Malaysia Hit Hard By Semiconductor Market Slump

From Reuters

Boom is turning to gloom for the Malaysian electronics industry as the once hungry world-computer market begins to lose its appetite for microchips.

The current worldwide slump is forcing many American-owned companies here to lay off workers and cut output of semiconductors, industry sources said.

Malaysia is the world's leading exporter of integrated circuits used in computers and other electronic equipment.

Some factories which worked around the clock in 1983 and 1984 now operate at less than half capacity, the sources said.

Some firms have shut down temporarily. Others have cut wages by up to 25% and called for voluntary redundancies.

Malaysia attracted 74 electronic plants to special free trade zones over the past 10 years to provide employment for more than 80,000 people, according to a U.S. embassy report.

Last year, it produced an estimated $2.4 billion worth of semiconductors, integrated circuits and electrical equipment for export, the report said.

Major semiconductor producers here affected by the slump include U.S. firms Texas Instrument, N. S. Electronics and RCA. They declined to discuss its effect on their operations.

American companies account for the bulk of foreign investment in the local electronics industry with combined investments of more than $800 million.

Industry analysts said the slump, which set in late last year, was caused by an unexpected drop in world demand for personal computers.

"U.S. computer makers ordered more semiconductors than they needed because they over-projected demand and Malaysian factories kept on producing, leading to a glut in the market," one analyst said.

Rapid changes in computer technology and design in the United States also made some Malaysian-produced semiconductors obsolete, he said.

Production managers for some factories said they would prepare for the worst if demand for semiconductors did not pick up in the next few months.

Malaysian and U.S. trade officials said they expected the slump to last until the end of 1985 because computer manufacturers needed time to recoup losses and regain markets.

A Malaysian government official said the government did not expect any electronic firms to close down. Many of them have made substantial investments in Malaysia, he added.

"We do not see them increasing investments this year as they once indicated because of this slump but new investments are expected next year," the official said.

Malaysia attracts electronic firms to its free trade zones by offering such incentives as tax holidays, exemption from import and export duties, investment- tax credits and permission for capital to be wholly foreign-owned. Workers in the industry are forbidden to join trade unions.

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