THEPHILIPPINE

ICTINDUSTRY

ERNIE SANTIAGOSEIPI

ITA SYMPOSIUM28 March 2007

Geneva

PART 1: THE PHILIPPINE E-SERVICES INDUSTRY

PART 2: THE PHILIPPINE ELECTRONICS INDUSTRY

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THE THE

WORLDWORLDINFORMATIONINFORMATION

//ELECTRONICS ELECTRONICS

INDUSTRYINDUSTRY

WORLD INFORMATION/ ELECTRONICS INDUSTRYWORLD INFORMATION/ ELECTRONICS INDUSTRY

• ONE OF THE LARGEST INDUSTRIES IN MANUFACTURING

SECTOR: > US$1 trillion output, 6-8% annual growth

2002 2003 2004 20050

200

400

600

800

1000

1200

1400

US$B

illion

Worldwide Production

Source: Reed Research, 11/2005

US$ 1.338T

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• ASIA / PACIFIC IS THE FASTEST GROWING REGION

Source: Reed Research

Region 2002 2003 2004 2005CAG

REurope 220.4 247.5 279.1 285.8 9.0%Americas 317.6 314.1 334.3 341.9 2.5%Japan 162.4 180.2 197.8 202.3 7.6%

Asia / Pacific

343.1 386.9 448.8 492.712.8

%Rest of World

13.2 14.3 15.7 16.2 7.2%

World 1,056.8 1,143.0 1,275.61,338.

98.2%

Electronics Production

WORLD INFORMATION/ELECTRONICS INDUSTRYWORLD INFORMATION/ELECTRONICS INDUSTRY

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MIGRATION TO LOW-COST LOCATIONS MIGRATION TO LOW-COST LOCATIONS

PERCENTAGE OF ELECTRONICS OUTPUT

53%

67%75%

47%

25%33%

0%

20%

40%

60%

80%

1995 2000 2005

High Cost Low Cost

High-Cost Locations - US, Canada, Japan, Western EuropeLow-Cost Locations - Asia/Pacific, China, Eastern Europe, ROW

Source: Reed ResearchSEIPI

MAJOR PRODUCT TRENDSMAJOR PRODUCT TRENDS

Telematics – GPS, Hybrid Car, Safety

Automotive

3G Handset, TV Reception on Handset, Mobile Services

Communications

RFID, Energy Saving Control, Green Electronics, Optical Recognition

Industrial

Flat Panel TV, HDTV, Set Top Box, iPod, Digital Camera

Trends

Consumer

Product

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GENERAL TREND IN GENERAL TREND IN ELECTRONICS INDUSTRYELECTRONICS INDUSTRY

• Manufacturing: moving to low-cost regions

• Markets:

– automotive electronics is rising rapidly

– computer and communications are still big

– consumer and industrial may rebound

• Products: high technology, multi-function, networking base, quality in audio/visual effects

• Components: complexity, high precision

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THE THE

ASIAASIAELECTRONICS ELECTRONICS

INDUSTRYINDUSTRY

Source: Reed Research, 11/2005

ASIA’S POSITION IN ELECTRONICS PRODUCTIONASIA’S POSITION IN ELECTRONICS PRODUCTION

Share of Asia's Electronics Production in the World *

51.9%50.7%49.6%47.8%

40%

45%

50%

55%

60%

2002 2003 2004 2005

*Including Japan

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Source: Reed Research, 11/2005

TOP 8 ASIAN ELECTRONICS PRODUCINGTOP 8 ASIAN ELECTRONICS PRODUCING

0

50

100

150

200

250

2002 2003 2004 2005

JapanChina

South Korea

SingaporeMalaysia

PhilippinesTaiwan

Thailand

(In US$ Billion)

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Source: Reed Research, 11/2005

TOP 8 ASIAN ELECTRONICS PRODUCING TOP 8 ASIAN ELECTRONICS PRODUCING COUNTRIESCOUNTRIES

(In US$ Billion)(In US$ Billion)

2002

162.4120.2

62.438.636.426.623.815.9

2003

180.2147.4

73.841.339.434.624,217.7

2004

197.8177.190.345.944.135.926.620.1

20052005

202.3202.3210.3210.396.196.147.447.445.545.535.435.427.327.321.121.1

JapanJapanChinaChinaSouth KoreaSouth KoreaMalaysiaMalaysiaSingaporeSingaporeTaiwanTaiwanPhilippinesPhilippinesThailandThailand

ASIA / PACIFIC AS INFORMATION /ASIA / PACIFIC AS INFORMATION /ELECTRONICS HUBELECTRONICS HUB

Country / Region Role

Japan, KoreaDesign, R&D, Product Marketing

China, India, Taiwan, Thailand, Malaysia and Philippines

Manufacturing, EMS, ODM

Singapore, Hong Kong, India

IT Solutions, Software

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INFORMATION & COMMUNICATIONS INFORMATION & COMMUNICATIONS TECHNOLOGY TREND IN ASIA / PACTECHNOLOGY TREND IN ASIA / PAC

• Increasing spending, brought by China and India markets

• Wireless services overtaking fixed line

• Offshore services, business process outsourcing

• Enterprise solution

• Security issue

• Commodization of IT hardware, servers, Linux

• Digital home market

• Rising technologies, e.g. RFID

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THEPHILIPPINE

ICTINDUSTRY

A snapshot

ERNIE SANTIAGOSEIPI

PART 1: THE PHILIPPINE E-SERVICES INDUSTRY

PART 2: THE PHILIPPINE ELECTRONICS INDUSTRY

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PART 2: THE PHILIPPINE E-SERVICES INDUSTRY

THE

PHILIPPINEE-SERVICES

INDUSTRY

- the fastest growing industry

THE PHILIPPINE E-SERVICES INDUSTRY

1. CONTACT CENTER

2. BUSINESS PROCESSING

3. ANIMATION

4. MEDICAL & LEGAL TRANSCRIPTION

5. ENGINEERING DESIGN

6. SOFTWARE DESIGN

CONTACT CENTER INDUSTRY

AS OF 1ST QUARTER 2006 Still the fastest growing industry in the Philippines Contact Centers in the Philippines: 108 Total Full Time Employees: 112,000/Total Seats: 70,000 Estimated Revenues in 2005: US$ 1.7 Billion With a Growth Rate for 2005: 90%

KEY PLAYERS IN THE COUNTRY:

Third Party Providers: Sykes, Convergys, PeopleSupport, Clientlogic, ePLDT Parlance, ICT Group, Ambergris, Teletech, eTelecare, etc…

Captives: Dell, AOL, JPMorgan, Siemens, HSBC, AIG, IBM Daksh, etc..

BUSINESS PROCESSING (BACK OFFICE OPERATIONS)

AS OF 1ST QUARTER 2006 No. of Service Providers: 62 Total Full Time Employees: 22,500 Estimated Revenues in 2005: US$ 180

Million With a Growth Rate for 2005: 80%

KEY PLAYERS IN THE COUNTRY:

Captives: AOL, AIG BPSI, Chevron Texaco,HP, HSBC, Procter & Gamble, Flour Daniel, Henkel Financial Services, Deutsche Bank, Citibank Crescent Services, Shell Shared Services, Manulife, Alitalia, Watson Wyatt, etc…

Third Party Providers: Accenture, American Data Exchange, SVI Corp, SPI Technologies, DAKSH eServices, The Environments Collaborative, Eximius BPO, BayanTrade Dotcom, etc…

MEDICAL & LEGAL TRANSCRIPTION SERVICES

As of 1st Quarter, 2006 (Medical Transcription)Total MT Firms: 66 (57 medical/9 legal)MT Professionals: 6,000 employedEstimated Revenues in 2005: US$ 76 MillionWith a Growth Rate for 2005: 80%Performance Level: 98 – 99% accuracy rate

with a turnaround time of 12 to 24 hour

Key Players in the Country:eData Services, SPI Technologies, SVI Corporation, Medscribe Asia,Transkripsyo Inc., Total Transcription Solutions, Inc., Dictation

Source,Pilipinas Data Contracts Corporation, etc…

SOFTWARE DEVELOPMENT INDUSTRY

As of 1st Quarter, 2006Software Development Companies: 300Total IT professionals: 14,000Estimated Revenues in 2005: US$ 204 MWith a Growth Rate for 2005: 40%

Key Players in the Country:Accenture, Headstrong, Microsoft, IBM Solutions, Jupiter

Systems, Oracle, ADTX Solutions, Gurango, Sun Microsystems, Intel Microelectronics, NEC, etc…

ANIMATION INDUSTRY

As of 1st Quarter, 2006 Total animation studios in the country: 40 Total Full Time Employees: 4,500 Est. Revenues in 2005: US$ 40 Million With a Growth Rate in 2005: 25%

Key Players in the Country:Holy Cow! Animation, Artfarm Asia, Digital Exchange, Top Draw Animation,Toei Animation, Top Peg Animation and Creative Studio, Creative Asia,Geebo Digital, Toon City, etc…

ENGINEERING DESIGN INDUSTRY

As of 1st Quarter, 2006Total Number of Engineering Design Companies: 14Total Number of Full Tim Engineers: 2,800Estimated Revenues in 2005: US$ 48 MillionWith a Growth Rate in 2005: 30%

Key Players in the Country:

Fluor Daniel, JGC Phils., Bechtel, Tsuneishi, Kajima Corp, Parsons, C & E Corp, EEI Corp, Eichleay Pacific, Inc., Hyundai Engineering, Foster Wheeler, Kellog, Brown & Root, Bouygues Construction, etc…

PROJECTIONS FOR THE NEXT FIVE YEARS

IT & IT-enabled Services (Source: BOI-CICT-BPA/P)

EMPLOYEES 2004 2005 2006 2007 2008 2009 2010

Customer Care 64,000 112,000 168,000 218,000 262,000 301,000 331,000

Back Office 15,000 22,500 36,000 61,000 110,000 187,000 299,000

Medical Transcription 3,000 5,000 9,000 17,000 34,000 68,000 122,000

Legal Transcription 300 450 675 1,013 1,519 2,126 2,764

Other Data Trans 2,000 3,000 4,000 6,000 8,000 10,000 13,000

Animation 2,800 4,000 6,000 10,000 17,000 27,000 41,000

SW Dev’t (Export) 10,000 12,000 16,000 22,000 33,000 50,000 75,000

Engineering Design 2,000 2,800 4,000 6,000 10,000 15,000 21,000

Digital Content 200 500 1,000 2,000 4,000 8,000 16,000

Workforce 99,300 162,250 244,675 343,013 479,519 668,126 920,764

PROJECTIONS FOR THE NEXT FIVE YEARS

 IT & IT-enabled Services

             

REVENUES 2004 2005 2006 2007 2008 2009 2010

Customer Care 1,024 1,792 2,688 3,488 4,192 4,816 5,296

Back Office 120 180 288 488 880 1,496 2,392

Medical Transcription 42 70 126 238 476 952 1,708

Legal Transcription 4 6 9 13 20 28 36

Other Data Trans 26 39 52 78 104 130 169

Animation 52 74 111 185 315 500 759

SW Devt (Export) 170 204 272 374 561 850 1,275

Engineering Design 34 48 68 102 170 255 357

Digital Content 3 7 13 26 52 104 208

Revenues in US $ M $1,474 $ 2,419 $ 3,627 $ 4,992 $ 6,769 $ 9,130 $ 12,199

THE

PHILIPPINEELECTRONICS

INDUSTRY- the driver of economy

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CHANGING FACE CHANGING FACE OF EXPORTSOF EXPORTS

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Agro-Based Agro-Based 49%49%

Mineral Products -18%Mineral Products -18%

ELECTRONICS - 3%ELECTRONICS - 3%Garments - 7%Garments - 7%

Other Other ManufacturedManufacturedProducts – 10%Products – 10%

Forest Products - 10%Forest Products - 10%

Others - 2%Others - 2%

19751975

ELECTRONICSELECTRONICS66%66%

Garments and Textiles - 6%Garments and Textiles - 6%Machinery and Transport - 4.4%Machinery and Transport - 4.4%

Wearables - 0.16%Wearables - 0.16%Food - 2.9%Food - 2.9%

Motor Vehicles and Parts - 1.74%Motor Vehicles and Parts - 1.74%Home Furnishings - 1%Home Furnishings - 1%

Marine Products - 1%Marine Products - 1%

Giftwares - 0.45%Giftwares - 0.45%

Construction Materials - 0.49%Construction Materials - 0.49%

Organic Products - 0.18%Organic Products - 0.18%Mineral Products - 2.1%Mineral Products - 2.1%

Others - 13%Others - 13%

20062006

….FROM COCONUT CHIPS TO MICROCHIPS

2005 TOTAL PHILIPPINE2005 TOTAL PHILIPPINE EXPORTS EXPORTS

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ELECTRONICS - 66%

OTHERS - 34%GARMENTS AND TEXTILES - 6.0%

MACHINERY & TRANSPORT - 4.4%FOOD - 2.9%

MINERAL PRODUCTS - 2.1%MOTOR VEHICLE/PARTS - 1.7%

HOME FURNISHINGS - 1.0%MARINE PRODUCTS - 1.0%

CONSTRUCTION MATERIALS - 0.5%ORGANIC PRODUCTS - 0.2%

GIFTWARES - 0.2%WEARABLES - 0.2%

OTHERS -13.0%

ELECTRONICSEXPORTS 66%

EXPORTSOTHER THANELECTRONICS 34%

2006 PHILIPPINE 2006 PHILIPPINE EXPORTSEXPORTS

Source: Tradeline Philippines

HISTORICAL EXPORTS HISTORICAL EXPORTS OF ELECTRONICSOF ELECTRONICS

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EXPORTS VALUE IN US$ BILLION

7.55

10.61

14.98

19.87

27.07 26.64

2.973.784.89

25.34

21.623.76

24.17

27.3

30

0

5

10

15

20

25

30

35

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Masterplan for Philippine Electronics Industry 1998

CLASSIFICATION CLASSIFICATION OF ELECTRONICS EXPORTS OF ELECTRONICS EXPORTS

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EMS – 26%COMPUTER REL.PROD./EDP – 20.17%

CONSUMER ELECTRONICS – 2.07%AUTOMOTIVE ELECTRONICS – 1.45%

COMMUNICATIONS AND RADAR – 0.98%OFFICE EQUIPMENT – 0.70%

TELECOMMUNICATIONS – 0.59%CONTROL & INSTRUMENTATION – 0.06%

MEDICAL AND INDUSTRIAL – 0.03%

SMS – 74%COMPONENTS AND DEVICES - 74.03%

EMS26%

SMS74%

THE TOPTHE TOP CHIPMAKERS CHIPMAKERS

Eight (8) out of the world’s top 30 chipmakers are operating in the Philippines

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TIPI Intel Philips

Fairchild

Analog

Sanyo

On Semi

Rohm

THE WORLD’S TOP ELECTRONICS FIRMS

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FOUR OF THE LARGEST HDD PRODUCERS ARE IN THE PHILIPPINES

Hitachi

Toshiba

Fujitsu NEC

DESTINATIONS DESTINATIONS OF ELECTRONICS EXPORTS 2006OF ELECTRONICS EXPORTS 2006

USA - 13% US$ 3.3 Billion

EUROPE - 19%US$ 5.1 Billion

JAPAN - 18%US$ 4.8 Billion

OTHER ASIA - 37%US$ 10.6 BillionHongkong- US$ 2.8 BSingapore- US$ 2.1 BMalaysia - US$ 2.1 BTaiwan - US$ 1.4 BKorea - US$ 1.0 BOthers - US$ 1.2 B

Source: Bureau of Export Trade Promotion, DTI

CHINA - 13% US$ 3.5 Billion

SEIPISource: 2005 Exports - Bureau of Export Trade Promotion, DTI

• IC DESIGN: ASIC AND FPGA DESIGN, VHDL VERIFICATION (INTEL, ROHM LSI DESIGN PHILS., SANYO SEMICONDUCTOR, EAZIX, SYMPHONY, BITMICRO)

• IC PACKAGING DESIGN: (TI PHILS., INC., FAIRCHILD SEMICON)

• MODULE DESIGN, PRODUCT DESIGN (LEXMARK, EAZIX, BLUE CHIP)

• FIRMWARE – EMBEDDED SYSTEMS HW/SW, EMBEDDED LINUX (CANON I.T., TSUKIDEN)

There is a budding silicon design and development industry in the Philippines

SILICON SILICON DESIGN AND DEVELOPMENTDESIGN AND DEVELOPMENT

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ICs Connectors

Magnet

Capacitors Transistors

Actuator

Packaging Materials

Diodes

Base &

Cover

Plastic Molded

Parts

Screws

Coils

Resistors

PCB/ PCBA

Metal Pressed

Parts

Spacer Ring

Motors

Magnetic Head

Carriage Assembly

…SUPPLYING THE WORLD WITH 2.5 MILLION HDD PER MONTH

A GROWING BASE OFA GROWING BASE OF SUPPLIERS FOR HDDS SUPPLIERS FOR HDDS

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Power devices

Logic devices

Strong in assembly, test and packaging design for semiconductor manufacturing services…

…CAPTURING 10% OF THE SMS WORLD SUPPLY

Memory chips

Microprocessors

Flash memory

DSPs

Opto devices

Analog devices

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TEST TEST ANDAND PACKAGING DESIGN PACKAGING DESIGN

COMPETITIVENESS COMPETITIVENESS OF THE INDUSTRYOF THE INDUSTRY

CRITICAL MASS OF GLOBAL PLAYERS

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COMPANIES COMPANIES IN THE ELECTRONICS INDUSTRYIN THE ELECTRONICS INDUSTRY

Sources: Philippine Board of Investments (BOI) & Philippine Economic Zone Authority (PEZA)

Malaysia

2%

Others

8%

Europe7%

Taiwan

4%

Singapore 2%Philippines

28%

Korea10% Japan

30%

US9%

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912 Firms

NATIONALITY:72% Foreign28% Filipino

COMPETITIVENESS COMPETITIVENESS OF THE INDUSTRYOF THE INDUSTRY

PEOPLE

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EMPLOYMENT EMPLOYMENT IN THE ELECTRONICS INDUSTRYIN THE ELECTRONICS INDUSTRY

Sources: Philippine Board of Investments (BOI) & Philippine Economic Zone Authority (PEZA)

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74 80 90120

160

220250

280315307

346

402

335

376

438

0

50

100

150

200

250

300

350

400

450

500

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Over 400T engineers, technicians and operators

EXPORTSEXPORTS OF ELECTRONICS INDUSTRYOF ELECTRONICS INDUSTRY

Source: Bureau of Export Trade Promotion, DTI

1992 2.97 B 20 % 28 %

YEAR EXPORTS(in US$)

GROWTH RATE

% TO RP EXPORTS

19931994199519961997199819992000

3.78 B 4.89 B 7.55 B10.61 B14.98 B19.87 B25.34 B27.07 B

27 %28 %55 %40 %41 %33 %27 % 7 %

33 %36 %43 %52 %58 %67 %72%71 %

2003 24.17 B 2 % 68% 2004 26.64 B 10 % 68%2005 27.30 B 2.3% 67%

2006 30.00 B 10 %

66%

2001 21.60 B -20 % 68 %2002 23.76 B 10 % 69 %

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Sources: Philippine Board of Investments (BOI) & Philippine Economic Zone Authority (PEZA)

INVESTMENTS INVESTMENTS IN THE ELECTRONICS INDUSTRYIN THE ELECTRONICS INDUSTRY

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2003 230 M

2004 443 M

2005 776 M

2006 747 M

YEAR INVESTMENTS

US$ 40 M 220 M1.290 B2.160 B1.080 B1.470 B 670 M 790 M 1.240 B 720 M

270 M

199219931994199519961997199819992000 2001 2002

TARGETS TARGETS OF THE ELECTRONICS INDUSTRYOF THE ELECTRONICS INDUSTRY

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YEAR

20022003200420052006

2007

INVESTMENTS(US $)

230 M270 M443 M776 M747 M1.000

B

EXPORTS(US$)

24.26 B 24.60

B 26.64 B 27.30 B

30.00 B 33.00 B

TARGETS

11%2%

11%2.3%

10%10%

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YEAREXPORTS

(US$)

TARGETSour industry has always been cyclical but in an upward direction

this has not changed

therefore we must continue to do theright things to prepare for our future

success

knowing that adversity always transcends unique opportunities

it is up to us to make the most of it

CHALLENGES CHALLENGES OF THE INDUSTRYOF THE INDUSTRY

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YEAREXPORTS

(US$)

TARGETSglobal fundamentals are still thereand supports a continued long term worldwide economic expansion

• world peace• trends towards freer trade• growing global communications

enhancement• accelerating pace of technological

developments

GLOBAL CHALLENGESGLOBAL CHALLENGES

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YEAREXPORTS

(US$)

TARGETSTHE ITA AND ITS ROLE IN THE

ECONOMIC DEVELOPMENT OF COUNTRIES

THE RAPID PACE OF TECHNOLOGY INNOVATION

THE CHALLENGES AHEAD

TEN YEARS TEN YEARS OF ITAOF ITA

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YEAREXPORTS

(US$)

TARGETS

END

Some men see things as they are and say, why?

I dream things that never were and say, why not?

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YEAREXPORTS

(US$)

TARGETS

ENDEND