Disk drive makers shut S'pore plants<\/p>\n
Jennifer Tan, Reuters, Singapore<\/p>\n
Walking the factory floor of Western Digital Technologies Inc in
\nKuala Lumpur, John Coyne is comforted by the thunder of well-
\noiled machinery.<\/p>\n
But the hum comes at deafening price for nearby Singapore. The
\nU.S. hard disk drive maker shut its factory in the city state
\nfour years ago and moved its production lines to lower-cost
\nMalaysia, resulting in the loss of 4,000 jobs.<\/p>\n
Other companies have followed suit, with the world's largest
\ndisk driver maker Seagate Technology Inc and rival Maxtor Corp
\ngradually shifting their lower-end factories out of Singapore to
\ncheaper manufacturing centers in Malaysia, Thailand and China --
\nthe hottest investment destination these days.<\/p>\n
"In a 10-year horizon, China will become a very formidable
\nchallenge across the board in terms of levels of technology
\nactivity, looking at the rate at which the country is pumping out
\nuniversity graduates and as local industries provide them with
\nthe platform to gain the necessary skills," said Coyne, a senior
\nvice president of Western Digital.<\/p>\n
To be sure, Singapore remains the world's top disk drive
\nproducer and is fighting back by moving up the food chain, using
\nits well-educated work force to focus on research and
\ndevelopment.<\/p>\n
The production of hard disk drives, a staple of Singapore
\nindustry, is facing unprecedented threats amid the harsh global
\ntech downturn that has hammered margins and squeezed prices.<\/p>\n
Singapore is home to Seagate and Maxtor plants that make
\nhigher-end enterprise computing and server network drives, but
\nits position in lower-end drive manufacturing could be eroded by
\nChina, analysts and industry experts said.<\/p>\n
"Singapore will probably have to share its key position in the
\nhard disk drive manufacturing industry with China in several
\nyears' time -- the writing is on the wall," said Russell Tan, an
\nanalyst with consultancy Netresearch-Asia.<\/p>\n
Maxtor said late last month it would invest up to US$200
\nmillion to set up a new factory in China, which would take over
\nthe manufacturing of entry-level disk drives from Singapore,
\nleaving the city-state with higher-end production.<\/p>\n
Seagate houses two of its high-performance disk drive plants
\nand one research and development (R&D) facility in Singapore,
\nwhile its factories in Malaysia, Thailand and China produce
\nlower-end disk drive components.<\/p>\n
Tan Choon Shian, director of electronics at the Economic
\nDevelopment Board (EDB), Singapore's investment planning agency,
\ntold Reuters the city-state remains "a dominant player" in disk
\ndrive manufacturing, producing over a third of worldwide disk
\ndrive volumes in the last five years.<\/p>\n
Disk drives also represent the largest component of
\nSingapore's non-oil domestic exports, contributing 16 percent.<\/p>\n
In contrast, China accounted for only five to seven percent of
\nglobal hard disk drive volumes in 2002.<\/p>\n
The global disk drive industry is also expected to post robust
\ngrowth in the coming years, according to research house
\nInternational Data Corp (IDC).<\/p>\n
Unit shipments of hard disk drives are seen growing at a
\ncompounded annual rate of 12.4 percent between 2001 and 2006,
\ndriven by personal computer sales and new emerging applications
\nin the consumer electronics and gaming areas.<\/p>\n
This gradual migration of low-end production out of Singapore
\ninto China will keep happening in the next five years, industry
\nexperts and analysts said.<\/p>\n
But higher value-added activities like R&D should remain in
\nthe city-state, which has strong technical talent, at least for
\nthe next decade.<\/p>\n
"The critical mass of talent that exists in Singapore is a
\npowerful engine that will continue its contribution to the disk
\ndrive manufacturing industry," said Western Digital's Coyne.<\/p>\n
Moreover, low-cost centers like China have yet to get their
\nact together in providing established infrastructure and a
\nnetwork of supporting industries, all of which contribute to the
\ntotal cost, said Gartner Dataquest analyst John Monroe.<\/p>\n
"China as a factory for the world -- there's some truth to
\nthat, but doing a profitable business in China is complicated --
\nthere are graft and peculiar tax laws to contend with," he said.<\/p>\n
"China is being used more as an adjunct to Singapore rather
\nthan a replacement at this point in time."<\/p>\n
In time, the country could become a very different animal,
\nsaid Coyne at Western Digital. While Western Digital has no
\nimmediate plans to jump on the China bandwagon, this market is
\nnever far from Coyne's thoughts.<\/p>\n
"China would be a very strong candidate for future investments
\n-- it is an area I keep a close eye on," he added.<\/p>\n
Singapore must face up to the fact that low-cost centers like
\nChina will always remain a threat, Maxtor's executive vice
\npresident, K.H. Teh, told reporters earlier this month.<\/p>\n
"It's really how the threat can be managed. Singapore has
\nadvantages and can hang on," he noted.<\/p>",
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