While we were about to send off the year of rat and usher in the year of ox, the world's largest chipmaker Intel announced that it would close down five of its factories worldwide, including its two facilities in Penang.

This Lunar New Year has been clouded with uncertainties for Intel's employees. Today is the third day of the New Year, and I am not sure whether Intel's staff have gone back to work and received notice of closure arrangements.

Intel told the state government although it would wind up its two plants in Penang, the company would not lay off any employee. All affected employees will be relocated to its plant in nearby Kulim.

Intel has registered 22 straight years of profits ever since 1986, but under the weight of the global economic crisis, this corporate legend may have to be ended abruptly.

According to the financials released by Intel, the company's profit plunged by a hefty 90% during the final quarter of 2008, and losses cannot be ruled out for the first quarter of the current fiscal year.

Intel has said its latest move has been meant to integrate the company's operations in Penang and Kulim in a bid to trim cost and reduce capacity utilisation to prevent oversupply, which has been a routine practice in the company's long-term planning process. However, in the face of the current slump, such a process has been expedited.

Although Intel has pledged not to lay off any worker, integrating the manufacturing operations in Penang and Kulim will have far-fetching effects on Penang's economy. With large manufacturers like Intel planning to exit Penang, other small and medium sized operators may as well be forced to wind up, especially suppliers of raw materials and parts. Once their businesses have shrunk, retrenchment seems to be the only rational move to cut operational cost.

Penang has an export-oriented economy, and electronics and electrical products make up a sizeable portion of the manufacturing sector. Under such circumstances, exports will be adversely affected.

It is an uphill task for the state government to twist its fate around in the year of ox.

In view of the withdrawal of foreign funds, what the state government can do at this moment is to offer lucrative perks to retain foreign investors. Nevertheless, Penang state government must have long-term plans for the state's economy.

Over the past ten years, Penang's manufacturing sector has taken off in a big way, as foreign investors have provided the impetus to set the state economy roaring. However, most of their plants in Penang have been producing only parts or conducting tests, and could therefore be relocated to countries offering lower operating costs such as China and Vietnam any time.

This is not the first time foreign investors have pulled out of Penang. Having said that, the government has not been alert enough, thinking that it should be contented that foreign investors are willing to come, without taking into consideration the fact that sole reliance upon the manufacturing sector will not bring about stable long-term development to the state's economy.

Moreover, Intel has chosen to relocate its Penang production line to Kulim mainly because of lower operating costs on the mainland.

Although Intel's funds are still retained here in Malaysia and not relocated to other countries, Penang state government and the federal government alike must seriously contemplate how we should steer our economy in the future.

Looking around us, it is obvious that Malaysia is still very much dependent on export-oriented manufacturing sector, even though we have developed, or are planning to develop high tech hubs. (By CHONG LIP TECK/Translated by DOMINIC LOH/Sin Chew Daily)