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US-China Trade War Set to Buoy Philippines Semiconductor Sector

The supply chain disruption caused by the US-China trade dispute may create chances for Philippine semiconductor players to secure new business, according to many exhibitors at the Manila-hosted Semiconductor & Electronics Expo.

Photo: Semiconductors: The high-tech sector that now plays a leading role in the Philippines’ exports. (Shutterstock.com)
Semiconductors: The high-tech sector that now plays a leading role in the Philippines' exports.
Photo: Semiconductors: The high-tech sector that now plays a leading role in the Philippines’ exports. (Shutterstock.com)
Semiconductors: The high-tech sector that now plays a leading role in the Philippines' exports.

The 16th Philippine Semiconductor & Electronics Convention and Exhibition (PSECE), recently held in Manila, is one of the leading tradeshows in its sector. The semiconductors and electronics trade is very significant in the Philippines, representing the country's largest export sector. It accounted for 57.2% of total merchandise exports in 2018, according to Semiconductor and Electronics Industries in the Philippines (SEIPI) data, at about US$67.49 billion for the year.

This was, however, a 1.8% drop from the previous year, mainly due to weak global demand as a result of trade tensions between the United States and China, according to SEIPI. Of the 2018 export figure, semiconductor components or devices accounted for 73.76% of the total, or about $27.71 billion. The next biggest segment was electronic data processing with $6.25 billion.

Hong Kong is by far the industry's biggest market, accounting for 21.15% of the Philippines' electronics exports last year, followed by the US and mainland China, at 13.61% and 13.17%, respectively. SEIPI has set its 2019 export growth target at 3%, and is counting on the technological upgrade cycle in various sectors, such as automotive, consumer electronics and office equipment, to compensate for the slowdown in semiconductors.

Despite the slowdown in the sector, the escalating US-China trade tensions may present opportunities, according to some semiconductor industry suppliers exhibiting at the show. Nicolai Suarilla, Marketing Officer of GEMPHIL Technologies based near Manila, noticed that potential customers are actively seeking alternative suppliers. He said: "With the trade war between the US and China, we are finding that a lot of US manufacturers are now looking to move their manufacturing or sourcing from China to Southeast Asia. A lot of the potential customers that I have been meeting here have been telling me they are actively looking for suppliers in Southeast Asia."

GEMPHIL Technologies was established in 1991, and the Philippines-owned company manufactures and supplies highly specialised components to major electronics and semiconductor companies with operations in the Philippines, Asia Pacific, the US and Europe.

Suarilla said the company exported mostly to Europe, but was also looking to develop more business in the US. "For us, the electronics business is booming and trending upwards. We find this show very good: there are a lot of suppliers and a lot of buyers here – both international and local."

Azlan Nasir, Sales Manager of fellow Manila company Sensing Technology Corporation, agreed with Suarilla that US-China trade issues were opening up possibilities, saying: "We are currently expecting the Philippines market to grow in the next few years. We believe there are a lot of China-based companies relocating. Many are going to Vietnam, but some are coming here. The Philippines has the advantage that people here speak English, which makes doing business here easier for many international companies."

Established 28 years ago, the company manufactures industrial heaters, sensors and calibration products. It is also a distributor of foreign products. Nasir saw this diverse offering as an advantage, saying: "What helps us is that we now service a wide range of sectors in addition to semi-conductors, such as food processing, storage and warehousing. 90% of our business is local, and we are able to provide after-sales service nationwide."

Photo: Tech centre: The First Philippine Industrial Park.
Tech centre: The First Philippine Industrial Park.
Photo: Tech centre: The First Philippine Industrial Park.
Tech centre: The First Philippine Industrial Park.
Photo: The Isabellenhütte high-tech range.
The Isabellenhütte high-tech range.
Photo: The Isabellenhütte high-tech range.
The Isabellenhütte high-tech range.

One business hoping to capitalise on an influx of new electronics manufacturing companies is the First Philippine Industrial Park. The park, established in 1996, is a joint venture between local power company First Philippines Holdings and Japan's Sumitomo Corporation.

Ella Blaquera, a Sales & Marketing Associate, for the park, said: "We now have more than 100 companies in the park and nearly 65,000 people working there. Many companies are Japanese, and the majority of them are in specialised light-engineering manufacturing or logistics."

The park is also registered with the Philippines Economic Zone Authority, which means it can provide a range of tax and other incentives to companies that locate there. Blaquera was keen to emphasise the park's geographic advantages and resilience, saying: "The park focuses on light industries, and we are well located with access to two major ports. We also have high-end infrastructure. All of the park's power infrastructure is underground – we are the only park in the Philippines that has that.

"This makes our power delivery highly reliable – even during typhoons – making us very suitable for installations such as for semiconductor and robotics companies that are power intensive and must have reliable power supplies."

With the semiconductor sector experiencing a slowdown in the first two quarters of this year, broadening the market has become a successful strategy for some companies. Local firm Augment Stats Controls has been diversifying its customer base into different sectors. Herbert Puntanar, the company's Senior Sales Manager said: "We are a distributor of niche semiconductor and electronics products. For us, the semiconductor market has been dropping recently – in part, we think, because there has been no major improvement in cell phones, and 5G has not yet arrived. But because our range of products have broader applications, we have been developing new clients who are using them for tooling, plastics and the like.

"We have not really been affected by the US-China trade war yet, even though most of our clients are US or European."

The Philippines has become of interest as a potential market for expansion for some of the foreign companies attending the show, including Jinhua International, a Taiwanese firm that produces silicon wafers. Company President James Hsiao saw room for expansion into the Filipino market, saying: "In Taiwan, we have developed a portfolio of prestige clients, and over the years have also picked up a few clients here. So we are attending this show looking for possible distributors or new clients as we believe the country could offer potential for us to grow more business."

German company Isabellenhütte was also attending the show, mainly to gauge potential business expansion opportunities. The company can be traced back for more than 500 years, originally as a copper smelter. Today, it is one of the world leaders in manufacturing of thermal and resistance alloys, low-resistance precision and power resistors, and precision measurement technology. Head of Sales Asia, Ladislav Varga, viewed conditions in the local market as not yet ready for the type of products the company sells, saying: "This is my first time at this show. The company has been operating in Asia for about six years, and we have picked up a few solid customers in the Philippines.

"Our products, because of their very high quality, are generally used in top-level manufacturing operations, such as research and development. In that respect, things are still behind in the Philippines compared with other parts of Asia. It will probably take a bit of time before the market here develops for us."

Another company looking to build on a small Philippine client base was Singapore-based Win Tech Nano-Technology Services, which provides diagnostic services, mainly for the Asian market. Dr Kee Yeh Yee, the company's Regional Sales Manager, said: "Our customers send us samples of faulty items and we analyse them for faults and send them back a report. Our company has been going for about 15 years, and we've steadily increased our customer base across Asia.

"We now have a few clients in the Philippines, and are trying to expand our business here. Given that the Philippines semiconductor industry is well established, there should be a lot of potential customers here for us. We have found the show quite successful for us in opening up new possibilities here."

Photo: PSECE 2019: A fast-growing expo for one of the Philippines’ fastest-growing industries.
PSECE 2019: A fast-growing expo for one of the Philippines' fastest-growing industries.
Photo: PSECE 2019: A fast-growing expo for one of the Philippines’ fastest-growing industries.
PSECE 2019: A fast-growing expo for one of the Philippines' fastest-growing industries.

The 16th Philippine Semiconductor & Electronics Convention and Exhibition took place from 30 May-1 June at the SMX Convention Center in Manila.

Marilyn Balcita, Special Correspondent, Manila

Content provided by Picture: HKTDC Research
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