Singapore Sticks with Its Chip Program

Despite the industry's global woes, the island state's faith that its economic future is etched in silicon remains unshaken

By Bruce Einhorn

A visit to Singapore is a reminder that, despite the turmoil of the past few years, some things in Asia remain constant -- despite a regional financial crisis, an Internet meltdown, or a war on terrorism. Through them all, Singapore has stuck to form in key areas.

Take politics. The city-state held an election on Nov. 3, but the winner was already clear before the first vote was cast, since the feeble opposition didn't put up enough candidates to win a parliamentary majority from the ruling People's Action Party, which has been in charge for decades. As usual, the specter of litigation haunted the campaign season as a leader of the opposition made charges against Prime Minister Goh Chok Tong that rapidly backfired amid talk of defamation lawsuits. The country's leaders have long favored such litigation against opposition members who issue statements they find to be offensive.

On the economic front, Singapore's technocrats are also sticking to their guns. For years, the country's economic planners have insisted that manufacturing remain a major part of the economy. And now, with the country in the midst of a painful recession and the electronics industry suffering severely from the global downturn, they're not altering that view -- despite concerns that chipmakers (Singapore's key manufacturing industry) may not be profitable in the near term or the long (see BW Online, 11/5/01, "Chips: Nowhere To Go But Up?").


  Singapore is a small country, with a population of about 4 million and a limited amount of land. The island republic's main rival, Hong Kong, long ago gave up trying to preserve its manufacturing sector as production facilities relocated across the border to inexpensive locations in China. But Singapore's leaders don't think that approach is appropriate, so they've been working hard to prevent a manufacturing exodus.

The semiconductor business is a key part of that strategy. Tiny Singapore has 14 chip fabricators, and the government is intent on seeing more more set up shop, regardless of the brutal fall of the semiconductor market globally. "We are convinced that we want to be one of the nodes of the semiconductor industry," says Barry Sim, director of the electronics and precision-engineering cluster of the Economic Development Board. The EDB is the government agency in charge of promoting industry by making investments in companies and offering various incentives to multinationals interested in relocating to Singapore. "We still believe in the long-term growth of the semiconductor industry."

With that in mind, Singapore is pushing ahead to make it easier for companies to build chip plants. In the spring, the government announced several new measures, including a plan to set aside 60 hectares of land in the northern part of the island for more silicon-wafer factories. The government also announced that it planned to build a new facility for the production of high-grade purified water, an important ingredient in the chipmaking process. The government also said it would be developing more programs to train people in the skills required by the semiconductor industry.


  These moves came on top of previous steps, which included investments by the EDB in new fabs run by some of the top industry players. They include one operated by Taiwan's United Microelectronics Corp., the world's second-largest chip foundry, or contract-manufacturer. The EDB has also invested in a joint venture with Philips and Taiwan Semiconductor Manufacturing Co., the world's biggest foundry.

Singapore hasn't had the best track record in the business. Its local champion, Chartered Semiconductor, was profitable last year but lost money for several years before that and will likely be back in the red this year. And the business climate is tougher than ever now. The foundries are ailing, with TSMC just eking out a profit, UMC suffering losses and Chartered operating at less than 25% of its capacity. The situation for the memory-chip makers is no better: The bailout of South Korea's Hynix is putting pressure on memory producers across the region.

Still, while the chip business is enduring its most challenging time in years, the EDB's Sim expresses confidence that the government is on the right track. Chipmaking "is suitable for Singapore," he says, because it isn't labor-intensive, and it requires highly skilled and educated workers. And Singapore, having invested so much money and energy over the years in developing an industry, has an advantage over chipmaking wannabes like Malaysia and China.

"We have all the elements of a global semiconductor industry in place in Singapore," he says. "We have seen this industry subject to many such cycles in the past two decades or more. We are still very optimistic on the long-term prospects."


  That's why the government-run Institute of Microelectronics is pushing ahead with all sorts of plans. Located in one of the island's science parks, the institute is in charge of promoting R&D and training workers to make it easier for companies to produce chips in Singapore.

The IME is working with researchers from the National University of Singapore as well as U.S. universities (it recently signed an agreement with Georgia Tech) to develop more advanced technologies for chipmaking. And it's trying to expand its cooperation with local chipmakers. "Although the economy is not so good, these companies are still doing planning," says Tan Khen Sang, the IME's director. "They don't just stop R&D."

And Singapore has no intention of stopping, either. "We are looking at this for the long haul," says the EDB's Sim. Getting the country to show a profit from its chipmaking commitment, though, won't be easy.

Einhorn covers technology from Hong Kong for BusinessWeek. Follow his weekly Online Asia column, only on BW Online

Edited by Beth Belton

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