COVID-19’s impact on the global semiconductor supply chain

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Coronavirus impact on electronic components supply chain.

Late last year, the World Health Organization (WHO) first received reports regarding the novel coronavirus outbreak in Wuhan, a city in China’s Hubei province. Subsequently, COVID-19 has spread to 120,000 people in 100 countries. To combat the spread of the disease, the Chinese government issued new travel restrictions and lockdown orders.

As the Sino region is one of the world’s primary industrial hubs, the outbreak has caused problems in the global supply chain. In particular, the disease, which WHO classified as an epidemic, has prompted significant manufacturing and logistical difficulties for component makers in the United States, Asia, and Europe.

COVID-19’s Impact on Asia’s Semiconductor Production Capacity

The Harvard Business Review recently published a breakdown of how COVID-19 has affected the semiconductor industry. The journal notes 3,283 Chinese components, consumer electronics, and equipment manufacturers based their operations in quarantined areas of Beijing. As a result of Chinese government-mandated factory shutdowns, corporations with Sino-centered production capacity experienced significant delays last month.

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Foxconn, a Taiwanese company responsible for assembling Apple’s iPhones, suspended production throughout the Lunar New Year celebration period. Afterward, staffer anxieties about returning to work dropped the firm’s output to 50 percent of its annual capacity. Other Apple suppliers like Taiwan’s Quanta Computer Inc. and Inventec Corp., as well as South Korea’s LG Display, experienced manufacturing drop-offs because they source their components in China.

The coronavirus outbreak has also caused problems for Asian manufacturers that base only part of their supply in China. Samsung only sources 30 percent of its smartphone components in China. The South Korean conglomerate bases so much of its production capacity in Vietnam, it’s the Southeast Asian nation’s largest foreign investor. But Hanoi recently issued restrictions on the number of daily land transports emanating from China.

As a result, Samsung had to start flying Sino-made electronics components to its Vietnam facilities.

Coronavirus Impact on US Semiconductor Firms

While many Sino production facilities are ramping up to resume full capacity, uncertainty surrounding the ongoing impact of the coronavirus is affecting semiconductor supply and demand. Indeed, several American component manufacturers have recently revised their earnings projections in response to the coronavirus outbreak.

Earlier this month, The Burn-In reported Analog Devices revised its fiscal second-quarter financial forecast down by $70 million. The Massachusetts-based firm attributed the projected revenue contraction to the COVID-19 outbreak. Similarly, Florida-headquartered KEMET offered guidance that its FQ4 2019 earnings would fall by 19 to 23 percent because of the virus.

Illinois interconnect manufacturer Molex sent out a press release in February noting it faced production and logistics delays because of the Chinese lockdown.

Arizona’s Microchip Technology pulled its previous revenue forecast because the coronavirus has suppressed demand from its Chinese clients. North Carolinian chipmaker Qorvo also reduced its fiscal fourth-quarter estimates from $840 million to $700 million. Besides, Phoenix-centered ON Semiconductor adjusted its projected Q1 2020 sales range down by $80 million, citing softness in the Sino market.

California’s analog component maker, Skyworks Solutions, previously announced second-quarter earnings estimates of between $800 million and $820 million. On March 4, the manufacturer issued a new forecast indicating Q2 2020 revenues of $760 million to $770 million.

Related: Manufacturers look to new sourcing and procurement solutions during coronavirus outbreak

Not all U.S. semiconductor firms have faced operational disruption due to the COVID-19 outbreak. San Jose, California’s Maxim Integrated Products has made no changes to its earnings outlook as of this writing. The firm hasn’t made any profit projection revisions because its supply chain isn’t located in any quarantined areas.

European Component Companies Reaction

The COVID-19 outbreak has also had a significant impact on European component manufacturers.

NXP Semiconductor, headquartered in the Netherlands, slashed its Q1 2020 revenue projection by $50 million to $150 million last week. The company explained while it hadn’t received any material cancellations, weak Lunar New Year sales prompted a first-quarter forecast revision.

STMicroelectronics is another European semiconductor maker that hasn’t faced major coronavirus-related production disruptions. On Monday, Italian Prime Minister Giuseppe Conte announced a countrywide lockdown to stop the spread of the outbreak. Nevertheless, French-Italian multinational STMicroelectronics said its manufacturing capacity wouldn’t be affected.

Swiss manufacturer TE Connectivity stated it experienced a COVID-19-related slowdown in its Chinese supply chain. However, the firm said it is working to mitigate the situation to ensure timely product deliveries.

Given the apparent difference in how European, Asian, and American semiconductor manufacturers have been affected by the coronavirus outbreak, a key takeaway emerges: Component makers should endeavor to diversify their supply chains in the future to avoid further disruptions.

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