Supply Chain: Impact of Covid-19 Still Unknown
Article By : M. Di Paolo Emilio
The coronavirus epidemic is likely to have a negative impact on general markets, especially consumer markets. Global GDP is going to take at least a minor hit.
The coronavirus outbreak in China is already affecting electronics industry business. A new analysis published by IDC predicts a drop in smartphone sales in China of more than 30% in the January-March quarter. Canalys Researchers estimated that technology vendors are likely to pause marketing activities; they are unlikely to focus on launching new products, including 5G devices. It will take vendors time to change their roadmap for product launches in China, and this will probably decrease the number of 5G smartphones distributed in 2020.
S&P Global has estimated the impact of the coronavirus epidemic on the global economy. “The speed and spread in the last two months pose a risk to the global economy and credit,” said the rating agency, which estimates that the slowdown in China, whose gross domestic product (GDP) forecast has been reduced from 5.7 to 5 percent, will impact 0.3 percent of global gross domestic product in 2020.
In an attempt to contain the epidemic, the Beijing government has extended the Chinese New Year holiday, leaving offices and factories closed for longer. But these measures, combined with quarantines, are having an impact on the global supply chain as many companies around the world manufacture in China or buy components manufactured in the Asian country.
For manufacturing industries, many companies are reopening selectively after performing a targeted health check where the workplace could be a risk of virus spread. The company must comply with a series of instructions established by the government: in particular, they must dedicate a corporate quarantine area of people for every need.
Not least, the cancellation of the Mobile World Congress. The GSMA released the following statement: “With due regard to the safe and healthy environment in Barcelona and the host country today, the GSMA has canceled MWC Barcelona 2020 because the global concern regarding the coronavirus outbreak, travel concern and other circumstances, make it impossible for the GSMA to hold the event.”
Semicon Korea and Semicon China had already been canceled. ISSCC, being held this week, is relatively unaffected, though a handful of presenters were unable to attend due to travel restrictions.
What the companies say
I reached out to some companies to get their comments and how they are dealing with this epidemic. “We haven’t seen any tangible impact from the Coronavirus on our supply chain,” said Fabio Violante, Arduino’s CEO. “Like the majority of companies in the electronics world,” Fabio continued, “we depend on components that, in many cases, are supplied by Chinese factories, hence we may expect some shortages in the future. We have received some advisory notes from distributors in the supply chain about potential minor slowdowns in supply, but we believe they will not substantially affect our ability to deliver. We will continue monitoring the situation and we are putting in place providing some countermeasures to mitigate the effects.”
Infineon maintains a sales office in Wuhan, where business activities are reduced to a minimum.
“Currently, we are not aware of any infections among Infineon employees. If symptoms should occur, employees are advised to stay at home and contact our medical service for further assistance,” an Infineon spokesman said.
“Infineon is closely following the development of corona infections,” he continued, “especially in the Hubei region of China. The safety of our employees and business partners is our top priority. Infineon, therefore has comprehensive guidelines regulating travel to and from the affected regions.”
“Infineon does not own production facility or a production partner in the Hubei province. Where restrictions by the authorities and airfreight limitations may have an impact to our supply chain and may result in delays of deliveries, we will be in contact with affected customers to mitigate any impacts,” the spokesman concluded.
EPC is the leading provider of gallium nitride (GaN)-based power management technology and is doing more than just improving the efficiency of electrical power.
Alex Lidow, CEO at EPC, said “The markets have considerably slowed down in China. The Chinese New Year holiday was extended a full week, and supply chains are disrupted. We are all hopeful for a quick ending of all the dangers and quarantines, but nobody is willing to make a prediction. “
“We have some customer push-outs,” Alex continued, “ and some supply shortages, but nothing has yet reached a critical point. We are in a ‘wait and see’ situation. Will it get worse, or will the supply chain be able to adapt? So far, it feels that the supply chain is adapting. We do not have production in China and our Chinese distributors remain well-stocked with our products,” Lidow said.
In an editorial note, Maxim Integrated stated: “Maxim Integrated intends to participate in the Embedded World tradeshow in Nuremberg (Feb 25-27, 2020) as planned. However, we will continue to monitor the situation regarding the Coronavirus very closely, because the protection of our employees ranks first. Should there be any indications of a serious risk situation, we reserve the right to take appropriate steps.”
With a press release, Microchip has withdrawn participation from Embedded World 2020 in Nuremberg, Germany. “The current health environment and uncertainty regarding the novel coronavirus requires that we exercise the maximum level of prudence in limiting their potential exposure.” Said Microchip.
Advantech has published news in response to the current outbreak of novel coronavirus. Advantech has nearly 8,000 employees around the globe and none has been infected so far. Nearly 3,400 employees are based in China (including direct and indirect employment), with a large number based at the production center in Kunshan. The rest are located in multiple cities — including Beijing, Shanghai, Shenzhen, Guangzhou, Xi’an, and Chengdu.
“No infections reported among Advantech employees and many staff in China will resume work from homes. Employee safety and health are our first priority. Operations in AKMC are expected to partially resume (30%) in late February. Advantech’s production centers in Kunshan and Taiwan are in charge of all product lines, each of them accounting for half of Advantech’s production capacity, respectively. The manufacturing center in Japan focuses primarily on configure-to-order services (CTOS) business. The manufacturing centers in Taiwan and Japan are operating as usual.”
Power Integrations, Inc., is a Silicon Valley-based supplier of high-performance electronic components used in high-voltage power-conversion systems. Doug Bailey, VP marketing, said that “We expect some brief disruption of Chinese end-user demand and also China-based material supply chains. However, we expect that the containment efforts will be successful in due time and that there will be no permanent negative impacts beyond the unfortunate people directly affected by the disease”.
“We prefer to plan ahead for potentially disruptive events,” continued Doug, “which is why we have multiple geographic locations for our wafer and packaging production. We anticipate no impact on product deliveries. We have assembly sub-contractors in China, all are working at this time. Our inventory is outside of China and we have assembly plants outside China that make the same parts. We don’t expect any interruption in our product supply to customers.”
Component distributors such as Arrow and Mouser are monitoring the situation. Arrow and its team are in continuous contact with regional leaders to ensure appropriate action. In particular, travel within Wuhan as limited by the Chinese government.
“Arrow’s business continuity program employs a rigorous, structured approach to evaluate the impact of significant events that may affect the health and safety of our employees, assets or workflow of critical processes around the globe by establishing, sustaining and evolving continuity plans, and conducting necessary ongoing contingency planning.” An Arrow spokesman said.
“As it relates to the ongoing Coronavirus situation, we are monitoring developments globally. Our Asia-Pacific operations team has taken actions to ensure we have the appropriate staff, coordinating with our shipping partners, and preparing contingency plans to ensure supply chain integrity. Given our primary concern is always the safety of our employees, we have followed Chinese government guidance in reopening our Beijing, Shanghai, and Shandong operations as of February 10. We anticipate opening our Hangzhou, Xiamen, and Northeast operations on February 17. At this time, we are seeing some limited delays and extended lead times of products manufactured in China. We continue to work closely with our suppliers in monitoring any impact upon the supply chain.” The spokesman concluded.
Mark Burr-Lonnon, senior vice president, global service and sales, Mouser Electronics, Inc., said that “currently no manufacturers that we deal with have confirmed the impact on their production but as the situation changes — which for many it ultimately will — it will become easier to comment accurately.”
He continued, “For certain we can say that it will be a very challenging time and there will be a greater impact the longer the virus goes on, and the further it spreads, stopping the movement of people and transport. To stop any infection of any goods coming into our building, goods are quarantined and remain untouched for 7 days from the date of shipment as advised by the World Health Organisation.”
On February 11, the usual Assodel (Associazione Distretti Elettronica – Italy) meeting was held, which analyzes the trends of the semiconductors and subsystems market in Italy. Assodel is part of IDEA (International Distributor of Electronics Association). Given the situation of alert related to coronavirus and the consequent uncertainty of production, the president of the association Maurizio Maitti, wanted to ask the almost 50 managers present to give their testimony.
The general sense was positive; some suppliers of semiconductors, PCBs, and connectors that have Chinese production, have minimized by saying that the production lines are restarted, not yet at full capacity, and expect an increase in delivery times of a couple of weeks at most. The large distributors have also confirmed that for the moment, the situation reported by their suppliers is not alarming.
During the meeting, they considered a variable that is not only linked to the production of components but also to logistics, which has suffered a strong setback, known to all the news of closure of some European ports or the limitation of acceptance of merchant ships from China or air flights that are not yet possible for Italy.
After the meeting, I interviewed Diego Giordani, Director of Tecno, who added: “as you have heard, the situation still seems to be under control, but we will have to monitor the situation carefully. As suggested by President Maitti, we have set up a weekly observatory that will aim to monitor the situation at Assodel’s associates. We have also organized a meeting with the top management of IDEA, whose president is Georg Steinberger, to be held on February 20 to analyze the situation at the international level.
He continued, “I personally heard some final Italian companies measure the “effect” of the market, and I can tell you that the companies are monitoring the situation product-by-product daily to identify any critical issues. Some of them have confirmed that some productions will return to Italy or Europe even after the crisis is over. They have not yet calculated the impact that this situation is going to have on final prices. Those who have production in China are obliged by the Chinese state to create quarantine areas for their employees and to guarantee all the necessary medical and health countermeasures. In contrast, employees who work from home are still obliged to work from home.”
Conclusion
An analysis of the consequences in the medium and long term is premature, as the emergency is still ongoing, and we will have to wait for developments in the coming weeks to understand the real extent of the epidemic and its economic and geostrategic consequences.