Penang factories take a longer break as demand slumps

GEORGETOWN, Dec 19 — Penang’s industrial areas will turn into ghost towns between Dec 22 and Jan 5 as factories shut down longer for the year-end holidays amid falling demand from major markets that are already in recession. Some manufacturers have also sent back foreign workers as their contracts lapse.

But industry insiders say Penang’s multinational manufacturers, particularly in the electronics sector, face a bleak 2009 as demand dries up for components and accessories. They expect further job cuts even as the companies mull over shortening work weeks or closing production lines.

Penang Chief Minister Lim Guan Eng acknowledged the gloom but is confident that the island state, which produces 30 per cent of Malaysia’s exports, can withstand the grim economic outlook.

“I am confident that Penang is resilient to weather the economic crisis,” Lim told The Malaysian Insider.

Lim, who has asked the Federal Government for RM500 million to retrain retrenched Penang workers, said the state government is working to head off any employment crisis. It is understood that Deputy Prime Minister and Finance Minister Datuk Seri Najib Abdul Razak is looking into providing some funds for Penang.

“Penang people have the expertise, the energy and entrepreneurial spirit to overcome the economic crisis and the state government is already working on pro-growth, pro-jobs and pro-poor policies for the state," said Lim, who’s Democratic Action Party (DAP) and allies in the Pakatan Rakyat (PR) electoral pact took power in the March 8 general elections.

The DAP secretary-general said Penang has attracted RM8 billion thus far in investments for 2008 against RM4.7 billion last year, adding the state could have taken in RM10 billion in investments if there was no economic downturn.

Despite the rising investments, Penang businessmen are bracing for hard times. Manpower suppliers say one multinational had just sent back nearly 400 workers or 10 percent of their workforce when their contracts lapsed. “The MNC has another 100 foreign workers and they are expected to leave once their contracts expire too,” one labour consultant told The Malaysian Insider.

He added some companies are thinking of reducing work days to retain their staff and avoid retrenchment.

“Retrenchment is the last option as some don’t have the funds to pay severance packages,” he explained.

A senior executive at a multinational electronic maker said the situation will get worse in 2009.

“There is just no demand for anything electronics. We will have to let the workers go and close production lines very soon,” said the executive, who declined to be named.

While no Penang-based manufacturer has yet to officially retrench staff, hard drive maker Western Digital Corp has announced plans to cut 2,500 jobs or about five per cent of its global work force, including some 1,500 jobs in one plant in Kuching, Sarawak. Western Digital, which first set up in Malaysia in 1973, has another plant in Sungei Way, Selangor and employs a total of 7,000 workers in the country.

Western Digital said demand for the current quarter is “significantly below” what it expected when it issued revenue guidance in October. The company now expects fiscal second-quarter sales of US$1.7 billion to US$1.8 billion (RM6 billion to RM6.4 billion), with a “consequent reduction in operating results.” Its prior sales outlook was US$2.03 billion to US$2.15 billion. Analysts, on average, are expecting sales of US$1.98 billion, according to a poll by Thomson Reuters.

Western Digital will also stop its manufacturing operations from Dec. 20 through Jan. 1, reduce manufacturing hours by 20 per cent through employee attrition and trim its use of temporary workers and overtime shifts.

Lim is grateful that Penang-based companies have not announced any job cuts but is under no illusion about 2009. “We will have to face it and therefore it’s imperative we get funds to retrain those retrenched,” he said.