BUSINESSWEEK ONLINE : DECEMBER 18, 2000 ISSUE
COVER STORY Asian Electronics: Who Pulled the Plug? (int'l edition) Demand is down--and recession may follow All year, Ron Norris' biggest problem as vice-president for sales at Taiwan Semiconductor Manufacturing Co. was meeting customer demand. To keep pace with a 129% increase in sales for the first 10 months of 2000, the world's largest contract manufacturer of chips had to run its 10 plants full tilt--and spend billions on new silicon wafer fabs. But suddenly, TSMC is having to pump the brakes. ''A few weeks ago, our customers wanted more capacity,'' says Norris. ''Now they are cutting orders.'' Just like that, the electronics export boom that has powered East Asia's recovery seems to be in jeopardy. As Wall Street and Corporate America reel from the string of earnings shocks and gloomy forecasts for technology spending next year, the bad news already is being sent to everyone from South Korean computer display makers to Thai circuit board suppliers. All of the once-rosy economic forecasts for next year are on hold. Indeed, Deutsche Bank chief Asia economist Michael Spencer warns that a slowdown in East Asian export growth in 2001 to 15%, from 25% this year, could push Thailand, the Philippines, and perhaps even Taiwan into recession. A tech downturn would hit East Asia especially hard, because electronics exports to the U.S. have been the biggest factor in the region's recovery since the 1997 financial meltdown. Domestic consumption and investment levels, though improving, are still well below pre-crisis levels. And except for a wave of foreign takeovers of struggling Asian manufacturers, foreign direct investment has failed to pick up. What's more, thousands of East Asian banks and corporations, especially in Thailand, Indonesia, and Malaysia, remain in terrible financial shape and are cut off from private capital markets. Throw in high oil prices, and some analysts fear Southeast Asia countries could be ready for a period of competitive devaluations, leading to a further erosion in confidence and the potential for capital flight. ''As these pressures build, the problems left unresolved by the crisis are all coming back to the surface,'' says Kenneth S. Courtis, Asia vice-chairman for Goldman, Sachs & Co. ''It's white-knuckle time.'' No one is predicting a full-fledged repeat of the Asian crisis. Many companies have sharply reduced their dependence on short-term debt denominated in foreign currencies, trade surpluses are healthy, and the region's central banks have accelerated their effort to clean up the rot in their banking systems, especially in Thailand and Korea. But most economists are trimming their 2001 growth forecasts for the region by as much as 40%, to an average of 6%. And even that figure includes China and India, where prospects remain good. South Korea is particularly vulnerable. Information-technology products such as memory chips, computer monitors, and cell phones accounted for 35% of Korea's total exports of $158 billion in the first 11 months of this year. That has powered an estimated 9% jump in gross domestic product in 2000. The government already expects growth to cool to 5% next year thanks to slower exports and consumer spending. Private economists say the economy could sputter much more if exports fall short of next year's 10% growth projection, which compares to 23% this year. Slow U.S. personal-computer sales forced Samsung Electronics Co., the world's largest dynamic random-access memory (DRAM) device maker, to cut capital spending in 2000 from an originally planned $5.3 billion to $4.6 billion. ''The global IT market is not growing as fast as we expected,'' says Samsung Planning Director Kim Jae Bom. The trend is equally worrying for other Asian economies. Electronics manufacturing accounts for 35% of exports in Taiwan and 60% in both the Philippines and Malaysia. In the Philippines, monthly shipments of electronics products fell by 11.9%, to $2.05 billion, in October. Taiwanese producers also say leaner times have arrived. Hsinchu-based Vanguard International Semiconductor Corp., for example, reported sales fell 9% in November and lowered its 2000 forecast by 21%, to $603 million. To blunt the impact, some Asian semiconductor suppliers are racing to diversify away from PCs, the market segment which is likely to be the hardest hit. Hsinchu DRAM maker Mosel Vitelic Inc., 80% of whose chips end up in PCs, wants to reduce that reliance to half within five years, shifting instead to flash memories and drivers for liquid-crystal displays. But overhauling entire export strategies takes time. For 2001, the region's electronics industry has little choice but to brace for the full impact of whatever is about to hit. By Frederik Balfour in Hong Kong, with Macabe Keliher in Taipei, Moon Ihlwan in Seoul, and bureau reports _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The Tech Slump COVER IMAGE: The Tech Slump CHART: Tech Spending Slowdown TABLE: Angst in the Air Who May Prosper Despite the Fall TABLE: Recession-Resistant Commentary: Tech Leads--Both Up and Down TABLE: Technology Booms and Busts Commentary: Greenspan: This Is Your Captain Speaking... More Bad News for the Naz CHART: Valuations Remain Sky-High Asian Electronics: Who Pulled the Plug? (int'l edition) CHART: Cooling Down INTERACT E-Mail to Business Week Online

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