Electronics industry remains competitive

WE REFER to the article ("Clarity needed on whether chip dip a cause for worry"; Tuesday).

Singapore's electronics industry remains globally competitive. While there have been some recent consolidations and retrenchments, these are in line with the electronics industry's transformation towards higher value-added activities.

An indicator of an industry's competitiveness is its ability to attract new investments. Singapore's electronics industry attracted more than $16 billion in investments over the last three years, which will create 7,700 skilled jobs when fully realised. Through high-value-added components manufacturing, research and development, and headquarters activities, the industry creates good-paying jobs for Singaporeans.

Multinational corporations make decisions to shift their operations across different countries for various reasons. Despite the ongoing transformation in the electronics industry, leading global companies continue to grow their activities in Singapore. These include Broadcom, which still maintains significant operations and is exploring new areas to invest in Singapore.

Excluding the firm-specific factor reported earlier this year, the Economic Development Board's (EDB) recent checks with firms also show that the semiconductor industry is reflecting growth this year. In particular, wafer fab production levels were at a record high in the second quarter of this year.

Over the past three years, electronics companies have invested more than $1 billion in productivity initiatives to transform their manufacturing operations here.

For example, Hitachi Chemical Singapore is introducing robots to make Singapore the most automated printed wire board plant in the world. And Texas Instruments has implemented a fully automated warehousing system, improving productivity by 40 per cent and space utilisation fourfold.

The EDB has positioned Singapore to capture new opportunities from the global trends of Internet of Things and cloud computing by building capabilities in power management, communications, sensors and storage technologies.

More than $500 million of investments in these areas have been announced this year from leading electronics companies such as MediaTek, International Rectifier and AFPD, which will create more than 500 new jobs. The EDB expects to see more of such investments in the near future.

Manufacturing is a key pillar of Singapore's economy that provides good jobs, diversifies our economy and enables Singapore to develop innovative solutions for the future. We expect total manufacturing output to grow this year compared to last year.

The EDB remains committed to ensuring that the electronics industry continues to grow. Our long-term outlook for the industry remains positive as we continue to attract exciting new electronics investments.

Lim Kok Kiang
Assistant Managing Director
Singapore Economic Development Board
ST Forum, 6 Sep 2014

Clarity needed on whether chip dip a cause for worry
By Chia Yan Min, The Straits Times, 2 Sep 2014

SINGAPORE'S electronics sector has taken another hit, with a report yesterday saying that American chipmaker Broadcom has moved some of its operations out of the Republic to Ireland.

The move coincided with the ending of some tax incentives that Broadcom enjoyed in Singapore, which ceased in March. The Fortune 500 company based in California and listed on Nasdaq is the world's second-largest fabless semiconductor firm.

The news comes after several electronics factories were shuttered in Singapore in recent months.

Renesas Electronics Singapore, the local arm of a Japanese chipmaker, announced in March that it would be shifting its manufacturing operations here to Japan and Malaysia. This was to "boost production efficiency... and maintain (the company's) technological advantage", the firm said.

Last December, data storage firm HGST axed 530 workers when it moved its Singapore plant to Thailand on the back of rising costs here, while semiconductor firm GlobalFoundries laid off 150 staff.

However, these moves did not show up in the aggregated economic data that month or the month after, as their impact was relatively muted.

Broadcom's move, however, is of a different order altogether.

In fact, Broadcom's move might be one reason the semiconductor segment shrank 11 per cent in April from a year ago.

At that time, the dip was much remarked upon, especially when the Economic Development Board (EDB) said it was due to the actions of one firm, but did not give details. This sparked much speculation.

While EDB did not confirm if Broadcom's move was the reason for the dip, some industry sources believe it is.

The dip in April slowed manufacturing growth to 1.5 per cent in the second quarter compared with the same period a year ago. This was down from growth of 9.9 per cent the previous quarter.

Electronics make up a third of Singapore's manufacturing sector, which accounts for a fifth of total economic output.

The dip in manufacturing output, in turn, slowed economic growth in the April to June period to 2.4 per cent, down from 4.8 per cent in the first quarter.

Apart from the impact on electronics output figures, Broadcom's move puts the spotlight on multinational firms here. In particular, it raises the question of whether Singapore may see more exodus of firms when tax breaks end.

Tax experts say that tax incentives in themselves are usually not a dealmaker or deal breaker.

But coming on top of the tight labour market and rising costs stemming from Singapore's economic restructuring exercise, the end of tax breaks could prove the last straw for some multinationals in Singapore.

Tax incentives reduced Broadcom's Singapore taxes by US$423 million (S$528 million) last year, and by US$399 million in 2012 - significant sums given that its net earnings were US$424 million last year and US$719 million in 2012.

Broadcom declined to give further details except to say that its executives would be meeting the EDB as part of "ongoing discussions" about the company's commitment to Singapore.

But Broadcom's latest annual report provides some extra clues. Under the "risk factors" section of the report, the company said tax incentives such as those it enjoyed in Singapore "often require us to meet specified employment and investment criteria" in the relevant jurisdictions.

It added: "In a period of tight manufacturing capacity, our ability to meet Singapore content requirements in our products may be more limited, which may have adverse tax consequences."

Broadcom's decision to use its Irish trading company for some foreign operations was expected to "result in a similar foreign tax provision as our current Singapore tax incentive", it said.

Anything that impacts the $80 billion electronics industry, which employs 76,000 workers and is described by EDB as the "bedrock" of the manufacturing sector, ripples through the rest of the economy.

The segment has been short-circuited in recent years as rising costs, the strong currency and a weak global outlook have led to a slump in demand for Singapore's electronics exports.

But before Broadcom's move, the latest factory closures did not have too adverse an effect on the figures. In fact, manufacturing ended last year on a surprisingly strong note, pulling up Singapore's overall economic growth for 2013, although that was partly due to a low base in 2012. Manufacturing output, and the electronics segment in particular, also grew in January this year.

But concluding that Broadcom's move might spark off an exodus of other firms when tax breaks end might be premature. After all, the precise reasons for Broadcom's move - and even the exact nature of the operations the company shifted to Ireland - have not been revealed.

The expiry of tax breaks might have been one of the push factors behind its move, but tax experts say there are many other considerations behind investment location decisions.

Investment promotion agency EDB typically uses tax incentives to catalyse a particular industry, with a view to creating an ecosystem of businesses that can eventually grow organically. These incentives are usually kept confidential.

Once such an ecosystem has been established, other business considerations may outweigh the loss from the expiry of tax incentives. If so, companies won't have a need to shift to other jurisdictions to seek better tax terms, said Mr Tay Hong Beng, the head of tax at KPMG in Singapore.

Rather than add fuel to the speculative fire, what's needed from EDB at this point is more information on April's sharp drop in electronics output.

This would shed light on what exactly ails the electronics industry, or even the wider economy, and answer the question of whether Singapore should be worried about more multinational firms jumping ship. Amid the tepid global recovery and the uncertainties of economic restructuring, lack of clarity leads people to wonder if they should be even more concerned about Singapore's future growth.

S'pore still a strategic market for Broadcom

I REFER to Monday's article ("Chipmaker moves some operations out of Singapore").

Singapore continues to be an essential location for Broadcom's research and development, logistics and other support services.

Broadcom has contributed significantly to the country's economic development for more than 15 years, and is dedicated to increasing investment here.

Besides partnering the Economic Development Board, local government agencies and industry leaders, Broadcom is engaged with schools and education leaders to promote Stem (Science, Technology, Engineering and Mathematics) education. We support the local school system as part of our efforts to cultivate future innovation leaders here.

Singapore remains a strategic market for Broadcom, and we are strongly committed to growing our business in this country, and continuing to work with our third-party manufacturing suppliers here for years to come.

Giuseppe Miano
Vice-President, Asia-Pacific Operations/Managing Director, Singapore
Broadcom
ST Forum, 6 Sep 2014

Chipmaker moves some operations out of Singapore
Broadcom's shift to Ireland is a blow to already troubled electronics sector
By Chia Yan Min, The Straits Times, 1 Sep 2014

A large American chipmaker has moved some operations out of Singapore to Ireland, which is likely to weigh on the already troubled electronics sector here.

Broadcom, a Fortune 500 company based in California and listed on Nasdaq, said in its latest annual report that after March 31 this year, it would "utilise (its) Irish trading company for certain foreign operations".

The move coincided with the termination of tax incentives that it enjoyed in Singapore, which it said ended in March.

The incentives reduced its Singapore taxes by US$423 million (S$528 million) last year and by US$399 million in 2012.

The sums are considerable as the net earnings of Broadcom, the world's second-largest fabless semiconductor firm, came to US$424 million last year and US$719 million in 2012.

Fabless semiconductor firms design and sell their products while outsourcing the fabrication to other companies.

Broadcom said the move to Ireland "would result in a similar foreign tax provision as our current Singapore tax incentive".

In response to queries, its spokesman declined to elaborate on the exact nature of the operational shift to Ireland.

The company was due to meet the Economic Development Board (EDB) last month, as part of "a continuation of ongoing discussions about our commitment to Singapore", the spokesman told The Straits Times.

The relocation is not expected to have "a material effect on operating results and tax expenses, or on customers or suppliers", the spokesman added.

The move could be one reason Singapore's electronics sector registered a sharp fall in semiconductor output in April this year - EDB attributed it to a one-off event but did not elaborate.

The semiconductor segment shrank 11 per cent in April from levels a year ago, which weighed on growth in the manufacturing sector.

Manufacturing grew just 1.5 per cent in the second quarter from levels a year earlier - in stark contrast to the 9.9 per cent growth seen in the first quarter.

The broader economy suffered as a result, expanding only 2.4 per cent from last year's levels - well below the 4.8 per cent posted in the first three months.

Broadcom employs almost 300 staff here in research and development and for operations at its Asia-Pacific headquarters, according to the EDB website.

The company has an international distribution centre here, which includes engineering design and administrative facilities.

It ships most of its products through logistical facilities in Singapore. Products shipped to international destinations, mainly in Asia, made up 96.4 per cent of its product revenue last year.

Tax experts told The Straits Times they had not observed a trend of multinationals moving operations out of Singapore when tax incentives expired.

Mr Paul Lau, a tax partner at PwC Singapore, said tax concessions are typically attached to significant economic commitments over five or more years.

"The decision to pull out of a country and reverse these commitments, as well as to reconstitute supply chains, would and should involve serious considerations beyond tax," he added.

Tax breaks can be an important consideration for multinational companies in choosing where to site their operations, but are only one of the many factors that companies take into account, tax experts said.

Others include proximity to markets, political stability, business costs, and access to talent, resources and capital, said Mr Lee Tiong Heng, a tax partner at Deloitte Singapore.

Tax breaks are often "the icing on the cake", he added.