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Mon, Jul 26, 2004 - Page 12 News List

Downturn fears are `overblown'

MINIMAL IMPACT Regional economies, which rely heavily on technology exports, shouldn't be greatly affected by a predicted global slump in demand for electronics


Fears of a slowdown in global electronics demand are overblown and the downturn should have minimal impact on the growth of Asia's economies, which rely heavily on technology exports, analysts say.

Singapore-based Chartered Semiconductor's forecast of weaker earnings in the second half of this year, despite beating estimates for its June quarter net profit, has heightened concerns over the predicted global slump.

Chartered said last Friday that second quarter to June net profit of US$15.29 million reversed a nearly US$90 million loss in the previous year and was also significantly higher than the US$1.89 million earned in the first quarter.

But the company, one of the world's top chip foundries, warned that the outlook for the rest of the year was uncertain.

Chartered's outlook followed US investment bank Merrill Lynch last week downgrading its rating on the global semiconductor industry to "underweight" from "overweight", amid concerns over falling prices and diminishing profitability.

Citigroup Inc's Smith Barney unit has also cut its recommendations for some of Asia's chip-makers to "sell" from "buy."

"Alarm bells are going off for the semiconductor and electronics industry following sweeping downgrades," economist Chua Hak Bin, from Singapore's DBS Group, said in a research note on last Friday.

"There is fear that a sharp downturn is in the making, with broader implications for the Asian economies, as electronics has been a key driver of Asian earnings and exports."

However, Chua said alarm bells should not be ringing too loudly.

"We think the threat of a sharp semiconductor downturn is overstated. The cycle is peaking, not plunging," he said.

Piyush Singh, Asia Pacific managing director for technology research group International Data Corp (IDC), agreed Asia's export-led economies should not be too concerned about a semiconductor downturn.

The projected slump would be due more to falling prices arising from an oversupply of chips, not weaker demand, he said.

"I don't think it will have a major impact on the economies because if you look at the tech sector as a whole, it is more than just semiconductors," Singh told reporters.

"There are components, services and there is increasing value that is being added at each element in this value chain. So the total impact is that we will still see growth as far as the IT [information technology] market is concerned."

Singh said total IT spending worldwide was expected to grow at 5 percent this year from last year and should remain at the same level next year.

"In the Asia-Pacific region, we expect the IT market outside of Japan to grow by 10 percent this year and by 11 percent next year. So overall, we see an increase in tech spending on IT by both corporations or enterprises as well as by consumers."

Two key drivers for this year's projected global growth are an expected buying binge by US companies because of promised tax breaks for IT spending, as well as a rise in shopping activities during the Christmas season, Singh said.

"Therefore, we will see an added impetus to the market in the fourth quarter of this year," he said.

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