East and South-East Asian economies rely significantly on exports of high-tech goods, so the growing cyclical momentum in the sector should help raise economic growth in these economies. What is doubly encouraging is that the underlying forces in technology are likely to promote the growth of this sector for several years to come.

Silicon rally

The growth in global sales of semiconductors accelerated to a 27-month high of 13.2% year on year in January, and the signs are that this growth will easily outpace the growth rates seen during the 2016–17 upturn. The large fiscal stimulus in the US and the acceleration of technological trends underpin this upbeat scenario. This optimism is driving stronger investment in the sector. Capital spending in the world’s semiconductor industry is forecast to hit US$125bn in 2021, a new record despite the pandemic.

Indeed, the forward-looking indicators have been very positive of late. The composite inventory-to-sales ratio among chip producers in South Korea and the US – a gauge of the supply-demand balance in the global tech sector – fell to a 17-year low in January. That signals a likely uptick in production.

Price trends in the sector support the positive outlook. South Korea’s export value index for semiconductors, which we take as a proxy for global chip prices, surged 20.4% in January 2021, up from an average of 13.8% growth in the fourth quarter of 2020 and a 9.8% rise in the preceding quarter.


Manu Bhaskaran is a leading Asian economist and CEO of Centennial Asia Advisors in Singapore

Capital spending in the world’s semiconductor industry is forecast to hit US$125bn in 2021

Secular cheer

Looking beyond the current cyclical upswing, we find secular forces that should help support the technology sector for some time to come.

First, the shift to 5G is showing robust momentum. The pace of 5G network deployment accelerated in the first half of 2020, with 35 new operators launching commercial 5G services. We believe that the rollout of 5G networks is set to accelerate in 2021–22 as economies reopen, and as the political zeitgeist continues to shift towards fiscal activism, with infrastructure largesse and industrial policy increasingly important policy priorities.

Second, consumers are upgrading technology equipment. In turn, the broader rollout of 5G networks is likely to spur a new round of upgrading of smartphones and other gadgets by consumers. It is noteworthy that the dollar value of semiconductor content in 5G-enabled smartphones is nearly double that of 4G designs.

Third, autonomous driving and electric vehicles are also driving growth. The maturation of advanced driver-assistance systems that support automatic steering, braking, traffic detection and monitoring as well as the electrification of vehicles will drive demand for all sorts of specialised chips such as sensors and power semiconductors. By some estimates, these factors will raise electronic systems’ share of total car costs to 50% by 2030, up from 35% in 2010.

Fourth, the shift to the public cloud is gaining traction. Businesses are increasingly thinking of digital transformation – intensifying competitive pressures often leave them with little choice. This will raise demand for cloud computing infrastructure, implying substantial fixed investment in data centres that will drive greater demand for computing power and semiconductors. The runway for growth is long, given that the cloud’s penetration of total enterprise workload is estimated at about 20%.

And fifth, marquee high-performance computing applications are taking off. Advances in computing power and the falling cost of storage have led to the proliferation of artificial intelligence (AI) and machine learning (ML) applications, given the need for large amounts of data in ‘training’ AI models. Mass commercialisation of AI and ML technologies could well trigger an explosive increase in demand for memory chips and other specialised silicon.

The winners are…

The strength of the technology sector will lend strong momentum to economies that play a leading role in semiconductors and related equipment.

Malaysia is also part of the technology supply chain and will gain from that. Singapore’s economic performance will likewise be boosted as a result: not only will its manufacturing sector benefit, but the bright prospects for the sector have drawn a huge influx of Chinese technology firms to locate their global business hubs in Singapore.