Fears about the global electronics industry may be justified in the short term but Asia's woes cannot be held entirely responsible for a decline in the technology sector.
Industry analysts are also pointing to overproduction in the component area and aggressive pricing in an already crowded market as significant factors in the equation. There is no doubt that the problems in Asia will effect the larger US multinationals, which account for about 60 per cent of high-tech employment in Ireland. In particular, operations exporting directly to Asia from the west coast of the US, or based in Asia, are bound to feel the effects.
A reduction can be expected in the stock price of many of these companies because of the reduction in demand from the Asian market. Oracle software, which has witnessed its business in Asia increase by 60 per cent a year, recently horrified the market by announcing disappointing sales and earnings, and writing off the prospect of growth in the Asia-Pacific region for a couple of quarters.
The good news from an Irish perspective is that the Irish arms of multinationals, including Oracle, IBM and Microsoft, generally feed into the European market.
Mr Mark McAuley, an analyst with TIU Investment Research, said: "If south-east Asian governments take steps to reform banking systems, the slowdown should be temporary and not as severe as first feared. This should restore confidence and have a positive impact on large corporations in south east Asia."
The IDA maintains that the direct effect on Irish jobs should be minimal as there are only about five Korean companies operating in Ireland, employing less than 1,000 people. Korean company, Samsung is the parent company of computer manufacturer AST in Limerick, which employs 430 people. Negotiations to reduce employment at the Limerick facility by at least a third are under way. Samsung said last week that output of consumer electronics in south-east Asia, China and other countries would be affected by the currency crisis in the region.
There are about 30 Japanese manufacturing companies based in Ireland but Mr Frank Ryan, manager of electronics and engineering at IDA Ireland, says he does not expect these companies to be adversely affected by recent events.
The knock-on effect of witnessing large corporations lose their share value, could be a change of heart by Irish software companies looking at a stock market listing this year. Such developments do little for the confidenceof fledgling companies hoping to achieve a good stock price when they float. However, Mr Tom O'Connor, manager of strategy consulting company, Prospectus, believes that forward thinking Irish companies could maximise on Asia's problems: "Local acquisitions in Asia could be picked up very cheaply at the moment, though buyers would have to be extremely careful." providing opportunities for Irish companies who could form partnerships by bringing their technological expertise to the table."
The global impact of Asia's economic problems in the high-tech sector will vary greatly by industry segment and geography. US companies recording their revenues in dollars are being harder hit than their counterparts in Europe. The most vulnerable segment of the industry is among the providers of capital equipment, including semi-conductors. Industry predictions before Christmas concluded that growth in this area would be strong but market analysts have lowered their forecast for market growth in this sector from a range of 10 to 20 per cent, to a range of 5 to 10 per cent.
Intel seems to be unaffected by the prophets of doom and gloom. Earlier this week it recorded a 20 per cent increase in revenue to $25.1 billion for 1997. The company's revenue share in the Asia-Pacific region fell from 20 per cent in the fourth quarter of 1996 to 17 per cent for the same quarter in 1997.
As the Asian market dries up, the implications for some of the bigger computer companies could be profound. The most obvious step now for companies like NEC or Toshiba is to move away from their declining markets and target western economies. This may lead to slower growth among some of the industry's biggest players like Compaq and Dell. With the market already highly competitive as firms vie to produce personal computers costing less than $1,000, margins are getting tighter.
Now most leading foreign PC vendors have established manufacturing facilities inside China in anticipation of growing domestic demand. This is largely due to Asia's recent efforts to catch up with technological advances in the west it has been dragging its heels over Internet adoption, and the shift from mainframe computing to network computing based on PCs. Hence the PC, internet equipment and software markets should continue to rally.
While the full fallout of the Asian crisis is impossible to assess, the technology industry should brace itself for an exercise in damage limitation. Some sectors may be in for stormy times, but as long as the industry continues to innovate and drive consumer interest be it via Windows 98, hand-held computers, the Internet and intranets, or voice recognition technology the worldwide market will continue to require constant supply, maintenance and stimulation.
See technology pages 10-12
