Singapore IT hopes dented by Western - information technology

Business Asia, August 30, 1999

Singapore's aspirations to become an "intelligent island" suffered a major setback this month after Western Digital Corp, the world's third-largest computer disk drive maker, announced it would cut 60 per cent of its Singapore workforce.

Western Digital will slash 2500 jobs as it moves manufacturing operations across to neighbouring Malaysia to slash costs.

The move, to be completed by the end of the year, will result in a significant amount of savings, the California-based company said.

The company is "taking advantage of the lower cost manufacturing environment in Malaysia to address the significant cost-competitiveness of the hard disk drive business", said John Coyne, vice-president for Western's Asian operations.

The move is a blow to Singapore, which churns out half of the world's computer drives by value and dubs itself as the global disk drive capital.

It may see companies such as Seagate Technology, IBM and other disk drive makers reevaluate their operations and future investments on the island, analysts say.

"The value add-on for disk drive assembly is relatively low, so cost will be a key driver for the industry," said Pranab Kumar Sarmah, an analyst at Daiwa Institute of Research.

That makes low-cost countries such as Malaysia attractive.

Daiwa estimates Malaysia's labour costs are about a third of Singapore's A$13,671 per worker a year. Factory space costs are also far lower, with those in Kuala Lumpur between a quarter to a half the cost of Singapore.

Seagate has already set up manufacturing sites in Malaysia, Thailand and China in addition to its Singapore operations.

Western Digital's job cuts have been expected for some time. Last year, the company started trimming its Singapore payroll, cutting 930 jobs and leaving it with about 4000 workers.

Western Digital's cut in production will translate into a decline of about 4.5 per cent for Singapore's disk drive exports and a 0.8 per cent drop in exports of Singapore-made products.

Singapore made more than half of the world's disk drives by volume at the start of the decade, but analysts predict that number could fall to 36 per cent this year.

Singapore's job market, however, will be little affected by the cuts at Western.

The island's total employment rose by 15,400 jobs in the second quarter of 1999, the first net gain in jobs in a year.