Disk drive makers shut S'pore plants

Disk drive makers shut S'pore plants

Jennifer Tan, Reuters, Singapore

Walking the factory floor of Western Digital Technologies Inc in
Kuala Lumpur, John Coyne is comforted by the thunder of well-
oiled machinery.

But the hum comes at deafening price for nearby Singapore. The
U.S. hard disk drive maker shut its factory in the city state
four years ago and moved its production lines to lower-cost
Malaysia, resulting in the loss of 4,000 jobs.

Other companies have followed suit, with the world's largest
disk driver maker Seagate Technology Inc and rival Maxtor Corp
gradually shifting their lower-end factories out of Singapore to
cheaper manufacturing centers in Malaysia, Thailand and China --
the hottest investment destination these days.

"In a 10-year horizon, China will become a very formidable
challenge across the board in terms of levels of technology
activity, looking at the rate at which the country is pumping out
university graduates and as local industries provide them with
the platform to gain the necessary skills," said Coyne, a senior
vice president of Western Digital.

To be sure, Singapore remains the world's top disk drive
producer and is fighting back by moving up the food chain, using
its well-educated work force to focus on research and
development.

The production of hard disk drives, a staple of Singapore
industry, is facing unprecedented threats amid the harsh global
tech downturn that has hammered margins and squeezed prices.

Singapore is home to Seagate and Maxtor plants that make
higher-end enterprise computing and server network drives, but
its position in lower-end drive manufacturing could be eroded by
China, analysts and industry experts said.

"Singapore will probably have to share its key position in the
hard disk drive manufacturing industry with China in several
years' time -- the writing is on the wall," said Russell Tan, an
analyst with consultancy Netresearch-Asia.

Maxtor said late last month it would invest up to US$200
million to set up a new factory in China, which would take over
the manufacturing of entry-level disk drives from Singapore,
leaving the city-state with higher-end production.

Seagate houses two of its high-performance disk drive plants
and one research and development (R&D) facility in Singapore,
while its factories in Malaysia, Thailand and China produce
lower-end disk drive components.

Tan Choon Shian, director of electronics at the Economic
Development Board (EDB), Singapore's investment planning agency,
told Reuters the city-state remains "a dominant player" in disk
drive manufacturing, producing over a third of worldwide disk
drive volumes in the last five years.

Disk drives also represent the largest component of
Singapore's non-oil domestic exports, contributing 16 percent.

In contrast, China accounted for only five to seven percent of
global hard disk drive volumes in 2002.

The global disk drive industry is also expected to post robust
growth in the coming years, according to research house
International Data Corp (IDC).

Unit shipments of hard disk drives are seen growing at a
compounded annual rate of 12.4 percent between 2001 and 2006,
driven by personal computer sales and new emerging applications
in the consumer electronics and gaming areas.

This gradual migration of low-end production out of Singapore
into China will keep happening in the next five years, industry
experts and analysts said.

But higher value-added activities like R&D should remain in
the city-state, which has strong technical talent, at least for
the next decade.

"The critical mass of talent that exists in Singapore is a
powerful engine that will continue its contribution to the disk
drive manufacturing industry," said Western Digital's Coyne.

Moreover, low-cost centers like China have yet to get their
act together in providing established infrastructure and a
network of supporting industries, all of which contribute to the
total cost, said Gartner Dataquest analyst John Monroe.

"China as a factory for the world -- there's some truth to
that, but doing a profitable business in China is complicated --
there are graft and peculiar tax laws to contend with," he said.

"China is being used more as an adjunct to Singapore rather
than a replacement at this point in time."

In time, the country could become a very different animal,
said Coyne at Western Digital. While Western Digital has no
immediate plans to jump on the China bandwagon, this market is
never far from Coyne's thoughts.

"China would be a very strong candidate for future investments
-- it is an area I keep a close eye on," he added.

Singapore must face up to the fact that low-cost centers like
China will always remain a threat, Maxtor's executive vice
president, K.H. Teh, told reporters earlier this month.

"It's really how the threat can be managed. Singapore has
advantages and can hang on," he noted.