Electronic components market review: how COVID-19 is impacting electronics manufacturing supply chains

Author : Neil Sharp, Director of Marketing & Daniella Baldock, Strategic Buyer | JJS Manufacturing

01 September 2020

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Over the last six months – during the unprecedented spread of COVID-19, the subsequent global lockdown and all the challenges that followed – the world has had to quickly adapt to a ‘new normal’.

This viewpoint was originally featured in EPDT's 2H 2020 Electronics Outsourcing supplement, included in the September 2020 issue of EPDT magazine [read the digital issue]. Sign up to receive your own copy each month.

Manufacturing industries have been hit hard, but as time passes, more and more facilities are re-opening, with a goal to get back to 100% capacity wherever possible, as safely as possible. And many businesses continued to operate throughout the pandemic, supporting infrastructure, helping fight the spread of infection by ensuring medical equipment is available to those in need and developing vaccines. Here, Neil Sharp, Director of Marketing & Daniella Baldock, Strategic Buyer at EMS provider, JJS Manufacturing review the state of electronic components market worldwide and consider how COVID-19 is impacting global electronics manufacturing supply chains…

APAC (the Asia-Pacific region), particularly China, Malaysia and the Philippines, now appear to be through the worst of their COVID-19 struggles, with Malaysia having experienced a three-month lockdown under a Restriction of Movement order to try to halt the spread of the virus. The Philippines’ fierce lockdown-imposed Enhanced Community Quarantine across Luzon was also extended several times. Europe is mostly through the worst of the first wave, but fear still remains of a more deadly second wave. The Americas, on the other hand, are still seeing significant rises in infection rate and struggling to overcome the first wave. Brazil has high numbers of confirmed cases, second only globally to the US, closely followed by Peru, Chile and Mexico.  

How COVID-19 is impacting electronics manufacturing supply chains

China plays a critical role in the electronics manufacturing industry, be it in the production of finished goods or in the supply of components and sub-assemblies. Any unanticipated event brings with it the risk of causing chaos to the supply chain. So as the coronavirus crisis has grown in intensity, technology analysts have understandably focused on how the knock-on effects of this pandemic impact on both demand and supply within the global electronics market.

What are analysts predicting?

In February 2020, technology research powerhouse, Omdia shone a spotlight on the predicted effects of the virus on the ongoing rollout of 5G. As it explained, China currently accounts for a substantial 27% market share in the world’s smartphone market alone, which means the stakes for players operating within the technology and telecommunications industries couldn’t be higher.

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Having previously predicted that the Chinese market would start to rebound in 2020, analysts are now forecasting that the COVID-19 crisis could see a further contraction in unit shipments. Component shortages are predicted to lead to a fall in both production and output – currently forecast to drop by 40% and 50% respectively. China’s display fabs utilisation is also expected to shrink to 25%, and the manufacture of display panels used in 5G smartphones is also anticipated to be significantly impacted by the crisis, as suppliers grapple with the challenge of component shortages.

Managing labour shortages

The reduction in the availability of labour is another major consideration, with many Chinese manufacturers struggling to determine how many of their workers will be returning to work – and when that will be. The annual Chinese New Year is already widely acknowledged as a difficult period for electronics manufacturers worldwide. Even in a normal year, Chinese manufacturing operations routinely come to a standstill over the Lunar holiday, and it’s not uncommon for factories to see just 80-85% of their employees returning to the workplace at the end of the festival season. This year, the coronavirus epidemic only compounded the problem, bringing with it wide-ranging quarantine measures and restrictions on non-essential travel that affected the movement of millions throughout China.

Maintaining the supply  of components

Even where production has resumed, the delay in the reopening of factories has already begun to take its toll on the supply chain. A case in point is the manufacture of LCD module printed circuit boards (PCBs) and LCD polarisers, where inventories have been negatively impacted as a result of production bottlenecks and logistics issues.

So far, the impact on global semiconductor supply has been lower; however, there are still concerns about the longer-term implications for these components if the virus continues to spread. The longer the COVID-19 crisis goes on, the higher the chance that more electronics manufacturers will be forced to consider either slowing down production or temporarily halting their operations – with either option presenting a significant blow to global semiconductor supply.

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Any slowdown in semiconductor manufacturing will inevitably have a knock-on effect, not only on microchip suppliers, but on anyone who is reliant on the purchase of large volumes of chips in order to manufacture their end products.

The supply chain is a crucial element within electronics manufacturing – and preparing for the unexpected is essential for any company that is in the business of building hardware or physical products. Having contingency plans in place has never been more crucial. And managing the flow of components and materials is going to be more important than ever in helping to avoid supply chain disruption and ensure the ongoing production and delivery of high-quality electronics products.

Capacity & lead-time issues:

•  Lockdowns in the Far East have caused extended lead-times on many components, from manufacturing operations to back end factories that carry out test and packaging processes.

•  There is a global uptake in demand for temperature sensors, pressure sensors and flow sensors to continue to support with ventilators, thermometers and CPAP machines. These sensors are moving on to allocation, with the continued increase in demand anticipated until Q1 2021.

•  With remote working here to stay, the demand for components to support remote devices such as laptops has increased, causing some capacity issues with connectors, cables and sensors.

•  TE Connectivity is still struggling with allocation on relays (still 52 weeks).

•  There are reports that Vishay IHLP inductors are on 70 weeks plus, forward visibility of demand is crucial.

•  AVX lead-times are continually reported to be 30 weeks plus, and in some instances up to 40 weeks. This situation has been compounded by the forced closure of their El Salvador plant, which lasted 3 months until 15th June.

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•  Sources have advised that Littelfuse capacity in Mexico has been operating at around 45%, with 451, 452 and 152 Nano fuse lead-times being at 26 weeks.

•  It is widely reported that ST Microelectronics have limited available capacity for Q3 and Q4 2020, with STM32xxx and STM8xxx MCUs being severely affected by capacity constraints.

•  NXP have imposed a 45-day NCNR window during Q3 to try and manage output and allocation for microcontrollers, in the hope of keeping lead-times at around 16 weeks, or less (24 or less for network processors).

•  Microchip have added 7% to some legacy Atmel lines, as of 7th July, affecting all back orders, as well as new orders.

•  It is widely believed that Samtec lead-times and output will return to normal from 1st August, after they saw typical lead-times of around 8 weeks extend to 12+ during May.

•  Renesas lead-times are over 20 weeks, and in some cases 30 weeks. Expediting requests are reportedly not being processed while they are in recovery.

•  Cypress had a RAM machine failure on their JCET site, along with Government-enforced closures of their Philippines operations, stretching lead-times from their usual 8 weeks to 16 weeks – something that is not common with Cypress. The hardest-hit lines are legacy IDT/Intersil lines.

•  Texas Instruments lead-times are extending across all product ranges, further fuelled by a shortage or air cargo availability.

Manufacturer mergers & acquisitions:

•  Kemet and Yageo have completed their merger, a push from Yageo to further increase market share.

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•  Infineon has completed its acquisition of Cypress Semiconductor Corp.

•  ADI has announced it will buy Maxim Integrated for $21m.

PCB technology:

•  China is now back to near optimum capacity, and are pushing for completion of their 5G network, compounding PCB lead-times for the short term.

•  Peak season surcharges are still in place, but there is hope these can be removed from August. Many manufacturers and distributors are heavily reliant upon using commercial airliners to transport goods; without these, cargo and freight space is at a premium with logistics companies.

•  If copper continues to increase in price, this may drive up PCB pricing. However, suppliers should be watching global indices and securing additional stock at competitive pricing, wherever possible.

Pricing uncertainty:

•  Pricing is still volatile, with planned manufacturer increases observed, as well as increases due to constrained supply of product, capacity and raw materials.

•  Pricing is rising for all low, mid and high power LEDs; lead-times are increasing in tandem.

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•  Microchip has increased some legacy pricing on old Atmel lines by 7% from 15th July 2020 for AVR and 8051 family devices.

•  Xilinx is expected to increase pricing once again by up to 5% in July 2020. Xilinx Virtex II-Pro products will be on last time buy on 31st July 2020; orders must be placed ahead of this date to secure supply, as there are no direct replacements

•  Cree XHP35Axxx products are becoming obsolete.

•  Many On Semiconductor lines are showing a projected price increase trend over the next quarter.

Global economy:

•  Oil pricing quickly recovered from the April and May lows; the current price per barrel is $41.84, with the trend slowly increasing, but not as rapidly as the April fall came.

•  Gold pricing is relatively unchanged over the last quarter, with prices today around £1400.00 per ounce.

•  There is little to no change in silver prices; at time of writing current price is £14.86 per ounce.

•  Copper pricing has been steadily climbing since April, and is now at a 52 week high, suggesting a strong recovery in China. Current price is $2.84 per pound.

•  Steel production has been outweighing demand, with Rebar prices falling to just $410 per tonne.

•  It forecast that the price of aluminium will rise, even if the market flips from a deficit to a surplus. This is due to the expectation that investors will focus on a more positive backdrop for aluminium demand, amid low inventory levels.

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