Agilent SPG chips in on China
(China Business Weekly)
Updated: 2004-11-26 10:24

The semiconductor products group (SPG) of Agilent Technologies, one of the world's leading providers of semiconductor components, is strengthening its supply bases in China, in the belief the global semiconductor industry will regain its vitality following a temporary downturn in late 2005 and early 2006.

"Starting on January 1, (our) worldwide manufacturing and outsourcing will be managed out of Shanghai," Young Sohn, Agilent SPG's president, said.

"It's a very important move. We have been very successful in Singapore, but we see, without a bigger footprint here in China to manage our supplier base, we are not maximizing our capabilities."

Agilent SPG's manufacturing management has been based primarily in Singapore for 33 years.

Agilent Technologies last February established a semiconductor products solutions centre and trading subsidiary in Shanghai. The trading company currently serves Agilent SPG's businesses.

Moving the manufacturing management team to Shanghai is part of Agilent SPG's strategic investment plan in China.

The company's overall investment plan for China is on track. The firm, Sohn said, is expected to invest US$100 million in China over the next four years.

The investment will be used to expand Agilent SPG's manufacturing capacity, supply chains, infrastructure and research and development, including lab facilities, he said.

Agilent SPG has begun searching for more business opportunities involving Chinese companies, rather than simply selling its products to international giants in China.

Most of Agilent SPG's customers in China are telecommunication giants, such as Nokia, Sony Ericsson and Cisco Systems, which have manufacturing facilities in the country, Sohn said.

The company does very little business with local companies, because they "do not generate new wireless technologies," Sohn added.

Yet, "Chinese companies are going to be tomorrow's giants," he said.

"So we have to be in touch with the local market, and we have started looking at ways to work with companies such as TCL and Huawei."

Despite an expected downturn in the world's semiconductor industry, the company will strive to achieve substantial growth over the next few years.

Within three to five years, Agilent SPG will have an annual global revenue of US$3 billion, Sohn predicts.

The company's revenues in the current fiscal year are hovering around US$2 billion. Last year, they reached US$1.6 billion.

Several market research houses -- including IDC, Gartner and WSTS (World Semiconductor Trade Statistics) -- have lowered their forecasts, due to oversupply, for the global semiconductor market for next year.

The downturn is expected late next year and early 2006, five to eight months earlier than previously expected, Sohn said.

A slowdown in the growth of China's mobile phone market has worsened the situation, he said.

The downturn will be the result of an "inventory correction," or the reaction to oversupply by adjusting production capacity, rather than a similar result of what happened in 2000 -- when the dotcom bubble burst and spread to the semiconductor industry, he said.

IDC, in a report earlier this month, predicted sales revenues in the global semiconductor market will decrease 2 per cent, year-on-year, next year, to an estimated US$205 billion.

That tumble will occur even though the sector experienced robust growth, estimated at 31 per cent, this year, IDC said.

In its most recent report, released earlier this month, WSTS predicted the growth rate will drop sharply from 27.8 per cent this year to 1.2 per cent and 3 per cent in 2005 and 2006, respectively.

Sohn estimates the market will grow less than 5 per cent next year.

"But it will recover, in 2006 or 2007, from the downturn," he said.

The sector's growth will depend on the macroeconomy, he said.

The global semiconductor industry generally grows three times faster than the growth of gross national product globally.

As the global economy is resilient, and as there is much information technology infrastructure to be rebuilt due to emerging new technologies, "I'm optimistic it will bring about better outlook," Sohn said.

The new drivers for the semiconductor industry will be digital consumer electronics, communications and telecoms infrastructure construction, Sohn said.

Agilent SPG will introduce new products that focus on three areas -- wireless technology, opto-electronics components, and communications infrastructure brought about by 3G (third-generation) implementation, he explained.

Agilent SPG, which was split from Hewlett-Packard five years ago, is the second-largest revenue contributor to Agilent Technologies. It accounts for about 28 per cent of the total.

The firm has sales offices in Beijing, Shanghai and Guangzhou.

Agilent SPG grew almost 50 per cent, in terms of revenues, last year in China, twice that of the growth of the world's semiconductor market, Sohn added.

Agilent Technologies' global revenues reached US$6.1 billion in the last fiscal year.

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