Slowdown Shaves IT Growth to 12 percent

Posted on March 1, 1998 
Filed Under Julian, Nikkei Electronics Asia

By Julian Matthews

The Asian financial meltdown has begun to take its toll and the signs of a slowdown in 1998 are already showing.

O K Lee, chairman of the northern branch of the Federation of Malaysian Manufacturers, said a number of manufacturers have begun to downsize their operations and have frozen recruitment, controlled overtime, and reduced shifts.

“The slowdown has mainly affected companies which have high imports of equipment and raw materials and are dependent on local and regional markets,” he said. He added that companies that have taken out foreign loans are also in a bind.

Banks Tighten Belt

Tight credit control by local banks and financial institutions has also prevented local investors from setting up new operations to support multinational electronic companies.

Lee said some of the larger export-oriented multinationals have managed to maintain growth despite the currency turmoil. “They gain because they sell in US dollars and their main markets are outside the Asian region,” he said.

Seagate’s in the Red

One multinational, however, has not been spared. Disk drive maker Seagate Technology Inc of the US reeling from a supply glut, intense pricing pressures and a free falling ringgit will reduce its Malaysian workforce by 750 indirect personnel.

Sources said the company which employs over 25,000 staff in four plants in the country has also taken steps to repatriate its 2,000 foreign workers to their home country.

In a statement, Seagate said it will discontinue the head stack and head gimbal assembly manufacturing operations at its Penang and Ipoh plants and planned to downsize disk drive assembly operations in Perai in February 1998.

“Seagate will not close any facilities in Malaysia. Customer service operations and drive assembly will continue in Perai, and thin-film magnetic recording head manufacturing and tape head assembly within Penang and Ipoh will continue,” it said.

The company cited excess inventories, increased price-cutting and weak demand for the downsizing.

In its most recent fiscal quarter, Seagate reported depressed revenues of US$1.67 billion, down from US$2.4 billion a year ago, and a net loss of US$183 million compared to a net profit of US$212.6 million the previous year.

Supply Chain Affected

Suppliers to disk drive component manufacturers are also starting to feel the pinch.

For Empak Inc, an American manufacturer of plastic molded products for storage and handling of silicon wafers and memory disks, sales has slowed dramatically in the last quarter of 1997.

“Revenue growth has not been up to expectations,” said Charles Eitel, managing director of Empak (M) Sdn Bhd.

Empak began production last May at its first offshore plant outside the US in the Kulim Hi-Tech Park, about 30km from Penang.

Eitel said the company had to cut back on the ramp up of the plant because sales failed to meet earlier projections.

Corridor Project Gives Hope

Besides disk drives, local sales of information technology products have also dampened and forced some companies to fold or downsize their operations.

PC maker AST Research Inc of the US has closed its Malaysia and Singapore sales offices as part of a regional restructuring.

KT Technology Sdn Bhd, a PC distributor and assembler, has also ceased operations in both countries, and systems integrator Kumpulan Netband (MSC) Sdn Bhd has closed two offices and retrenched half its staff in the country.

The Association of the Computer Industry Malaysia (Pikom) has forecasted modest growth of 10 to 12% this year, revised downwards from the 20 to 30% growth rates the industry has enjoyed in previous years.

Pikom executive director Alan Fung blames cutbacks by large corporations, cautious consumer spending and the depreciating ringgit for the slowdown.

He said that many customers are also having difficulty raising financing to lease IT equipment because of the credit squeeze.

Local banks and financial institutions have been tight-fisted in extending loans in recent months.

Fung is hopeful, however, that the roll out of the Multimedia Super Corridor (MSC) project will encourage some purchases for the year.

The Malaysian government has stated it will not halt the development of the infrastructure for the 15km by 50km high-tech zone south of Kuala Lumpur.

Published in Nikkei Electronics Asia, Mar 01, 1998

by Julian Matthews, Malaysian correspondent

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