The record-breaking 15 months Systems on Silicon Manufacturing Co took to build a US$1.2 billion wafer plant wasn't quick enough. By the time the factory opened last month to the din of fireworks and the drumbeat of a lion dance, some chips cost more to make than customers were willing to pay.
Since work started on the Singapore factory -- a joint venture between Philips Semiconductors and Taiwan Semiconductor Manu-facturing Co (
That spells trouble not just for Silicon Manufacturing, but for countries from Taiwan to Singapore, which rely on exports to the US for much of their growth.
Computer orders from the US are a leading indicator of the region's economic prospects and a rebound in demand for chips, expected to kick in about now, has failed to materialize.
"Everybody is counting on some recovery in the second half of this year," said Arthur Van der Poel, chief executive of Philips Semiconductor, Europe's third-biggest chipmaker.
"But it is more based on hope than on firm proof."
Global semiconductor sales will fall 14 percent this year, dented by slumping demand for memory chips and processors in the US and Asia, says the World Semiconductor Trade Statistics industry group. Philips last week said it may report its first annual loss in five years as semiconductor sales slow.
The slide has left manufacturers with stocks of chips they need to sell before cranking up assembly lines again.
"It will take until the end of this year to clear out inventory in every segment," said John Hsuan, vice-chairman of United Microelectronics Corp (
US computer orders are a good guide to where Asia is headed.
Monthly orders, which peaked at US$52.4 billion one year ago -- up more than 50 percent since the end of 1997 -- have since fallen, to US$36.2 billion in April. The US is the top export market for most Asian nations, where chips made in Asia wind up in everything from computers and cellphones to cars.
Cisco Systems Inc and Juniper Networks Inc, two of the world's biggest makers of equipment to link computers, have cut their sales forecast for the third quarter and second quarter, respectively.
Hewlett-Packard Co, the No. 2 computer maker, earlier this month said it was "more cautious" about the sales and profit forecasts for the third quarter it gave just three weeks earlier.
For the past nine years, Taiwan, Singapore and South Korea's economies have moved almost in lockstep with US computer orders, rising and falling in line with demand from IBM Corp, Hewlett-Packard and other computer companies. Bloomberg data shows a correlation of 0.9 between Taiwan's economic growth and US computer orders and 0.8 for South Korea and Singapore.
A value of 1 means the two move in lock-step. A reading above 0.75 shows they move together much of the time.
Now, the decline in spending on computers and the latest gadgets threatens to tip Asia back into recession.
In Singapore, where electronics make up 60 percent of exports, the economy shrank at an 11 percent annual pace in the first three months of the year. South Korea's economy grew just 0.3 percent in the first quarter, after shrinking in the fourth quarter. Korea's growth will probably slow to as little as 4 percent this year from last year's 8.8 percent, finance minister Jin Nyum said last week.
Taiwan's economy grew 1.1 percent in the first quarter from a year earlier, the slowest expansion in more than 25 years.
Japan's biggest export market is the US. Its biggest in Asia: Taiwan. A slump in exports in the first quarter is one of the main reasons the second-biggest economy is on the brink of recession.
The economy shrank 0.2 percent in the first quarter and all nine economists surveyed by Bloomberg News forecast a further contraction in the second quarter.
Asian exports probably won't bottom out until the fourth quarter, according to those economists surveyed.
US orders for computers and electronic appliances "appear to deteriorate substantially further in the next two months," said PK Basu, an economist with Credit Suisse First Boston in Singapore.
Once orders start to pick up, the improvement won't be reflected in export figures for about three months, Basu said, meaning the trough in sales will probably occur between September and January.
"We are seeing the signs of some firming in demand for personal computers," said Dwight Decker, chief executive of Conexant Systems Inc, the No. 1 maker of chips for dial-up modems. "In some sectors, like PCs, the bottom will probably be in the next few months."
Until then, electronics manu-facturers across Asia are doing all they can to stay profitable.
With factories running at half their capacity, Taiwan Semiconductor Manufacturing imposed a hiring freeze in Taiwan.
Philips Semiconductors has delayed a plan for another wafer factory in Asia until it sees more signs of a pick-up in demand. United Microelectronics told workers to fly economy class.
"This will be a long, cold winter," said Hsuan, the vice chairman of United Microelectronics.
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