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Singapore manufacturers not hit by Huawei ban but brace for tech war

Economists warn of trickle-down effect and possible recession in economy by 2020

Most manufacturers listed on the Singapore Exchange do not have direct relationships with Huawei, and are not part of the supply chain that sells parts to the Chinese tech giant.


SINGAPORE manufacturers that produce parts for the tech sector said that they are not directly hit by the recent developments surrounding Huawei, even as they feel the heat with the trade war shaping up to become a tech war.

Nevertheless, economists warned that the effects will start trickling down to local players, with the entire tech industry expected to feel the fallout as the supply chain gets further disrupted. With an all-out trade and tech war a possibility, Singapore's economy could even face a recession by 2020, some suggested.

A check with manufacturers listed on the Singapore Exchange found that most do not have direct relationships with Huawei and are not part of the supply chain that sells parts to the Chinese tech giant.

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But this has not stopped their stocks from taking a beating after the US announced that it will ban American firms from supplying critical components or software to Huawei on grounds of national security, even with the 90-day reprieve in place.

AEM Holdings is one of the few that work directly with Huawei to test and develop cabling links for Huawei's 5G backhaul network. But its executive chairman Loke Wai San told BT that the group is working with the Chinese tech giant on its 5G rollout in China, not chips.

"We therefore do not see any impact (from) the blacklist by US authorities," he said, adding that the revenue from their 5G projects will be a "small percentage" for 2019.

Mr Loke stuck to the firm's earlier sales guidance of between S$225 million and S$250 million for FY2019, dismissing analyst concerns that it would be affected by its main client US semiconductor giant Intel, which is one of Huawei's biggest suppliers.

Most manufacturers in the tech sector still expect some form of indirect impact on their business, and are keeping a close watch on developments as the tech war unfolds.

Andy Luong, CEO and chairman of semiconductor equipment manufacturer UMS, noted that the trade restrictions from the US on Huawei will "definitely impact all players in the entire global semiconductor industry" - but the extent will vary depending on level of exposure.

He added that the near-term outlook for the firm remains challenging due to trade war uncertainties, but it is still "too premature" to specify the actual impact of the Huawei debacle on its business.

Khoo Boo Hor, CEO of Sunningdale Tech, said that while the firm sees no direct impact on operations, it may face continued pricing pressure from customers who may be affected by changes in global demand and consumer sentiment. The firm is counting on its diversified business model across automotive, consumer and health care, as well as its manufacturing footprint across nine countries to better cushion itself in a trade or tech war, he added.

Many of these firms have already moved to diversify their business since the trade conflict started in earnest last year.

Hi-P International, a contract manufacturer for firms such as Apple, has taken steps to be less dependent on China, where it derived 50.8 per cent of its revenue in FY 2018.

Hi-P CEO Yao Hsiao Tung said that the group had since expanded its operations in Thailand to enlarge its manufacturing outside China, and is looking to diversify its customer base into regions such as Europe, Japan and South Asia to compensate for any potential decline in business from China. It is also exploring new segments such as automotive and medical industries, he added. (see clarification note)

Businesses worry that deteriorating sentiment arising from the tech war would worsen consumer sentiment and lead to declining business investments.

"This is something we have seen since last year, as consumer confidence drops and people stop buying phones and consumer goods," said Phuay Li Ying, business development director of electronics components distributor Excelpoint Technology. "We are indirectly impacted from the lower revenue and sales of the manufacturers that we work with, as they stop a lot of production because of things happening in China."

But even as local listed manufacturers appear to be keeping calm and carrying on, economists are a lot more downbeat about the prospects of an escalated trade and tech war.

CIMB Bank economist Song Seng Wun said that the tech war will have a significant impact on the Singapore economy.

"It's a knock-on impact as when companies as large as Huawei get affected, the whole supply chain gets affected . . . companies may need to cut back on wages or labour growth, for example, and this will multiply throughout the whole ecosystem including ours here," he explained.

"If it's a full-blown trade and tech war, that will cause the global economy to be badly affected, the risk of Singapore slipping into recession is pretty high in 2020."

This comes as other Chinese tech firms may end up being targeted as the world's two largest economies tussle for dominance in technologies that could change the future of the global economy such as 5G networks.

Barclays economist Brian Tan said that there is certainly a possibility that the trade and tech war could reach a tipping point where the situation is bad enough for Singapore to reach a recession.

"The question is whether we will get there - that is not obvious to me," he said. "Now at least, what we can say is that the tensions are concentrated between the US and China, and that it is increasingly harder to see a favourable resolution with both sides digging into their positions."

Already, the Ministry of Trade and Industry lowered Singapore's full-year growth forecast to 1.5-2.5 per cent, from 1.5-3.5 per cent, on the back of further trade war escalation among other downside risks. It is also expecting to see a "sharp slowdown" in manufacturing this year.

However, local manufacturers are still hopeful that there could still be some silver linings.

Excelpoint's Ms Phuay noted that the US firms which are not able to supply to Huawei will need to fill demand gaps. They could end up venturing into new markets, and that may in turn benefit Singapore businesses.

UMS's Mr Luong said: "The US ban on Huawei has shaken the global supply chain, potentially creating opportunities for China to re-establish industry order - and this may be a boon for the companies that have the ability to capitalise on it."

For example, Chinese vendors in the supply chain may not be able to continue supplying to the US. This could open up doors for Asian vendors such as UMS to serve more US customers, he said.

"While there may be short-term volatility and uncertainty, we maintain an optimistic view about the long-term prospects of the industry's future growth."

Clarification note:  In an earlier version, it was stated that Hi-P has diversified its customer base into Europe, Japan and South America, and has entered into new segments such as automotive and medical industries. The firm clarified that it is looking to diversify its customer base and is exploring new segments.