Continuing Impact of the Asian Financial Crisis

Peter Singer, Editor-in-Chief -- Semiconductor International, 9/1/1998

O n the eve of Semiconductor International's State-of-the-Industry breakfast at SEMICON West, former Japanese Prime Minister Ryutaro Hashimoto announced his resignation, a move thought by many to be a precursor to change and reform desperately needed in a country whose recovery is crucial to economic improvement in the entire region. At the breakfast, experts discussed details of Asia's economic condition, its effects on the semiconductor economy and what form recovery might take. In addition to the roundtable discussion, Jerry Worchel, principal analyst at In-Stat (Scottsdale, Ariz.), provided a semiconductor forecast, predicting semiconductor sales of 12% below last year, and slow growth (6%) in 1999. Peter Singer, Semiconductor International's editor-in-chief also presented SI's Fab-of-the-Year award to Stan Grubel, CEO of MiCRUS Semiconductor (Hopewell Junction, N.Y.) (see May 1998 issue, p. 91 for details about this fab).

Worchel discussed the maturing of semiconductor-consuming markets such as personal computers, networking and cellular phones, offset somewhat by growth in wireless markets and multimedia. He said boom and bust cycles will continue in the industry, and conditions of recovery, including rises in DRAM and other chip prices, balancing of fab capacity and restoration of consumer confidence to drive demand for electronics, are not expected to improve before mid-1999.

Dr. Genda Hu, general director of Electronics Research and Service Organization of Industrial Technology Research Institute (ERSO/ITRI, Hsinchu, Taiwan), said a primary reason why Taiwan has remained strong relative to other countries in the region was its lack of foreign debt (Fig. 1). In addition, the percentage of foreign investment in Asian stock markets is at around 60% in Indonesia, 35% in Thailand, 19% in Malasia, 11% in Korea, yet only 3% in Taiwan. Expected Taiwanese revenues from the semiconductor industry (including IC design, fabrication, packaging and testing) were modified from January estimates of 26.6% overall growth to 4.2%, or $8.9 billion, according to Hu. Capital spending estimates, similarly have been cut from $6.8 billion to $5.36 billion, the latter of which is still 30% higher than last year.

Fig. 1. Economic strength is reflected in the levels of borrowed capital by country .

According to Yoshimitsu Kameoka, manager of International Affairs at the Press Journal (Tokyo, Japan), countries that have requested support from the International Monetary Fund (Hong Kong, Indonesia, Japan, Korea and Thailand) are most affected by the economic crisis. Kameoka's suggestions for reform in Japan included reduction of taxation, restructuring of its monetary system and political structure and changes in government spending on business, shifting spending to areas of information technology, venture capital, etc. Kameoka sited statistics from SEAJ indicating an expected 15% decline in sales of Japanese semiconductor capital equipment this year. Hiroyuki Horie, a provider of semiconductor consulting services, commented on the increasingly volatile effect of the economic crisis, from the vendors of electronic equipment to semiconductor manufacturers to the equipment and materials suppli ers. Dr. Archie Hwang, president of Tokyo Electron Taiwan Ltd. said the effects of the crisis were beginning to affect semiconductor capital spending in Taiwan, and that Korean manufacturers were severely reducing production of DRAMs.

Vicki Hadfield, international correspondent for SEMI (Washington, D.C.), presented results of SEMI's second-quarter Capital Equipment Buyers' Survey, a survey of purchasing managers at major semiconductor companies and committed level of equipment spending. Such confirmed orders were approximately 22% lower than 1997 levels worldwide, with details shown in the table. Hadfield said that beyond the financial crisis in Asia, the industry outlook is affected further by excessive fab capacity that persists, continued pricing pressure in the DRAM market, maturing of many existing electronics products and substantial technology changes. Hadfield said that the U.S. government currently considers funding for semiconductor technology unnecessary. She said that the interdependency of global economies is not comprehended, and little action regarding the Asian crisis can be expected until it affects conditions more severely in the United States. SEMI expects 1998 equipment sales to nearly match last year's, with expected growth from $135 billion in 1998 to $158 billion in 1999.