Asia’s electronics sector booms, bucking global economic slump

The electronics industry is holding up relatively well, as companies adopt new technologies such as 5G and automation tools
Some of the boom is specific to the health crisis, amid a global scramble for medical equipment and demand for videoconferencing and other remote working technologies

Technology

Bloomberg

Published: 8:57am, 15 Jun, 2020

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Global trade data in the Covid-19 era has been generally abysmal, but look a little closer and the electronics sector that fires Asia’s trade engines could be headed for a pretty good year.

In South Korea, semiconductor exports rose in May and imports of equipment used in producing semiconductors surged 168 per cent, trade ministry data show. Taiwan’s electronics component exports, which include chips, grew 13.2 per cent in May to US$10.2 billion, even as total exports fell 2 per cent from a year earlier.

The electronics industry is holding up relatively well amid the coronavirus pandemic, as companies adopt new technologies – including 5G equipment and automation tools – that make it easier for employees to work remotely. A sustainable boost will depend on whether consumers return with similar vigour, and whether other factors such as US-China tensions do not interfere with digital demand and supply.

“The tech industry seems to have decoupled from the overall economy somewhat, as the tech industry is still growing well” and has been “relatively immune to Covid-19”, Mark Liu, chairman of Taiwan Semiconductor Manufacturing Co (TSMC), said at a shareholder meeting on June 9.

Mark Liu, chairman of Taiwan Semiconductor Manufacturing Co, speaks at the company's annual general meeting in Hsinchu, Taiwan, on June 9. Photo: Bloomberg

TSMC, the main chip maker for Apple and Huawei Technologies, still plans to spend as much as US$16 billion on capacity upgrades and technology this year, and expects revenue gains in the mid- to high-teens, Liu said. Covid-19 has helped drive some budding technologies related to remote work and education and social distancing, he added.

TSMC shares have risen 27 per cent since their lowest close for the year on March 19, slightly less than the 32 per cent gain in Taiwan’s benchmark Taiex stock index in that time.

Amid generally awful export figures from the region, “the one bright spot is semiconductors”, said Trinh Nguyen, a senior economist at Natixis SA in Hong Kong. “A lot of this reflects the product cycle and also the global lockdown and suppression that favour the ‘digitalisation’ of economic activities, driving demand for electronic goods like chips.”

It helps that some of Asia’s most tech-focused economies have had relative success in containing the virus: Taiwan has reported just seven virus deaths, South Korea flattened its curve fairly early and Singapore’s fatality rate is among the world’s lowest. That gives momentum to efforts to restart tech engines and get consumers used to new ways of doing business.

03:07

China’s hi-tech industries capitalise on Covid-19 pandemic health care needs

“We’re seeing more countries pledging economic reforms, and there’s increased urgency for a stronger technology push to lead the economic recovery,” said Zhao Defa, an economist at Continuum Economics in Singapore. “Given that South Korea and Taiwan are the world’s main semiconductor producers, they will be beneficiaries.”

Some of the boom is specific to the health crisis, amid a global scramble for medical equipment and demand for videoconferencing and other technologies as work and school shift more to people’s homes.

China’s medical exports and shipments of hi-tech electronics jumped in both April and May, for example, while Singapore’s pharmaceutical shipments surged 174 per cent in April from a year earlier.

Dread over impending anti-Huawei law grows at US companies

Further gains may not be as pronounced.

Consumer demand is still lagging, though. South Korean shipments of computer products jumped 83 per cent in May, their eighth straight monthly gain, but sales of smartphones dropped 22 per cent and consumer appliances fell 37 per cent. Globally, smartphone shipments are expected to fall 11.9 per cent this year – their biggest annual drop ever, according to data from research firm IDC.

While 5G, high-performance computing and artificial intelligence will all create demand for Taiwan’s exports, setbacks from Covid-19 and US-China tech tensions could constrain that progress, Beatrice Tsai, director general of the statistics department at Taiwan’s Ministry of Finance, said on June 8.

Still, analysts at Citigroup see a risk that US-China tensions will weigh on chip demand. China’s build-up of chip inventories was intended partly to get ahead of a US ban on Huawei set to take effect later this year.

The recovery will be digital

Anand Swaminathan, senior partner at McKinsey

China’s export orders have taken a hit from the lockdowns in the US and key European markets, said Rajiv Biswas, Asia-Pacific chief economist at IHS Markit. A second-half recovery in those economies, as well as Christmas orders, could drive a rebound in tech exports, he said.

Governments have tried to stay focused on the long term, aiming to take advantage of the technology sector’s relative advantage in the pandemic by providing special support for electronics firms and new technologies. Singapore pledged S$500 million (US$360 million) last month to help businesses in their digital transformations, including moving hawker centre stalls to e-payments, and is spending another S$3.5 billion on information and communications technology to mitigate the virus outbreak.

Samsung to shift some smartphone production to Vietnam due to coronavirus

When the virus’ spread threatened Vietnam’s burgeoning technology industry, the government granted an exception to its otherwise strict lockdown measures: Samsung Electronics, which makes about half of its smartphones in factories near Hanoi and is one of Vietnam’s largest investors, was allowed to shuttle in more than 1,000 engineers from South Korea.

“The recovery will be digital,” Anand Swaminathan, senior partner and head of McKinsey Digital in Asia, said in a June 9 interview. Asian governments are “all starting to figure out what their investment strategy is on digital”.

This article appeared in the South China Morning Post print edition as: Asia electronics sector a global trade light in global gloom

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