Electronics Makers in Malaysia Face Declining Sales

By Stephanie Phang

Nov. 26 (Bloomberg) -- Sales by U.S. electronics makers in Malaysia will fall this year and next as a global recession saps demand for Dell Inc. computers and other devices, the head of an industry group said.

Electronics manufacturers in the Southeast Asian nation will probably have to cut jobs in 2009 after reducing overtime and letting workers take longer Christmas holidays this year to lower costs, said Wong Siew Hai, chairman of the Kuala Lumpur- based American Malaysian Chamber of Commerce’s electronics industry group.

“They are very uncertain and very concerned,” Wong said in a telephone interview yesterday from Penang, a manufacturing base for Dell, Intel Corp. and other U.S. companies. “Next year you will see the real impact. If there’s a world recession and the economic impact is going to be great, they have to do something, nobody will be spared.”

Malaysia cut interest rates for the first time since 2003 this week, seeking to bolster domestic demand as recessions in the U.S., Japan and Europe hurt exports and threaten factory jobs across Asia. Retrenchments in Malaysia’s manufacturing industry jumped almost five-fold to 10,182 in the third quarter, central bank data show.

“It’s inevitable when the operating environment slows down, you should expect a rise in retrenchments,” said Lee Heng Guie, chief economist at CIMB Investment Bank Bhd. in Kuala Lumpur. Malaysia’s unemployment rate may rise to as high as 4.2 percent from 3.6 percent currently as job cuts in 2008 will likely exceed the average of the past five years, he said.

Sales Forecasts

Export sales by the American Chamber’s 17 electronics companies may decline this year, instead of growing 0.4 percent as predicted in July, Wong said. Sales, which gained 7.1 percent to 73.8 billion ringgit ($20.4 billion) in 2007, may fall further next year, he said.

“I am concerned about how this situation will impact the growth of the manufacturing sector, particularly in the immediate and short term,” Malaysian Trade Minister Muhyiddin Yassin said in a speech to manufacturers in Kuala Lumpur today.

The government, which has announced a 7 billion-ringgit spending plan to spur growth, needs to help manufacturers by cutting utility costs, Wong said. Electronics companies are only able to forecast orders weeks ahead now, down from monthly and quarterly projections previously, he said.

‘Worst Crisis’

“The visibility is very short, things are changing very fast,” Wong said. “This seems like the worst crisis so far.”

Most if not all of the industry group’s members have reduced overtime work at their factories, and more than half plan to have longer-than-normal Christmas production shutdowns, he said. Some are considering shorter work weeks and have delayed their capital investment to “conserve costs,” he added.

“It will get worse before it gets better,” Satish Lele, director of industrial technologies for Frost and Sullivan Asia Pacific, said in Kuala Lumpur today. In the worst-case scenario, the global recession could stretch “well into 2010,” he said.

Malaysia’s industrial production fell for the first time in 18 months in September. The government this month slashed its growth forecast for 2009 to an eight-year low of 3.5 percent and predicted a decline in exports next year as the worst financial crisis since the Great Depression pushed economies from Singapore to New Zealand into recession.

Intel, Motorola Inc. and other U.S. electronics makers account for about 12 percent of Malaysia’s total exports, and more than a quarter of the country’s electronics shipments.

To contact the reporters on this story: Stephanie Phang in Kuala Lumpur at sphang@bloomberg.net