Sunday, September 24, 2006

Philippines: from coco chips to microchips

On July 27, Paul Otellini, president and CEO of Intel unveiled to the world its latest and advanced microprocessor, the Intel Core 2 Duo and Intel Core 2 Extreme, packing 291 million transistors yet consuming 40 percent less power. This microprocessor enables computer users to perform several tasks faster, such as writing emails while downloading videos or music and scanning for viruses. What he didn’t tell is that a significant volume of these new microprocessors are assembled, tested, packaged and shipped from the Philippines.

Yes, Filipinos engineers and workers are capable of doing this high-tech stuff.

And more. Each year, Filipino workers and engineers produce 72 million magnetic heads, 36 million, 30 digital signal displays responsible for processing all the calls for mobile phones, 11 million liquid crystal displays, and 11 million optical disk drives. The electronics industry supplies 10 percent of the world’s semiconductor manufacturing business, 50 percent of the world’s production of 2.5 inch hard disk drive, and 10 percent of the world’s production of 3.5 inch hard disk drive. One hundred percent of the brain of cellular phones, of Nokia phones, is done here in the Philippines by Texas Instruments.

Why are we citing these statistical information? It’s to remind us that, despite of the usual political circuses performed by politicians, the Philippines is no longer what it used to be. It has changed a lot and for good. And certain, the country’s electronics industry, together with other globalized sector of the economy, is part of that changing landscape that we Filipinos should be proud of despite the country’s rambunctious politics.

In 1975, about 75 percent of the country’s exports are agriculture-based; these days, 66 percent are composed mostly of electronics. We have gone a long way from selling coconut chips to exporting microchips. This is not to disparage the farms, for its still a very important component of the economy and it pays to nurture them to ensure a broad-based growth. What we are saying here is that the Philippines has diversified a lot. It’s something that we need to encourage even more. Greater diversity means greater growth opportunities.

The industry now exports US$27 billion worth of electronics, mostly components and devices, electronic data processing, consumer electronics, automotive electronics, communication and radar, office equipment, telecommunications, control and instrumentation, and medical and industrial instrumentation.

Eight of the world’s top chipmakers (Texas Instruments, Intel, Philipps, Fairchild, Analog, Sanyo, On Semi and Rohm) and four of the world’s largest producers of hard disk drives (Hitachi, Toshiba, Fujitsu, and NEC) are in the Philippines. Mitsumi—probably the biggest employer next only to the government with its 17,000 workers—manufactures computer peripherals like CR-R and CD-RW. And equally big firms like Amkor, Epson, and Lexmark are here producing integrated circuits, terminal printers, and printheads.

Sure, the industry is still dominated by the Japanese and American investors but Filipino-owned companies are starting to get into the picture. Currently, there are 883 firms doing electronics, 247 of which are locally owned, producing lots of products including time recorders, power supplies, electronic ballasts, global positioning system tracking devices, among others. Firms like Integrated Microelectronics, Ionics, PSI Technologies, and Fastech are Filipino-owned.

Of course, critics have been saying that electronics “don’t have much linkages” with the rest of the Philippine economy. They say that most of the components or inputs of these companies are imported. But these criticisms miss the whole picture. The industry directly hires 400,000 people, provides business opportunities and generate jobs in other sectors like logistics, software development, banks, transportation, food, and beverages. And it provides the much needed diversity that the country needs to grow.

And there’s enough elbow room to grow. Right now, the Philippines actually has a budding silicon design and development industry. Companies like Intel, Rohm, Sanyo, Easix and Bitmicro are into integrated circuit design; Texas Intruments and Fairchild are into integrated circuits packaging and design; Lexmark, Easiz, and Blue Chip are into module and product design; and firms like Canon IT and Tsukiden are into firmware. The country’s test and packaging design capability for microprocessors, digital signal displays, and logic devices has also been strong. And there’s a growing base of suppliers for hard disk drives.

One might probably wonder how the Philippines succeeded as an electronics exporter. A state from one electronics industry executive should provide the explanation: “The Philippines, compared to its neighbors, doesn’t have good infrastructure. It doesn’t have good governance. But it has the best people.”

Which brings us to the main point: there’s nothing wrong with the people. There’s nothing wrong with their entrepreneurial zeal and willingness to work hard. The problem is with governance. If the country’s political leaders could do something about it, the Philippines could achieve more.


Econblogger said...

I'm very interested in these supplier linkages between MNC assemblers and domestic firms, in terms of design, supply of drives, etc. Are these backward linkages forming rapidly or slowly?

Also the comment about having the "best people" but not the best infrastructure and institutions.

Could this explain the lopsided GNP contribution of OFWs?

Dave said...

i could not guess the rate at which these backward linkages grow but all i know is that they are now a significant part of the industry or about 28 percent of the total number of firms engaged in electronics. the best example of that is IMI. re the best people, i supposed that's the reason for the continuing diaspora. which means if only we could work on the infra and governance sides, this country would grow faster.

Vince said...

HI Dave,
It seems the Philippine Silicon valley will remain a dream unless concrete action is being done.
A microelectronic forum is currently being planned by UP and set target date will be June 2007.
Do you have a linkage with Dennis Posadas? I have some materials on how China, India and Vietnam, how they implemented the program and achieve economic developments.