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Apr-2020

Impact of Coronavirus on Semiconductor Sector

The semiconductor industry may not be witnessing the direct wrath of the coronavirus crisis so far, but it is probably going to suffer the repercussions because the outbreak slows or suspends production among electronics manufacturers. The real damage for the semiconductor industry lies ahead because the coronavirus disrupts production at electronic manufacturing companies that represent a number of the world's largest semiconductor purchases.

US and China Trade War may intensify

Notably, the U.S. tech industry is predicted to be disturbed the foremost because of its dependency on China as both, a severe market and a critical supplier for its goods. The blacklisting of Huawei, thanks to the U.S.-China trade war led to tensions between tech companies within the U.S. and China, which had an impact of about $26 billion, to which the coronavirus outbreak is supposed to add more fuel. The effect of the virus is pushing the tech companies to shut their offices and manufacturing units also as restricting non-essential business visit the country. A number of the tech majors to announce such travel restrictions include the likes of Apple, Microsoft, Tesla, Google and Amazon.

All chip end markets are going to be impacted, but that discretionary consumer-centric end markets are going to be affected the foremost. Although semiconductor supply seems to be uninterrupted, suppliers in China are encountering challenges associated with this outbreak. For overseas semiconductor organizations, especially fabless firms, the best problem is import and export logistic. Due to the effective control of "flights in and out of China, many government staff members haven't returned to the area. As a result, the import/export process in China now's taking for much longer than before, slowing the pace of commerce". Furthermore, the Semiconductor Industry Association has sent letters to the Trump administration and federal officials urging them to designate semiconductor businesses as "essential" so that their U.S. operations can continue amid state and native coronavirus shutdowns.

Effect on Chip Manufacturers:

For chipmakers, the impact is much serious within the package and testing realm because of shortages in labor, and several packages and testing plants in China have reduced or decreased operations. This has created a challenging environment for chip companies that believe such back-end package and testing capacity. At this time, many small and medium-sized chip design companies are faced with the dilemma of being unable to get sufficient production capacity from package suppliers. If this production holds up continues for an extended period, these design companies may face bankruptcy or acquisition.

EMS companies are running at about 25% because of workforce issues. This is often within the virus-affected areas. Other organizations will begin to ascertain them, offering salary or bonus incentives to people who show up to figure. Some EMS companies have already started transferring manufacturing to Taiwan, Vietnam, etc., because of tariff issues. This might solve the workforce issue. But, if piece part shortages exist, having an entire workforce won't solve that issue.

Drop in production of Smart Devices:

China exports around 50% of the worldwide technology supply chain; hence the global tech sector is predicted to face massive disruptions because of the spread of the coronavirus and its effects on production in China. The outbreak has already valued at 12% decline in smartphone production, while smart watch production set down a drop of about 16%. Laptops, PCs and smart speakers are other products that have set down significant declines. While the tech industry might not see the direct and immediate impact of coronavirus, the decline in production and supplier numbers can cause sales and financial worries for tech giants within the coming months. Companies from various business verticals are predicted to look out to other countries for supplies, opening opportunities for the remainder of the planet.

Although analysts have reported that it's too early to predict the economic impacts because of coronavirus, the results are expected to be global.