The semiconductor and electronics industry has revised this year’s forecasts from flat to a decline of up to 10 percent in exports due to inventory correction as well as global political and economic factors.
Dan Lachica, president of the Semiconductor and Electronics Industries of the Philippines Inc. (SEIPI), said the group sees a recovery in 2024, when exports are likely to be flat.
Lachica said these new forecasts were adopted by the SEIPI board on Thursday.
SEIPI originally forecasted a 5 -percent growth this year but downgraded it to flat in the third quarter.
This after nine-month exports fell 5.5 percent to $31 billion from $33 billion in the same period in 2022, figures from the Philippine Statistics Authority showed.
“We’re looking at $45 billion to $46 billion this year which is about 9 percent (less than) the record 2022 number of $49.09 billion. The industry started with 15 percent contraction in the first quarter due to the global recession, high interest rates and the geopolitical conditions, the war between Russia and Ukraine, and of late, (the war) between Israel and Palestine,” Lachica told a televised interview on Saturday.
As it returns to normal production scheduled, the industry suffers from an inventory correction from a buildup that was not matched by demand.
Lachica said SEIPI is pushing for the enactment of a law similar to CHIPS Act of the United States which is bringing back semiconductor wafer fabrication to its shores due to the big threat to the semiconductor supply chain security.
The US has a $62-billion fund that subsidizes companies that set up onshore their semiconductor operations.
Lachica said the Philippines which is predominantly in the assembly test and packaging (ATP) operations, has to move up the value chain by engaging in chips production. The country imports the wafers from Taiwan and then tests, assembles and packages them into integrated circuits.
“We should come up with our own chips, not just to build up on our strength which is ATP, but to go higher in the value chain to include integrated circuit design, to design the components that go to the wafer, “ Lachica said.
He said the Philippines should be the fifth player in the so-called Fab 4 of counties that supplies the world’s wafers: US, Japan, South Korea and Taiwan.
With threats on the security of Taiwan, SEIPI had suggested to the government to put up an IC design trading lab and build a prototype wafer fab.
Another challenge faced by the industry is the cost of production, which compared to Vietnam is twice the price for power and 1.7 times for logistics.
Lachica said during meetings with Philippine delegates in California recently, executives of semiconductor groups have expressed their concern about the cost of operations in the Philippines, especially energy prices.
Lachica said SEIPI is hopeful the government can restore the 5-percent tax gross income or subsidize energy prices to make up for the high cost of production.
He said the revisions on taxation under the Corporate Recovery and Tax Incentives for Enterprises caused a capital flight of $3 billion and a loss of potential 100,000 jobs, including the $1.3 billion expansion of Samsung which chose to locate in Vietnam.
“Those (high costs) need to be addressed whether mitigated by some tax incentives if we’re going to be able to attract this legislation and government intervention,” Lachica said.