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About those chips and dips...

Singapore

CHANGES in inventory did not drive the gap between electronics output and exports in the first six months of the year, the Ministry of Trade and Industry reiterated.

The key reasons for the divergence were the hit to export value from falling prices, and outsourcing of production by fab-less semiconductor firms to manufacturers abroad, an MTI spokesman said, in a response to queries from The Business Times.

Factory-less manufacturers contributed 5.2 per cent of the sector's S$70 billion in value added in 2016, the spokesman told BT. They made up 49 of the 8,988 manufacturing establishments in 2016 - up from 41 such businesses in 2014, based on the Census of Manufacturing Activities.

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Asif Chowdhury, senior vice-president of marketing and corporate business development at semiconductor assembly and testing service provider UTAC Group, said the group's mixed signal and logic business - about 40 per cent of its top line - "is dependent on fabless customers and primarily serviced out of our Singapore facilities", where UTAC has invested US$110 million over the last three years.

The rise of fab-less semiconductor firms has come with growth in the Internet of Things (IoT), said Ang Wee Seng, executive director of the Singapore Semiconductor Industry Association.

"IoT devices do not require advanced technology nodes, and this helps drive many smaller companies to join the game," he told BT. "There is a potential for equal growth for both multinational corporations and small and medium-sized enterprises (SMEs) in this area. However, there is a need to help SMEs `to access intellectual property that is needed for the chip design, to level the playing field."

Electronics production rose by 16 per cent year on year in the first half of the year, while shipments slid by 7.7 per cent. July industrial production data is set for release on Aug 24.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye said in a report on Friday: "With electronics exports now in its eighth month of decline, we think that production numbers will correct by the end of the year. June numbers have already shown an easing in electronics production, especially for semiconductors."