1he Importance of Being Intel

By Heinz Bulos
December 2002

raig Barrett`s August isit
seemed quite uneentul, almost
routine. Ater all, the globe-
trotting CLO o one o the world`s
largest technology companies has been
in the country seeral times, and its
senior executies hae isited us or the
last, oh, quarter o a century.

1his time, he was conerred the degree
o Doctor o Science, bovori. cav.a, by
the Uniersity o the Philippines, the
highest academic distinction. At least,
that was a slight diersion to his usual
itinerary o press conerence, oicial call
to Malacanang, the occasional ciic
project launch, and plant isit.

1hat plant isit happens to be at Intel`s
300,000 sq.m. test and assembly acility
at the Gateway Industrial Park in
General 1rias, Caite. 1he plant is a
major source o Intel`s lash memory
products, chipsets, and high-end
microprocessors, including the Pentium
4. It also manuactures the StrongArm
processor or handhelds and the next-
generation microprocessors or mobile
computing.

Intel is currently implementing its new
0.13-micron process technology and
300-millimeter waer technology in its
Caite plant, which was recently
upgraded with a >100 million
inestment. 1he inestment is or new
machinery, equipment, and training. It
will also be used to support the Pentium
4 ramp, including the latest 2.2Ghz. 1he
new 0.13-micron manuacturing
technology shrinks line widths on silicon
transistors to just 1,1000
th
the width o
human hair, enabling new
microprocessors that use less power and
run at multi-gigahertz clock speeds, at a
lower abrication cost per chip. 1he
300mm waer, around 12 inches in
diameter, about the size o a personal
size pizza, combined with the smaller
chips, allow the acility to increase its
capacity.

Not many people realize that Intel has
been in the Philippines since April 194,
the irst American multinational
semiconductor company to set up here.
Intel Manuacturing, Inc. began in
Makati with components assembly in
1983 to more complex operations such
as assembly o lash memory products in
1989 and microprocessors in 1995.

In 199, Intel 1echnology Philippines,
Inc. was established as a manuacturing
acility in Caite or microprocessors
and PCI sets, ollowed by a second plant
in 1998. In lebruary 199, Intel opened
its sales and marketing oice to sere
the growing PC market in the
Philippine, as part o Intel Asia Paciic
Sales and Marketing, a network o
oices across 14 countries in the region.
1he same year, Intel APAC Customer
Support ,ICS, was set up to proide
customer support at the OLM,
deeloper, and end user leels. It`s the
sole source o technical support or all
o Intel`s products.

Prior to this year`s consolidation, Intel
was running our actories in two
locations: MN1 and MN2, built in 199
and 1995 in Makati, or lash memory
products, and CV1 and CV2, built in
199 and 1998 in Caite, or logic and
lash memory products.

Now, production is integrated in Caite,
with Makati sering as base or its sales
and marketing and customer serice
groups. 1he consolidation and upgrade
make Intel Philippines one o the
company`s lowest-cost operations and
its largest microprocessor and lash
C
assembly and test actory. It`s one o
only our country sites doing assembly
and test, the others being Malaysia,
China, and Costa Rica. It`s one o only
three Asia-Paciic countries that both
hae sales and marketing and
manuacturing presence.

Certainly, as Barrett reiterated in a
preious speech, Intel Philippines plays
a key role in supplying global demand
or our astest processors with this
assembly and test responsibility.`

Ricardo Ricky` Banaag, country
manager o Intel Microelectronics Phils.,
Inc., says it best, I think it`s a good
message that our CLO isits our
country. le has been isiting the
country since 199. Call it what you
want but that`s already a sign o
commitment to the organization and to
the Philippines.`

Now that we`e established how
important the Philippines is to Intel,
let`s set the eidence o how much more
important Intel is to the Philippines.

Intel in our economy
o ully appreciate the role o the
world`s largest chipmaker in the
Philippine economy, let`s study a
little macroeconomics. 1ake a look at
GDP or gross domestic product ,which
includes output o multinationals like
Intel in the country,. In 2001, the
country`s GDP amounted to
P989,258,000,000. 1hat`s P989 trillion, i
you got lost in the zeros. A 3.4
increase rom 2000. lor the irst hal o
2002, it`s P494,585,000,000. 1hat`s right,
P494 trillion.

GDP is the sum o personal
consumption ,C,, goernment
expenditures ,G,, capital ormation or
inestment ,I,, and net o exports ,X,
and imports ,M,. I you remember your
Lconomics 101, GDP ~ C - G - I -
,X-M,. It excludes net actor income
rom abroad, or remittances rom our
oerseas workers.

1otal exports in 2001 amounted to
P424,966,000,000. In the irst hal o
this year, it`s P208,104,000,000. 1hat`s
43 and 42 o GDP, respectiely.
Keep in mind, howeer, that our export
industry heaily relies on imports, which
practically osets the contribution o
exports to GDP.

Neertheless, we cannot discount the
act that the Philippines, like many o its
Asian neighbors, hae become export-
oriented economies. Most o them hae
been at this game ar longer than us,
turning them into tiger economies much
earlier. \e`re just playing catch-up,
starting only in the last decade. \e`e
already made great strides, with exports
experiencing double digit growth until
1999.

Consider that we exported P424 trillion
worth o products and serices in 2001.
1hat`s more than what the goernment
spent ,P9 trillion,, what inestors
poured in ,P206 trillion,, and what our
oerseas workers remitted ,P61 trillion,,
covbivea.

1hings get more interesting. 1he
electronics sector o the exports industry
contributes close to 0 o att exports.
1he second largest export sector,
garments, contributes only 6. 1he
electronics sector exported >22 billion
worth o goods, bringing total exports
to >32 billion. \ithout this sector, we
would hae exported only >10 billion.
Our >22 billion exports represented
around 2 o worldwide output, which
was >1 trillion in 2001, according to
Deloitte Consulting.

1o think that in 1992, electronics
exports as a percentage o total exports
was just 28, around >3 billion. 1hat`s a
25 compounded annual aerage
growth rate rom 1992 to 2001. In the
1
seenties, there was hardly any
electronics exports sector ,sae probably
or the presence o Intel,, which began
to boom only in the eighties and
nineties.

Our electronics sector is primarily
engaged in assembly and test
manuacturing and highly technical and
labor-intensie actiities. Products range
rom DSP ,1exas Instruments, and CD-
ROM dries ,1oshiba, to teleisions
,Sharp, Panasonic, and motherboards
,Acer, Ionics,.

Around 15 irms are engaged in this
sector, 2 o which are oreign
companies ,30 rom Japan, 10 rom
Korea, 9 rom the U.S., rom
Lurope,. 1hey inested a total o >20
million in 2001, up rom just >40 million
in 1992.

1hey export throughout the world: 26
o total to the U.S., 22 to Lurope,
11 to Japan, 1 to the ASLAN, 21
to other Asian countries, and 3 to
other countries.

1he electronics industry employs around
30,000 workers ,around 10 o all
manuacturing workers, with cumulatie
salaries o >1.5 billion and hopes to hae
a one million workorce ,a third o
today`s total manuacturing workers, by
2008 to support its >100 billion export
target.

Now, within the electronics industry, the
biggest sector is semiconductors, which
Intel is a part o. Semiconductor
exporters generated >15.5 billion
reenues in 2001, 0 o all electronics
exports. LDP ,electronic data
processing, is a ar second with >3.8
billion, or 1.5. 1he rest are relatiely
miniscule: oice equipment ,>1.4
billion,, communications and radar
,>531 million,, consumer electronics
,>384 million,, telecommunications
,>220 million,, medical and industrial ,>5
million,, and control and
instrumentation ,>2 million,.

O that >15.5 billion exported by the
semiconductor exporters, Intel
contributed around >354 million ,total
2001 reenues o P1. billion,
assuming an exchange rate o P50:>1,,
or around 2, based on inancial
statements submitted to the Securities
and Lxchange Commission ,SLC,.

1hat`s also equialent to 1.6 o total
exports, which doesn`t like much, but
that already makes Intel the country`s
top exporter or the past ie years. It
employs around 6,000 workers, or 2
o the total electronics workorce. Other
top semiconductor exports include
1exas Instruments, Philips
Semiconductors, Rohm Llectronics,
Amkor 1echnology, and 1emic
1eleunken Microelectronics.

I1 Resource, the industry`s annual
sourcebook, reported that the 55
semiconductor irms in the I1 500 list
generated net proits o P10.5 billion in
2000, the biggest among all sectors.
1heir combined net sales o P23
billion, accounted or a third o the total
I1 500. 1he top 20 companies are all
electronics companies, sae or three
telecommunications irms.

In terms o inestments, Intel claims it
has poured in around >1.3 billion since it
began operations in 194. In 2001,
inestments in the electronics industry
amounted to >20 million. 1his year,
Intel pledged close to >100 million or P5
billion or the Caite plant`s upgrade. As
o December 2001, its reported plant,
property, and equipment was worth
around P13 billion, or >265 million.

Beyond the numbers, more diicult to
measure is the credibility Intel gies to
the Philippines as a manuacturing base
or other multinationals. Lery speech,
brochure, and promotional campaign
or the Philippines as a place to inest in
always mentions Intel as a come on or
other multinationals.

Another major contribution o Intel is
eleating the skills o lilipino workers.
Banaag points out, I you look at
manuacturing, it`s in line with helping
the Philippine goernment`s export
reenues. At the same time, rather than
just the dollar inestment, it`s an
inestment in resources, inestment in
deeloping and improing the skills o
the lilipino worker. I you ask Intel
executies, we alue the skills o lilipino
worker. 1he lilipino worker is world
class. I don`t think there`s any doubt.
\hat we`re doing is continuing to
enhance the skills o the people here and
inesting in manuacturing technologies,
making manuacturing processes more
eicient. At the same time, what we`re
doing here are really the leading-edge,
new product-emerging technologies or
Intel. It shows the commitment and the
trust on the Philippine worker here.`

Local market
he other side o Intel`s coin in
the country is its sales and
marketing. Asia Paciic
represents the astest growing market
or Intel. According to the research irm
Gartner, the Asia Paciic hardware
market was an estimated US>40 billion
in 2001. China, India, Korea, and
Australia are the biggest markets. China
alone accounts or 40. PCs
contributed 50 o the total sales while
serers contributed 13.

In the second quarter o 2002,
researcher IDC estimated that PC
shipments to the Philippines amounted
to 9,300 units. In contrast, shipments
to China were around 2.5 million. Closer
to home are long Kong with 136
thousand, Indonesia with 165 thousand,
Malaysia with 200 thousand, Singapore
with 123 thousand, and 1hailand with
184 thousand. 1he Philippines registered
the smallest number o shipments. But
at least, it grew a modest 4. rom the
preious quarter.

Banaag, who set up and is responsible
or Intel`s sales and marketing
operations in the Philippines, remains
optimistic, \e still hae a positie
outlook or this year. Lxternal surey
companies are still calling out some
growth, though quite modest, or the
Philippines in terms o PC purchases or
the coming years. 1he key there is the
PC penetration or the country is
obiously not as high as in deeloped
countries. In addition, we hae also been
seeing a steady annual increase in
Philippine Internet subscribers and since
the PC continues to be the primary
access deice to the \eb, then that is
another actor to consider. So that really
translates to opportunities.`

Indeed, at 2, the Philippines has one
o the lowest PC penetration rates in the
world. As a market or technology
products, it`s not really an attractie
target or technology sellers in terms o
olume. loweer, part o Intel`s
mission here is to increase technology
adoption.

Banaag says there are two sides o Intel
in the country, one in manuacturing
and the other, which he heads, in sales
and marketing, which is all about
making people aware o these new
technologies, because people will be
using these technologies to enrich their
lies or help them in their businesses.`
le adds, Our tasks really is to ensure
that there is no technology gap -
eliminate it - and we managed to do
that. 1hat was my mission. 1he irst day,
when I had a press announcement, I
told them we want to decrease or
completely eliminate the technology gap.
Beore it was months beore new
technology comes here. \e want to
make sure that PC users hae access to
those latest technologies, and those
1
latest technologies can be aorded by
them. It`s technology enablement ava
technology adoption. 1hat`s really our
mission.`

A 14-year IBM eteran who joined Intel
in 199, Banaag has succeeded in his
mission o eliminating the technology
gap. \hen Intel launches a new
technology, buyers no longer hae to
wait. Banaag explains, I could show
3Ghz to you when we launch it, being
lown in by our oice rom whateer,
but no, when we show it, we show a
3Ghz that`s assembled by a local dealer.
\hich means, that same day, you can
actually go to a store and purchase that
3Ghz, in some occasions, een cheaper
that in the U.S.`

\e`re proud to say that as part o
bridging the technology gap, our job was
to set up a channel structure here or
Intel. \hat that has done was to help in
making the PC more aordable because
you now hae a ormal structure when
you assemble the PC. I you hae a
common structure, pricing does not go
through hills and alleys, peaks or
whateer. 1here`s support, not just
technical support, there`s marketing,
there`s retail support which we gie to
our authorized channels. So the price o
the PC has actually gone down. I you
look at the price o a 2Ghz PC, you can
get it or less than P45 thousand. \e`re
happy to say that our channels hae
contributed to that, because they
become more eicient in the integration
process.`

1o be sure, Intel makes a tidy proit
selling its products and serices to the
local market. Intel Microelectronics
,Phils.,, Inc. earned P3.9 million net
income on sales o P38 million in 2001.
1he year beore, it generated P9 million
in proits.

Most o its reenues come rom the
consumer market, although it`s
promoting its Xeon and Itanium
processors or the enterprise market.
Banaag explains, It doesn`t necessarily
mean that een i I`m managing a
primarily channel-based type o business
that we`re not proiding solutions to
large enterprises. I think we`re trying to
proide to all the centers. \e probably
hae a good reach outside o Metro
Manila. 1hat`s part o being able to
increase that rate o adoption o new
technologies. I we just ocus on Metro
Manila, then we`re not true to our
mission o trying to make the PC
aailable and aordable to a ast
number o PC users. \e are proud
about that eort. \e`re trailblazing in
some areas.`

1he company has been actie
promoting technology in arious ways.
It sponsors industry eents, subsidizes
adertising or its top resellers, and
organizes consumer actiities.

Interestingly, Intel has also entered
consumer electronics, partly as a way to
spur growth in the industry. In recent
years, it launched web cams, digital
cameras, and audio players or the
consumer market. Some ind it odd that
Intel diersiied to such products. But
Banaag explains Intel`s rationale, \hat
we`e done really is to take a look at
other areas where we eel we could add
alue to the PC experience. \e want to
espouse a culture o haing the PC as
the center o that digital world. 1here
are other digital deices we need to
share inormation with. \e are still
proiding building blocks to some o
those products, like some o the digital
cameras, we`re proiding silicon, lash
memory or that, and so on. \e`re
taking leadership in new chip
technologies or PDAs and cell phones
and so on. I don`t think we`re out o it.
\e continue to be a proider o
technology building blocks or these
products.`

1rying to get people to buy new PCs
and gadgets is understandable. Industry
obserers note a slowdown in the
upgrade cycle in the last ew years, as
consumers and business users ind their
existing systems suicient or their
needs. 1he economic downturn has also
orced them to delay new purchases and
upgrades.

But Banaag disagrees that this slowdown
is uniersal, I you talk about
replacement cycles, remember there was
a massie replacement done beore \2K
and probably at this stage, you`re already
seeing that cycle o replacement already
here. In some instances, it`s already
completed, some are looking at
replacing. 1he replacement cycle would
really ary. It boils down to what the
PCs will be used or. It boils down on
the usage model.`

le doesn`t accept the argument that
people hae simply stopped wanting
more processing power. People will
always expect Intel to come up with new
technology, and we will. \e`re doing
that because there`s a demand or
processing power on the desktop
because o the usage models that
eoled. Users will look or those new
technologies. I I get interested in ideo
editing or in streaming ideo on the Net
a lot, then I will look or technology that
will support that kind o usage
enironment. So there are people that
are contented with using e-mail, we hae
the technology or that also. \e hae
the technology that will support current
usage models and eoling, and that`s
the key there. 1he reason why we are
ahead and we are one o the industry
leaders is because we know what those
eoling technologies are. \e are
deeloping technologies or those
eoling usage models, not or the
current usage model.`

le adds, Len in our homes, the way
we use the Internet is much dierent
now. My daughter is not just contented
with downloading static pictures or
what. She`s downloading ideo, she goes
to sites with streaming audio, streaming
ideo. Len the usage models in the
home, the way you use the PC, the way
you use the Internet, has changed.`

Obiously, in business, just look at the
e-mail you get. \ou see a lot more
attachments on e-mail more than usual.
A business user does multi-tasking.
\ou`re reading mail, the PC could be
running another application. \ou might
be running irus scanning, you might be
doing encryption, you might be haing a
search agent on the \eb, at the same
time you`re doing a PowerPoint
presentation. lor us, it`s common to do
all o those.`

O course, cynics might sco that Intel
should say that, gien that their business
is dependent on people buying PCs and
gadgets that use their microprocessors,
chipsets, and lash memory.

Intel would also deny that we`re in a
post-PC world. Banaag disagrees that
majority o lilipinos will skip the
personal computer and go straight to
mobile deices and wireless gadgets.
It`s complementary. \hat we want to
see the PC as is like a center o a digital
world, and that is where the PC is
headed. It`s still the primary access
deice to the Internet, and we see the
other deices as complementary. All
these deices will eentually hae to
share inormation. I you`re taking a
picture rom a digital camera, or
example, you`ll hae to upload it, maybe
edit it, put it in a nice ormat, beore you
send it out to a relatie by email. So
een with these handheld deices, which
- een at one time we were selling them
- we ind the PC will remain the center
o that digital enironment.`

Ater all, 80 o Intel`s reenues still
come rom chips or PCs. 1he company
dominates the industry with 84 market
share. But while it is careul in
protecting its main product line, Intel
under Barrett has been aggressie in
diersiying into new markets, with
products such as wireless LAN chips or
laptops, the XScale chip or Pocket PCs,
networking processors, Lthernet
controllers, etc.

Corporate citizen
t`s unair howeer to ascribe Intel`s
promotional campaign as
completely sel-sering. Intel`s
sincere eorts to bridge the digital
diide, or instance, are commendable.

1he only thing it seems that excites
Banaag more than talking about Intel`s
latest chips is talking about Intel`s
community inolement. It will take us
two hours,` he warns.

1he local oice has inested tens o
millions o pesos in arious projects.
Last year, Intel inested oer >1 million
in its educational eorts in the
Philippines. Most ambitious is the global
program 1each to the luture`, a multi-
million dollar initiatie to help teachers
and students improe their knowledge
and skills in science, math, engineering,
and technology education. 1he two-year
teacher training program in the country
aims to train 20,000 teachers incorporate
the use o technology in instruction.
\orldwide, it has already trained
300,000 teachers in 25 countries.

It also launched two P14.5 million
worth Intel Computer Clubhouses with
the Ayala loundation. 1he Intel
Computer Clubhouse is a >32 million
global Intel project that aims to establish
100 clubhouses in underpriileged`
communities all oer the world by 2005.
1he worldwide total is already at 42. 1he
clubhouses allow kids to experiment
with animation, \eb design,
programming, digital music
composition, and digital art. 1he irst
Intel Computer Clubhouse was set up at
the Mater Dolorosa Parish in Makati
City, the irst in Southeast Asia.

1he company also inested P9 million in
its mobile I1 classroom project with the
Department o Science and 1echnology.
Banaag says, \e`re outitting two
buses, which could go around and reach
30 plus thousand students a year. One is
in region 4, Laguna, Caite area, and one
is in Mindanao. 1hese buses are owned
by the DOS1. \e outitted them with
16-1 laptop computers, Pentium 4. It
will go around, stay or a period o time,
students would go up, learn, hae a eel
o the PC and so on.`

1hen there`s the Intel Philippine Science
lair, an annual national science air
organized by the Department o Science
and 1echnology in cooperation with the
Department o Lducation, Culture and
Sports. Open to lilipino elementary and
high school students, the competition
aims to inspire the younger generation
to deelop an interest in engineering,
science and technology research.
\inners in the high school leel get the
opportunity to participate in the annual
Intel International Science &
Lngineering lair ,Intel ISLl, held in the
United States, the world's largest pre-
college science competition that
proides an opportunity or the world's
best young scientists to come together
to share ideas, showcase cutting-edge
science projects, and compete or oer
>3 million in awards and scholarships.

1he company grants ull scholarship to
desering engineering and science
undergraduate and graduate students as
a way o proiding inancial support
during their studies, and to increase
student interest in taking engineering
and science degrees. 1he scholarships
are aailable or those enrolled in the
Uniersity o the Philippines in Diliman
and De La Salle Uniersity-Manila.

I
Intel also donates equipment. Intel
laboratories are ound in the Uniersity
o the Philippines' College o
Lngineering ,Llectrical and Llectronics
Lngineering Department,, De La Salle
Uniersity's College o Lngineering
,Llectronics and Communications
Lngineering Department,, Dualtech
1raining Center, and 1echnological
Uniersity o the Philippines ,1aguig
and Caite campuses,.

\hat`s important,` Banaag stresses,
is not just donating hardware. \hat`s
important really to me is the training
component. 1he hardware component,
without proper training, will not equate
to prepared students. \e`re working
closely with the goernment agencies to
ensure we proide releant programs.`

le adds, \e beliee the education
component is critical. I you want to
build a strong, solid skills base and
continue haing highly skilled I1
knowledge workers, we eel the
oundation should be rock solid. And
that entails preparing the students and
more importantly the teachers.`

What if?
here`s no denying the
signiicance o Intel in our
society and economy. But what i
Intel or some reason pulls out o the
Philippines \hile it will not break our
economy - Intel contributes less than
2 to our GDP - the ramiications
remain staggering.

It will be a big blow to our
semiconductor export industry, a key
drier to our growth. It will adersely
aect inestor conidence, and we`e
been getting less and less o oreign
direct inestment. It will hamper our
position as an IC1 player.
But should we een entertain the
possibility that Intel would actually
abandon its plants here It sounds
remote. lor one, Intel has always
reairmed its commitment to a country.
As Barrett reminded the press last year,
\e'e operated in the Philippines or
the past ,28, years despite the economic
slump and political turmoil. I I were
worried about proitability or the next
two quarters, I would probably be
cutting down on inestments. Right
now, we're inesting or the uture.`

Banaag concurs, Intel has been doing
business in the Philippines or the past
28 years and remains committed to
doing business here. \e continue to
inest to urther improe manuacturing
eiciencies and maintain world-class
operational excellence. 1his would
include inestments in manpower,
human resources training and
deelopment as we hae in existence a
world-class, highly skilled workorce.
1he local manuacturing acility
continues to be an important actor in
our network o actories, producing
Intel's new and emerging product
platorms.`

Certainly, the Philippines has already
proen itsel. 1he typical electronics
company is ISO-certiied, understands
manuacturing best practices, and has
in-house training capability.

1he workorce in the electronics
industry can handle three shits a day, is
non-unionized, and has a low turnoer.
\orkers take only 6 to 8 weeks to learn
technical skills. 1hey are highly lexible,
multi-skilled, Lnglish-speaking, and
cost-competitie. It costs only >1,000-
1,500 per month or a production
manager, >450-00 a month or a
production superisor, and >6- a day
or a production operator. Plus, there
are oer 100 thousand engineering, I1,
and technical graduates eery year to tap
rom.

Still, one can`t help but be paranoid
when eeryone is talking about China
and India. China takes a more actie and
1
high-alue role or Intel. It has sales and
marketing oices in 12 cities throughout
China. It has an Intel Architecture Lab
in Shanghai, which works closely with
the local sotware deeloper community.
It also has an assembly and test plant or
lash memory chips. More than sales
and manuacturing, Intel works with
China`s uniersities and research
institutes through the Intel China
Research Center in Beijing.

In India, Intel also has a sales and
marketing operation. India`s alue-add is
its 800 employees, mostly engineers,
doing design and deelopment in both
in sotware and hardware or Intel India
Deelopment Centre.

Len Malaysia is a serious competitor o
the Philippines. Penang is the location
o Intel`s irst manuacturing operation
outside the U.S. and has grown to
become a leading manuacturer o
Pentium processors. It also has a
research and deelopment acility that is
one o the most adanced labs in
Southeast Asia. Intel Penang eatures a
sophisticated VLSI design center that
designs and deelops next generation
Intel architecture desktop and
workstation chipset solutions. 1he
systems engineering team designs and
deelops hardware and sotware
solutions or networking,
communication and embedded
applications to support the
APAC,Japan markets.

1he electronics phenomenon is not a
Philippine exclusie. Majority o export
reenues in Singapore, Malaysia, and
1aiwan is in electronics. Japan and
Korea dominate consumer electronics,
DRAM chips, and logic chips. 1aiwan
leads in laptop PCs, motherboards,
modems, scanners, and peripherals.
Malaysia and Singapore lead as contract
manuacturers.

1o be competitie, the Philippines has
to ix a ew problems. \e hae a bad
image or one, although Banaag notes
the gradual improements in this area,
As an inestor, the progress on the
peace and order situation and the actie
endeaor to eradicate corruption is seen
as a welcome and positie
deelopment.`

Barrett has complained about our
inrastructure, such as a our-lane
superhighway rom Makati City to
Caite` and the PPA ,power purchase
adjustment,. 1he graest concern
howeer is our quality o education. Our
work orce skill leel has also gone
down. Based on the \orld
Competitieness \earbook or 2002, the
Philippines placed 40th out o 49
countries.
Lducation and digital capability are the
oundations or the uture. 1he
Philippines must use education,
especially math, science and engineering
to build a strong workorce that is
equipped to compete in the digital
economy,` Barrett said in a preious
speech.
Critics point out that the assembly and
test stage in the semiconductor
manuacturing process is low-alue
added. A study commissioned by the
Semiconductor Llectronics Industry
loundation, Inc. ,SLIlI, in 1992
estimated the alue-added o the local
industry at 11.9 o reenues. \aer
abrication has higher alue in the chain
but setting such a ab requires billions o
dollars. Intel produces the silicon or its
microprocessors, chipsets and lash
memory components in abrication
acilities, or abs. Semiconductor abs
perorm the most complex tasks o any
actory in the world. Ater the silicon-
based products are created, they are sent
to Intel's assembly and test acilities
where each waer is cut into indiidual
silicon dies, placed within external
packages, and tested or unctionality.
Capital-intensie segments remain in
industrialized countries while labor-
intensie segments are with deeloping
countries like ours.
Still, to capture a larger share o the
>1.3-trillion global semiconductors and
electronics market, the local
semiconductor industry has to expand
its portolio o products.
One area the industry is looking at is the
electronic manuacturing serices ,LMS,
sector. 1his includes IC products and
serices, electronic components,
semiconductor and electronics
manuacturing equipment, process
materials and gases, and engineering and
sotware design.
Alliances are also important in the
industry, between small local players and
multinational companies operating in
the country, and collaboration between
the goernment and the priate sector,
particularly in marketing the Philippines.
\e certainly need that as inestor
perception o the Philippines has
deteriorated in recent years, leading to a
signiicant shit in inestments in other
Southeast Asian countries. In terms o
oreign direct inestments, the
Philippines has lagged behind China,
Singapore, Malaysia, 1hailand and een
Vietnam.
China, o course, is the biggest threat.
It`s now the largest manuacturer o PC
peripherals and components, accounting
or almost 90 o worldwide
production and or more than 40 in
Asia and the Paciic. Its domestic
market or technology products dwares
eeryone else in the region. 1hat makes
it both a manuacturing powerhouse and
a highly coeted market.
Semiconductor stumbles
he semiconductor industry is at a
crossroads. Ater leading the
country`s economy or years, the
global slump in the IC1 market
adersely led to a sharp 28 decrease in
export reenues or semiconductors and
electronic microcircuits, resulting to
total net exports decrease o 39.9.
In 2001, around 15 thousand workers in
the electronics industry were laid o.
Len Intel streamlined operations as the
Makati plant was closed down to
integrate operations at the Caite acility.
Around 1,500 workers were employed at
the Makati plant. Although some may
hae been absorbed in Caite, there are
most likely casualties.
Inestments ell rom >1.2 billion in
2000 to P20 million. lrom a peak o
>2 billion in export reenues in 2000, it
declined to P21.9 billion in 2001, a 20
decrease.
1he industry expects a modest growth
o 5-10 this year, ater it has recoered
in the irst hal o 2002. In the next two
years, it projects 20-25 growth. At this
rate, it would be able to meet its >100
billion export reenue target.

It remains optimistic that while the
semiconductor business is cyclical, it has
always been in an upward direction. It
has reason to hope. Gartner Dataquest
expects the semiconductor market to
post double-digit growth in 2003. Ater
a 32 decline rom 2000 to >152.5
billion in reenues due to oer capacity
and weak demand, it`s projected to
slightly increase by hal a percent by year
end.

1he bright spots include the digital
cellular handset market as the industry
shits rom 2G to 2.5G cellular, and
corporate PCs as the replacement cycle
is long oerdue. loweer, the Gartner
report cautions, A broader-based
recoery in electronic equipment
1
production, especially in the wired
communications segment, is unlikely to
begin until 2004, suggesting a limited
impact on semiconductor sales in 2003.
2003 is orecast to be a transition year,
as a phased recoery in end markets
gradually works its way back to uel
incremental semiconductor sales
growth.`

Indeed, our merchandise exports rom
January to September this year already
increased by 8.8 to >26 billion.
Llectronic components accounted or
53 i that, growing 1 or the month
o September.

1his bodes well also or Intel in the
Philippines. Ater a 12 decline in 2001,
rom around P20 billion to P1. billion
combined reenues o Intel`s Makati and
Caite plants, based on inancial
statements submitted to the SLC, it`s
likely it will rebound this year.

But all these numbers seem secondary to
Banaag. Ater the photo shoot, he
makes a inal appeal to get his point
across. A manuacturing plant will not
help a student in Basilan,` he
emphasizes. Intel is interested not just in
saing money by putting its plant here
or just by making money by selling its
products here. Intel is earnest in making
technology aailable and aordable to
the current and next generation o
lilipinos. Considering that we need Intel
more than it needs us adds credence to
its good intentions. 1bat`. the
importance o being Intel.