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Asia electronics sector bucking global economic slump

Firms adopting new technologies to make remote work easier; Covid-19 driving digitalisation of economic activities

Singapore

GLOBAL trade data in the Covid-19 era has been generally abysmal, but look a little closer and the electronics sector that fires Asia's trade engines could be headed for a pretty good year.

In South Korea, semiconductor exports rose in May and imports of equipment used in producing semiconductors surged 168 per cent, trade ministry data show. Taiwan's electronic-component exports, which include chips, grew 13.2 per cent in May to US$10.2 billion, even as total exports fell 2 per cent from a year earlier.

The electronics industry is holding up relatively well amid the pandemic as companies adopt new technologies - including 5G equipment and automation tools - that make it easier for employees to work remotely. A sustainable boost will depend on whether consumers return with similar vigour, and whether other factors such as US-China tensions don't interfere with digital demand and supply.

"The tech industry seems to have decoupled from the overall economy somewhat, as the tech industry is still growing well" and has been "relatively immune to Covid-19", Mark Liu, chairman of Taiwan Semiconductor Manufacturing Co, said at a shareholder meeting on June 9.

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TSMC, the main chipmaker for Apple Inc and Huawei Technologies Co, still plans to spend as much as US$16 billion on capacity upgrades and technology this year, and expects revenue gains in the mid- to high-teens, Mr Liu said. Covid-19 has helped drive some budding technologies related to remote work and education and social distancing, he added. TSMC shares have risen 25per cent since their lowest close for the year on March 19, less than the 30 per cent gain in Taiwan's benchmark Taiex stock index in that time.

Amid generally awful export figures from the region, "the one bright spot is semiconductors", said Trinh Nguyen, a senior economist at Natixis SA in Hong Kong. "A lot of this reflects the product cycle and also the global lockdown and suppression that favour the 'digitalisation' of economic activities, driving demand for electronic goods like chips."

For economies such as South Korea and Taiwan that rely on tech exports, "the upturn in demand for electronics has been a pillar of support amid the coronavirus pandemic", said Lloyd Chan, an economist at Oxford Economics Ltd.

"However, the improvement in the tech sector won't be able to offset significant demand weakness in non-electronic exports," he said, adding that even the surge in PC demand "could be a one-off", attributable to the sudden shift to telecommuting during the pandemic.

Some of the boom is specific to the health crisis, amid a global scramble for medical equipment and demand for video-conferencing and other technologies as work and school shift more to people's homes.

China's medical exports and shipments of high-tech electronics jumped in both April and May, for example, while Singapore's pharmaceutical shipments surged 174 per cent in April from a year earlier. Further gains may not be as pronounced.

Still, analysts at Citigroup Inc see a risk that US-China tensions will weigh on chip demand. China's buildup of chip inventories was intended partly to get ahead of a US ban on Huawei set to take effect later this year.

China's export orders have taken a hit from lockdowns in the US and key European markets, said Rajiv Biswas, APAC chief economist at IHS Markit. A second-half recovery in those economies, as well as Christmas orders, could drive a rebound in tech exports, he said.

Governments have tried to stay focused on the long view, aiming to take advantage of the tech sector's relative advantage in the pandemic by providing special support for electronics firms and new technologies. Singapore pledged S$500 million last month to help businesses in their digital transformations, including moving hawker centre stalls to e-payments, and is spending another S$3.5 billion on information and communications technology to mitigate the virus outbreak.

When the virus's spread threatened Vietnam's burgeoning tech industry, the government granted an exception to its otherwise strict lockdown measures: Samsung Electronics Co, which makes about half of its smartphones in factories near Hanoi and is one of Vietnam's largest investors, was allowed to shuttle in more than 1,000 engineers from South Korea. BLOOMBERG

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