KUALA LIMPUR--The move by Western Digital, the world's second-largest hard-disk maker, to close its manufacturing facility in the East Malaysian state of Sarawak may portend the start of more layoffs in the country's electronics and electrical (E&E) sector.
Western Digital last month stunned state authorities and its 1,500 employees when it announced it would cease the Sarawak operations and lay off all its workers by March this year. Western Digital also has large manufacturing facilities in the West Malaysian states of Selangor, Penang and Johor.
The company was reported to have invested some US$160 million in Sarawak since it started operations 13 years ago. The Komag plant, which was subsequently acquired by Western Digital, was the pioneer electronics company in the Sama Jaya Free Industrial Zone in Kuching, the state capital.
Sarawak deputy chief minister George Chan Hong Nam, said end last month, he was "shocked" by Western Digital's sudden decision to close down the plant.
The E&E sector is one of the pillars of the Malaysian economy, and ironically, this has become a double-edged sword for the country especially during the current global economic slowdown. Some of the largest U.S. and Japanese chipmakers and computer-related firms are operating in Malaysia, particularly in Penang which is home to plants operated by Intel, AMD, Dell, NEC, Seagate, Agilent Technologies, Motorola, Sony, Jabil Circuit and Flextronics.
Those working in Malaysia's electronics sector got more bad news when the Human Resources Ministry's said at the end of last month that close to 5,000 workers, mostly from the electronics sector, will be retrenched by 137 employers in the next three months. Human Resources Minister S. Subramaniam said the figure included the 1,500 Western Digital workers in Kuching.
There has been a significant deterioration in the outlook for Malaysia's manufacturing sector as seen by the 7.7 percent year-on-year drop in the Industrial Production Index (IPI) in November. This was the biggest drop since 2001 and steeper than the market expectation of 6.5 percent. The manufacturing sector was the hardest hit, declining 9.4 percent year-on-year and down 2.2 percent from October.
In the northern state of Penang, state government officials are bracing for a spate of layoffs in the electronics sector which provides employment for over 100,000 people there.
In anticipation of increased layoffs this year, the Penang government is asking for 500 million ringgit (US$140 million) from the federal government as part funding to set up a retrenchment fund. In addition, the Penang government itself will be allocating 50 million ringgit (US$14 million) from its own budget for the purpose.
Intel, which has close to 10,000 employees in Malaysia including about 8,000 at its Penang facilities, said it did not have any announcement pertaining to mass layoffs in Malaysia.
Nick Jacobs, Intel Asia-Pacific regional PR group manager, said: "While we continue to optimize our resources in line with business requirements, we've not announced any mass layoffs in Malaysia."
"We are taking actions to control discretionary spending by reducing travel, limiting new hiring, and reducing factory loading where necessary," he said in an e-mail reply to ZDNet Asia on whether Intel would be restructuring its operations and reducing headcount in Malaysia.
"We currently employ close to 10,000 people in Malaysia, where we have operated for more than 36 years and invested nearly US$4 billion. Intel remains committed to the investments it has made in Malaysia, both in terms of talent and infrastructure," affirmed Jacobs.
While acknowledging that the global economic crisis was affecting everyone including Intel, Jacobs was confident that the chipmaker would emerge stronger from the current downturn. "In addition to ongoing cost management, we will continue to invest for growth and innovation. We've been through down cycles before--one thing we've learned is that you cannot save your way out of a downturn," he added.
Penang may have dodged a bullet when Dell, the world's second-biggest PC maker, announced last week it will cut 1,900 jobs at a plant in the Irish city of Limerick to reduce expenses.
Speculation had been rife in recent months that Dell's Penang factory looked like one of the possible candidates to be closed as the global downturn got worse. Apart from the United States and Ireland, Dell also has plants in China, Brazil and Poland. In Malaysia, the U.S. company employs about 3,000 workers at its Penang and Cyberjaya facilities.
Meanwhile, Malaysian-American Electronics Industry (MAEI) said multinational corporations (MNCs) operating in Malaysia will only resort to laying off employees if all other necessary actions taken to cut costs fail.
MAEI chairman Datuk Wong Siew Hai, said many MNCs had implemented various measures to cut operational costs including shutting down factories for a longer period during the last Christmas season as well as having shorter working hours and longer leave periods for employees.
In a recent interview with local daily The Star, Wong said that MNCs in Malaysia were also believed to have frozen hiring, adding that corporations would only have "strategic hires" when new products were introduced in the market.
He said orders for the first quarter of 2009 were expected to decline, leading many corporations to re-assess their business. MNCs could no longer forecast demand on a monthly or quarterly basis--it is weekly now, he said.
Lee Min Keong is a freelance IT writer based in Malaysia.