Electronics must move up value chain

The domestic electronics industry is crafting a product and technology roadmap to identify niche growth areas where players can focus on to move up into the higher value chain from the current concentration in the high volume but low value kind of products and mitigate the industry’s declining export performance.

Dan Lachica, President of the Semiconductor and Electronics Industry of the Philippines, Inc. (SEIPI), told reporters during a roundtable discussion that the group is currently establishing its own think-tank to come up with the “Electronics Product and Technology Roadmap.”

Lachica said that SEIPI is currently scouting for at least two experts that could undertake the indepth industry study and is also soliciting for funds including the government and the USAID to bankroll this project. Lachica expects the study to be completed within the year and will be part of the updated Electronics Industry Roadmap, which in turn will become part of the bigger Industrial Manufacturing Roadmap.

According to Lachica, the domestic electronics industry has been caught up in the 75:25 ratio which is characterized by the test and assembly operation of most semiconductor companies or the production of low margin products or the so-called SMS. The current semiconductor manufacturers are producing integrated circuits, hard drives and audio systems

The average selling prices of these products are down but the volume is going up.

The remaining 25 percent of the domestic electronics industry is characterized by growth areas in automotive, consumer, EDP, and medical electronics or the EMS like hard drives, audio system, ABS system.

EMS or electronic manufacturing services are companies that design, assemble, produce, and test electronic components and printed circuit board (PCB) assemblies for original equipment manufacturers (OEMs).

“We should expand our growth areas and find niche in these four areas, which are invariably posting positive growths,” he said.

Unless, the Philippines can move into niche and more sophisticated products in these sectors, exports in the electronics sector will continue to decline.

“What has happened in the last few years is that the semiconductor sector was more on test and assembly only and unfortunately those that are contracted to the locals are low value products with low margins,” he said.

Over the years, the average selling price of these products has declined but the volume has increased. The increase in volume did not also result in the creation of more jobs because companies have adopted efficiency measures or have automated their processes.

“If you continue in that path and if you look at this year’s figure, the semiconductor is declining and will continue in that path. In the last 3 years, the trend in our electronics exports is going down, but the automotive, EDP, consumer and medical electronics are positive. Unless we arrest this trend, we will continue with declines in the electronics exports,” he said.

The strategy being eyed by SEIPI is to adopt parallel tracks of growth both the test and assembly of the existing semiconductor firms and pushing for more of the growth sectors.

“We will continue pushing for the SMS and grow the growth sectors,” he said noting that such strategy is not going to reverse the trend in the local electronics sector but expand its capabilities and build up the exports value.

That is the role of the new SEIPI think tank, which will be headed by an expert in the field of electronics and one on business development, is going to identify the niche products in the next few years.

He cited some niche products that could be explored like sensors, medical electronics and nano printing. Thailand is already good in automotive electronics while Vietnam is concentrating in smart phones.

“It’s apparent that we should expand our automotive, medical and consumer electronics into what specific components, devices and technology in those sectors, that is why it’s imperative to develop that think tank,” he said.