Govt owned company lost $630 million
Straits Times. Jan 15, 1998
A DRAMATIC downturn in the high-end disk drive industry last year countered efforts by government-owned Singapore Technologies to turn Micropolis around.
Despite initial progress, the US-based, hard-disk-drive maker had to be liquidated as losses totalling $630 million mounted, Finance Minister Richard Hu told the House yesterday.
The figure included an initial investment of $80 million, as well as an additional $550 million in loans for working capital and investments in equipment, research and development.
Dr Hu said that Singapore Technologies expected to recover 10 per cent of the debts claimed, which meant a net loss of about $575 million.
He was responding to Mr Inderjit Singh (Ang Mo Kio GRC) who asked what went wrong with the company's acquisition of the one-time industry leader which folded last November.
The minister said that the severe over-capacity of the high-end disk-drive market in 1997 had not been expected by Singapore Technologies, which had no reason to consider the manufacturer a loss-making venture.
Noting that risk-taking was part and parcel of investment decisions, Dr Hu said the new management took the risk and had expected to turn the company around from its previous losses and re-establish it as a profitable high-end disk-drive maker.
Following the acquisition in April 1996, Micropolis had managed to reduce its operating losses by securing several new customers, phasing out obsolete products and launching new ones.
"Therefore, although total operating losses amounted to $76 million in 1996, Micropolis was actually showing gradual improvement in its performance," said Dr Hu.
However, a dramatic downturn gripped the industry with the aggressive entry of several major players last year.
"This resulted in over-supply and intense price competition," he said.
He added that prices dropped at 16 to 18 per cent in each quarter in 1997, three times the normal rate of 5 to 6 per cent price erosion each quarter.
"Throughout 1997, operating losses mounted as sales continued to fall below projections and product margins were eroded faster than expected."
As operating losses worsened progressively in 1997, Micropolis explored partnerships and mergers with other industry leaders but to no avail.
Dr Hu revealed that by last October, the operating losses for 1997 had reached $200 million, and the board of directors was left with no choice but to wind up after 19 months as a Singapore Technologies subsidiary.
Noting that the government did not provide Singapore Technologies with direct funding for the investment, Dr Hu added, however, that "as it is a 100 per cent government-owned company, this investment loss would result in a diminution of the government's assets".