We surveyed high-tech companies around the world to find out what they are experiencing in the supply chain right now.
In China the scheduled holiday got extended in response to a viral outbreak, and so the holiday-related lull in production was unexpectedly extended. Chinese companies are still in the fitful process of ramping production back up, and the world is still trying to evaluate how severe the disruption due to the epidemic will be. We surveyed high-tech companies around the world to find out what they are experiencing right now.
Right now, most of the companies we surveyed report they’re dealing with delays of one sort of another. Given the potential for havoc in the supply chain, scattered delays can be considered good news. The virus has not yet been reported contained, and so there’s really no way of telling if the resulting effects on global business are going to get better or get worse.
It’s been more than six weeks since the first death from China’s coronavirus — Covid-19 — epidemic was reported in the city of Wuhan. It has since claimed lives in other nations and remains a global epidemic which, as of February 19, had killed 2,000 people, all but a handful of them in China.
Remarkably, the global electronics industry has reported little impact on business so far. Apple announced it wouldn’t meet its revenue goals for the March quarter but didn’t specify how big the shortfall would be. Qualcomm lowered its guidance for its next fiscal quarter. Other tech companies have hinted about forthcoming challenges.
However, the Covid-19 outbreak has paralyzed China’s workforce, which expected to return to work the first week in February following the Chinese New Year. Employees that left their posts to celebrate the holiday haven’t returned due to quarantine measures, road closures, travel restrictions and lack of medical supplies. Businesses that closed for the holiday are not ramping up as quickly as usual.
As of February 10, China’s return-to-work rate was less than 30%, according to EE Times sister publication ESMChina. Only 18% of enterprises resumed work on February 3 (including remote offices); and 50% of enterprises resumed work on February 10; 19% of the companies resumed work on February 17 or longer, and 13% did not have a clear plan to resume work.
A majority of tech companies have enabled China-based employees to work from home. Even so, factories, warehouses and logistics operations require feet on the ground. Shipments have been delayed, customs services have backed up, and even shipping containers are in short supply.
“Empty shipping containers are stacked up in Chinese ports and not moving,” according to Richard Wilding OBE, professor of supply chain strategy at Cranfield University. “This then means there are shortages of shipping containers in other parts of the globe resulting in disruptions not because the products have not been made, but because there is nothing to put them in to move them.”
Chinese distributor Oneyac Technology Co., Ltd. reports decreased efficiency due to employee absences, according to Peter Tang, operations director. This has resulted in partially shipped orders. Decreased shipments, increased labor costs and security concerns have also exerted tremendous pressure on Oneyac’s operations.
In response to the crisis, China has ramped up its manufacturing of medical equipment and supplies. Normally, this would be a boost for OEMs/EMS providers and distributors. However, some components used in medical equipment are becoming scarce.
As of February 14, ESMChina reports the supply of temperature sensors, memory chips, PCBs, MCU microcontrollers and peripheral connection components was tight. Chinese chip maker Jiangsu Runic Technology Co., Ltd. said that demand has increased for precision op amps, LDOs and analog switches. There is no obvious shortage, but lead times may extend by 4-6 weeks.
So far, electronics distributors — by far the biggest holders of high-tech inventory — have met customers’ demand on the Chinese mainland. In medical applications, whether it is sensors, passive devices or other semiconductor devices, needs can be met, said Tony Ng, Digi-Key’s vice president of marketing for Asia Pacific and general manager of China.
However, any disruption in the supply chain is an opportunity for arbitrage or hoarding components. TTI Inc., like many distributors, has built safeguards into its order-processing systems. The company keeps track of customers’ historic order patterns and a significant variation in those patterns is flagged.
“Those systems are put into place to work for everyone, but we haven’t seen anything unusual,” President of TTI Americas Don Akery said. In cases where there have been spikes — as in medical equipment — TTI has fulfilled orders.
Nevertheless, analysts foresee a disruption that could alter China’s GDP for the first quarter of the year. “Uncertainty” is the industry’s guiding phrase.
From the front line
The editors of Aspencore’s global network of publications have spoken directly with international companies that, one way or another, are dependent on China. There’s no question the coronavirus is an international concern.
Anglia Components: In the wake of the Coronavirus outbreak, some British electronics firms are considering moving manufacturing out of China, either temporarily or permanently. These companies have been forced to explore considering moving away on either a short term or a longer-term basis, said Steve Rawlins, CEO.
Anglia has a logistics and distribution operation in Hong Kong as well as its UK HQ in Cambridgeshire. Both offices can help ensure business-as-usual by minimizing disruption to operations in the event that customers decide to change manufacturing locations.
“We will work closely with a customer’s new EMS [electronics manufacturing services] provider, the price will remain the same, and the inventory that we hold in Hong Kong and the UK will remain fully accessible — shipments can be diverted to a new site instantly,” Rawlins said.
Arduino: “We haven’t seen any tangible impact from the Coronavirus on our supply chain,” said Fabio Violante, CEO. “Like the majority of companies in the electronics world, 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,” Violante said.
Arrow Electronics: Arrow’s Hong Kong Logistics Center was operational on February 3; offices in Beijing, Shanghai and Shandong officially opened on February 10. Offices in Hangzhou, Xiamen and Northeast were expected to resume work on February 17.
“At present, we are seeing some domestically manufactured products facing production delays and delivery times may be extended,” said Arrow Asia Pacific sales vice president Arthur Jiang. “We will continue to evaluate these developments and help customers handle supply chain management.”
The Assodel: The Associazione Distretti Elettronica – Italy, which analyses semiconductor market trends, met on February 11. Some suppliers of semiconductors, PCBs, and connectors that have Chinese production said production lines have restarted, not yet at full capacity, and they expect an increase in delivery times of a couple of weeks at most.
Large distributors (Assodel is part of the International Distributor of Electronics Association) have also confirmed that, for the moment, the situation reported by their suppliers is not alarming.
Logistics, though, has suffered a strong setback. The closure of some European ports or the limitation of acceptance of merchant ships from China or air flights has impacted Italy.
Astute Electronics: Aran Coker, the international business director at distributor Astute, said it is too early to be specific about the virus’ impact. There is likely to be an impact on the supply side, and bare PCB production and metal prices have been impacted. He cited industry anecdotes suggesting the automotive supply chain being affected in a big way, and the declining output of Apple iPhones.
“The increased production will then filter through the supply chain and then we’ll be able to see where the gaps and real impact are,” he said. For example, with MLCC capacitors — the large volume industries will be first in the queue for supplies, and that will impact industries like ours that are lower volume applications for high reliability components.”
C&B Eureka Innovation Electronics: In the early days of the outbreak, the company delayed some resistor shipments. Although the amount involved was not large, it seriously affected the supply of epidemic protection materials.
Digi-Key: For Digi-Key, all orders involving USD (US dollar) transactions are not impacted, because these goods will be arranged by customers for logistics transportation after arriving at the port, Tony Ng said. For orders involving RMB (renminbi) transactions, goods have to shipped from North America to Hong Kong. With the Shenzhen Customs and Shenzhen Logistics Company resuming work, Digi-Key’s goods can be sent to Shenzhen distribution centers, through Shenzhen Customs, and then to all parts of the country.
EPC: EPC is a leading provider of gallium nitride (GaN)-based power management technology. The markets have slowed down considerably in China, said Alex Lidow, CEO. “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,” he continued, “and some supply shortages, but nothing has yet reached a critical point. We are in a ‘wait and see’ situation. So far, it feels that the supply chain is adapting.
Infineon: Chip maker Infineon Technologies AG has a sales office in Wuhan, where business activities have been reduced to a minimum. “Currently, we are not aware of any infections among Infineon employees,” said Fabian Schiffer, manager for media relations. Infineon does not manufacture in the Hubai 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,” Schiffer added.
iCEasy Technology Co., Ltd.: Fenglei Bi, general manager of the e-commerce platform said customers have felt the greatest impact from work delays. As of February 7, a large number of customers had not restarted.
The most immediate impact of customer delays is on receivables and inventory. These should have picked up after the holiday. However, the billing period of iCEasy for customers is often achieved through banks or financial companies. The company itself has no concerns about receivables, and its inventory is mostly general-purpose materials.
Jiangsu Runic Technology Co., Ltd. The chip maker’s employees have been working from home since February 3, according to Cheney Don, sales director. However, due to city and road closures, the resumption of work for most customers is being postponed, resulting in delayed demand for the corresponding orders. The urgent task is to confirm the customer’s resumption and subsequent order changes as soon as possible, and to adjust stocking plans in a timely manner.
MEGA Electronics Inc.: The manufacturer of power supplies and power cords, with production facilities in China (Ningbo and Shanghai), continues to “shift a lot of production to the Philippines,” according to Guy Francfort, vice president, MEGA Electronics.
The manufacturing split between China and the Philippines is 50/50. However, now that the Chinese National government has further extended the Chinese New Year holiday from Feb. 10th to Feb. 17th with some closed until the 20th, he expects this will impact lead times for all components in China. For MEGA Electronics, lead times for power supplies (across the board) have extended to 10-12 weeks for new orders, up from 6-7 weeks, with an additional six weeks of sea transportation.
Francfort said manufacturing costs are slightly more expensive in the Philippines, but with the Chines tariffs in place, the company had already shifted quite a bit of its manufacturing to combat the tariffs. In addition, the company also had built up its inventory prior to the Chinese New Year, as a preventive measure, for standard production delays expected during the New Year.
Mouser Electronics: Mark Burr-Lonnon, senior vice president, global service and sales for Mouser Electronics, said “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.”
“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,” he added. “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.”
Daphne Tien, vice president of marketing and business development for Mouser APAC, said that except for orders in Hubei Province, shipments in other regions of the country are normal. Logistics in some regions will be affected to varying degrees. “Mouser will make corresponding adjustments in accordance with the latest logistics control issued by the country and local governments,” she said. Logistics providers such as FedEx and DHL can be used to arrange delivery when the customer specifies.
Oneyac Technology Co., Ltd.: With the distributor’s warehouse staff returning to Xiamen after staying at home for 14 days, it is expected that the warehouse would be fully staffed after the 18th.
Even so, efficiency will be greatly reduced, resulting in partially shipped orders, said Peter Tang, operations director. Decreased shipments, increased labor costs and security concerns have exerted tremendous pressure on the Oneyac’s operations. The only thing that can be done is to ensure that the warehouse is error-free and that all employees are safe and healthy, maintaining normal shipments.
Power Integrations, Inc.: The Silicon Valley-based supplier of high-performance electronic components used in high-voltage power-conversion systems forecasts a disruption in demand.
“We expect some brief disruption of Chinese end-user demand and also China-based material supply chains,” said Doug Bailey, VP for marketing. “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,” he continued, “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.”
Shenzhen C&B Eureka Innovation Electronics Co., Ltd. Baoping Yang, managing director, reported that C&B EUREKA INNOVATION Electronics Changsha R&D and manufacturing base had resumed work on February 2 because it needed to supply medical equipment to support the epidemic efforts. The necessary personnel of Shenzhen headquarters and local offices planned to return to work February 17.
STMicroelectronics: Semiconductor manufacturer STMicroelectronics has headquarters Shanghai and manufacturing operations in Shenzhen. It now has over 5,000 employees in China, and over 18,000 in Asia. ST resumed production at its Shenzhen plant on February 10th, said Alexis Breton, head of corporate external communications. “We understand the vast majority of other manufacturers in the region are following a similar schedule, including OSATs that provide test and packaging services to us.”
To reassure stakeholders, Breton said ST is closely monitoring the situation across its whole value chain and “executing our business continuity plans, working with our customers, suppliers and partners.”
TTI Inc.: Global distributor TTI, Inc. has six sales office and two warehouses on mainland China as well as warehouses in Hong Kong and Singapore. Its priority since the outbreak has been the welfare of its employees, but distribution also serves component suppliers and customers. TTI has been able to fulfill customer needs in China without disruption, president of TTI Americas Don Akery said.
One of TTI’s distribution centers is in the Shanghai free trade zone which is easily supplied through Hong Kong. Operations in Hong Kong are normal, Akery said, and Shanghai resumed normal operations on February 10. Shanghai has been supporting customers inside China while other warehouses support surrounding regions. TTI’s inventory position is different than most distributors’ – it carries relatively high number of SKUs.
“In a situation like this we can weather the storm better than most,” Akery said.
TTI’s distribution centers are in two of the less populous regions of China, so it has been easier to resume operations after the Chinese New Year holiday. There are a few employees that have been unable to return to work due to quarantine measures, Akery said, but this has not disrupted customer service.
TTI is also receiving regular updates from its suppliers. “Those that have large production in China have not reported any backup,” said Akery. “They are following the same guidelines we are for employee protection. About 30 percent to 50 percent of their employees have made it back to work but they expect that to improve as weeks go on.” It will take another two to three weeks to determine if lead times start to stretch.