004 drove worldwide sales growth at a faster rate than the earlier SIA forecast of 19 per cent for the year as a whole.  Global chip sales grew by 36.5 per cent year-on-year during the first half of 2004 compared with 21 per cent in the second half.  He added the 21 per cent year-on-year growth in the second half of 2004 was very robust, but did not match the extremely strong first-half growth rate.  Strong growth in sales of personal computers and wireless handsets were among the major drivers of record chip sales in 2004.

According to International Data Corporation, PC sales reached 177 million units in 2004, a year-on-year increase of nearly 15 per cent.  Strong PC sales contributed to very strong growth in sales of DRAMs (dynamic random-access memory).  Total DRAM sales grew by nearly 61 per cent in 2004, by far the fastest-growing product line in the chip industry.  Microprocessor sales grew by just over 11 per cent year-on-year.  Strategy Analytics reported that wireless handset sales rose to 674 million units in 2004, up by more than 32 per cent from 2003.  Handset growth contributed to strong sales of digital signal processing chips, which increased by more than 27 per cent year-on-year.  Sales of optoelectronic chips, widely used in digital cameras, grew by almost 44 per cent on-year.  The Asia Pacific Region, which includes China and Taiwan, once again led the world in sales growth with a year-on-year increase of more than 41 per cent.  At US$88.7 billion in total semiconductor sales, the Asia Pacific Region was nearly double the size of the second-largest market, Japan, which had total sales of US$45.7 billion.  Chip sales in Europe grew by 22 per cent on-year, in the Americas by 21 per cent, and in Japan by 17.5 per cent.

(Source:  The Edge Financial Daily, 3 February 2005)

weak h1 chips mart to dampen revenue growth

Weakness in the semiconductor market in the first half of 2005 will hold back annual revenue growth, according to the latest forecast by Gartner Inc, a provider of research and analysis on the global information technology (IT) industry.  While revenue in 2004 grew 23.9 per cent to US$220 billion, Gartner forecast revenue in 2005 to grow 3.4 per cent to US$227.6 billion.  The semiconductor revenue growth peaked in the third quarter of 2004, and the industry would experience slower annual growth, it said in a statement in Kuala Lumpur recently. 

In line with the downward trend, sequential quarterly growth would be negative in the first quarter of 2005, and flat at best in the second quarter as seasonal slowdowns in electronics equipment sales exacerbates the weakening effect of inflated channel inventory levels on semiconductor revenue, Gartner said.  "The factor that drove strong revenue growth in 2004, tight fab capacity, strong consumer and business spending on electronics, and lean inventories, have dissipated," principal analyst for Gartner's Asia/Pacific semiconductor group, Philip Koh, said.  "Strong capital spending in 2004 has already had an effect in bringing down semiconductor manufacturing capacity utilisation rates, and end-markets are cooling down as global economic conditions weaken," he said.  The analyst said that challenging market conditions in the first half of 2006, such as increased and under-utilised manufacturing capacity on the supply side, along with the absence of a significant demand driver, would keep growth muted.  He said that the memory sector is likely to hold back more positive overall semiconductor market growth in 2006.  "Significant capacity is building in the memory sector that would throw the major memory markets of dynamic random access memory into oversupply, which would lead to depressed commodity memory market conditions in 2006," he said.

Although market conditions would begin to improve in the second half of 2006, the first half weakness would keep annual growth next year in the low single digits, he added.  Gartner serves more than 10,000 clients, including chief information officers and other senior IT executives in corporations and government agencies, as well as technology companies and the investment community.  The company focuses on delivering objective, in-depth analysis and actionable advice to enable clients to make more informed business and technology decisions.  Founded in 1979, Gartner is headquartered in Stamford, Connecticut, and has more than 3,500 associates, including some 1,000 research analysts and consultants in more than 75 locations worldwide.

(Source:  Business Times, 4 March 2005)

CHIP MARKET FACES SLUGGISH GROWTH

The outlook for the Malaysian semiconductor market looks bleak this year with sluggish growth prospects in tandem with similar trends in the global market.  According to Gartner, the local market can expect to see a low-mid single digit growth for both 2005 and 2006 under the impact of the projected slowdown in the global semiconductor market in the two years resulting from the cooling down of end markets that include those within the information and communications technology (ICT) sector and under-utilisation of semiconductor manufacturing capacity. 

"The growth prospect for Malaysia in 2005 against 2004 will be much lower than 2004 against 2003, which experienced around 14 per cent annual revenue growth.  "Based on our research analysis, the semiconductor market growth peaked in the third quarter of 2004 and has been on a downward trend since the fourth.  The expected softness in the market in the first half of this year will hold back revenue growth in 2005," said Advisory (Singapore) Pte Ltd's principal analyst semiconductor, Asia-Pacific Philip Koh.  "As we know, Malaysia is an export-driven economy, with quite a huge chunk of export business coming from the electronics equipment and semiconductor industries.  When the demand reduces, the same effect will impact Malaysia," he said. 

Elaborating further on the projected decrease in growth, Koh said the strong capital spending in 2004 had an effect in bringing down the semiconductor manufacturing capacity utilisation rates.  "Besides, the end markets are cooling down as global economic conditions weaken.  Thus, we forecast the market growth in 2005 and 2006 will be quite flat," he said, adding that the ICT market will probably also feel the heat.  "Generally, when the economic condition weakens and the semiconductor industry slow down (they are both closely related), the ICT industry will also feel the same effect on Malaysia's ICT industry," Koh said. 

Meanwhile, Avenue Securities Sdn Bhd's senior research analyst Jeffrey Tan agreed that flat sales are expected in 2005.  "Industry momentum peaked in 2004 with record sales.  Inventory corrections are still ongoing with most chip sub-contractors expecting a mild recovery towards the second quarter of this year," he said, adding that growth increase or decrease in the forecast period largely depends various uncertainties such as the global economic momentum characterised by rising oil prices and inventory correction.  "However, the impact on local ICT players is negligible as their sales are domestically inclined.  Local chip companies derive 100 per cent of their sales from exports," Tan said. 

In an earlier report, Koh said the memory sector is likely to hold back more positive overall (global) semiconductor market growth in 2006.  "Significant capacity is building in the memory sector that will throw the major memory markets of dynamic random access memory (DRAM) into oversupply, which will lead to depressed commodity memory market conditions in 2006," Koh added. 

(Source:  New Straits Times, 10 March 2005)

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