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    COVID-19: A Black Swan Event for the Semiconductor Industry?


    In 2019, China accounted for over 50% of worldwide Semiconductor consumption. In 2020, total consumption in China is projected to be $231 billion, with more than $190 billion coming from foreign semiconductor manufacturers. Disruption in China will likely have a significant impact on companies across the globe and up and down the electronics value chain.


    COVID-19 is having a large impact on both people and companies. As of mid-February, millions of people are under some degree of travel restriction across China. In addition, critical electronics manufacturing hubs were temporarily idled to limit COVID-19’s spread. This confluence of events is hitting the global supply chain, impacting both suppliers—via shortages of materials, components, and finished goods—and consumers—by creating reduced spending in China on semiconductor-dependent products (e.g., consumer electronics, automobiles).


    While there are different perspectives on how damaging COVID-19 will become, the fact remains COVID-19 is spreading across the globe. New cases have been reported in locations including, but not limited to, the United States of America, Canada, Europe, Africa, the Middle East, India, South Korea, Australia, and Japan.


    Although the full impact of COVID-19 is still unknown, the impact across the electronics value chain, from materials to final products, will likely be far reaching—and hard hitting on those parties involved with semiconductor manufacturing. COVID-19 is highlighting the potential risks and vulnerability of today’s electronics and semiconductor value chain model and challenging the semiconductor industry to consider transforming its global supply chain model. COVID-19 might become the black swan event that forces the semiconductor industry to transform its global supply chain model.


    Near-term disruptions

    In efforts to limit the spread of COVID-19, comply with government regulations, and manage business risk, semiconductor firms should consider taking action to reduce impact to their global supply chains. These decisions can be categorized into three different types—each of which may cause near-term supply chain disruptions:


    Tactical – Near-term steps to limit employee and company risk

    Operational – Supply chain and manufacturing operating changes

    Managerial – Strategic, organizational-wide decisions


    These near-term actions will likely result in supply and fulfilment disruptions up and down the electronic value chain. This could create a shortage (or lack) of components, creating choke points at board and systems manufacturing as well as within logistics—meaning even if companies have components, getting them to the right place may be a challenge. These factors can negatively impact companies across the value chain that are dependent on semiconductors, and the shortage of supply and lowered demand could percolate to the raw material level.


    There could also be impacts that are less immediately noticeable, such as the slowing of the velocity within the value chain (designs, decisions, etc.) due to delays in and reduced participation in customer meetings, internal meetings, and external events. This impact will likely be felt longer term as new product schedules are delayed and product go-to-market strategies are changed. The full impact won’t be known until the next generation of products.


    As evidenced by past disruptions across industries, any supply chain risk—including COVID-19—can cause significant negative impacts:


    Many companies are vulnerable to supply chain risks, with significant impacts


    What is the financial impact?

    • 11% – Many companies are vulnerable to supply chain risks, with significant impacts. What is the financial impact? Revenue at risk for a significant supply chain disruption, if not immediately and strategically addressed.
    • 25% – Average reduction in share price resulting from a publicly disclosed supply chain disruption.
    • 30% – Lower shareholder returns for companies announcing supply chain disruptions compared to peer group.


    How vulnerable are organizations to disruptions in their supply chains

    • 98% – likelihood that a manufacturer will experience a disruption in the next 24 months.
    • 53% – of companies have strategic backup plans for factory or distribution center shutdown.
    • 49% – of companies with suppliers that could continue to supply if they suffered a disaster in one location.
    • 20% – of companies go bankrupt within 24 months of a moderate/severe supply chain disruption.


    Managing near-term disruptions

    In the near-term, semiconductor manufacturers need to implement their business continuity plans. They should try to ensure “business as usual” continues as much as possible. The unexpected appearance of COVID-19 serves as a reminder for companies to revisit and refresh all existing continuity and safety plans to help ensure every possible angle is covered.


    Representative actions firms could take may include:

    Tactical- • Implementing travel restrictions • Understanding risk of exposure before admitting visitors to facilities • Giving “work from home” directives • Extending time-off options • Using audio and visual tech to conduct critical meetings.


    Operational – • Shutting down or reducing plant operations • Re-planning supply and demand; updating customer commitment • Sourcing components from other countries • Finding alternate locations for order fulfillment • Revising product schedules.


    Managerial – Establishing war rooms to monitor the situation real-time • Conducting risk reviews and assessments • Implementing and updating continuity planning • Ensuring ongoing integrated business planning, comprehending impacts on forecasts, costs, lead times, backlog commitments, hiring, and workforce management.


    Long-term implications

    In the long-term, semiconductor companies should consider examining their supply chain strategy and operating model to address the risks of geographical concentration and lack of resiliency. Many companies have geographically concentrated manufacturing to realize the benefits of low-cost labor, favorable tax structures, and synergies with both suppliers and customers.


    However, this model also introduces single points of failure into an industry that enables trillions of dollars of revenue worldwide. In the global economy, these single points of failure present significant risks that can result in far-reaching disruptions. The lessons from single points of failure have been experienced during past disruptive events.


    One example is the result of the Japan earthquake and tsunami in 2011. At the time, Fukushima prefecture was responsible for 60% of critical auto parts for the global market—which the earthquake and resulting tsunami changed completely. Companies began critically thinking about how to balance cost competitiveness with contingency planning (e.g., more safety stock) and Just-In-Time (JIT) manufacturing principles. As a result, global auto suppliers modified the way they use, produce, and source car parts—including increasing stocks, standardizing parts across models, establishing alternative manufacturing capabilities, and ensuring access to backup equipment.


    Rather than relying on the geographically concentrated model, we believe semiconductor companies should consider moving to an “agile supply node network” model—which is flexible and allows for multi-pathways that help eliminate single points of failure. In this model, companies must balance cost with desired levels of continuity and sustainability. This model provides regional scale where companies spread concentrated capabilities to near-region (e.g., fabrication, A/T, tool manufacturing & support) and qualify alternate sources of supply. Sufficient capacity is stored in-country, while other connected regional nodes are also built out. To measure and monitor performance, more regional and global network-based metrics should be considered to monitor country risk, and insure overall supply network continuity, flexibility, and sustainability. Moving from country based hubs to more regional and global supply networks will require Industry consortiums and collaborative approaches to invest and develop the talent pools and infrastructure that will allow new manufacturing and supply nodes to be quickly scaled up when needed.


    Agile Supply Node Network Model:

    • Synchronized Planning
    • Connected Customer
    • Smart Factory
    • Intelligent Supply
    • Digital Development
    • Dynamic Fulfillment


    Closing – While the full extent of COVID-19’s disruption to supply chains and global growth remains to be seen, it already presents a challenge for the semiconductor industry. In the near-term, companies should focus on implementing contingency plans to manage disruptions. In the long-term, semiconductor companies should assess and consider modifying their supply chain strategy and operating models, working to mitigate single points of failure. COVID-19 serves as a reminder that global supply chains are fragile and disruptive events can come from completely unexpected sources. It also presents an opportunity to rethink and remodel today’s paradigms, opening a window for semiconductor manufacturers and suppliers to collaborate to establish more agile semiconductor supply networks that can help create a more resilient future.


    Understanding the sector impact of COVID-19 Technology sector

    The effects of COVID-19 are felt around the world and are having a significant impact on the technology sector. From impacts on raw materials supply, to disruption to the electronics value chain, to inflationary risk on products. From a positive perspective, the disruption has caused an acceleration of remote working, and a rapid focus on evaluating and de-risking the end-to-end value chain.  In addition, there may be potential carbon emission reductions, which could result in renewed focus on sustainability practices.


    Potential long-term impact on technology sub-sectors



    • The launch of new smartphones may be deferred due to supply chain constraints. Mobile phone users on contracts may defer replacing their devices due to lower consumer confidence.
    • While factories in Asia are reopening, companies are experiencing challenges getting production fully running. The short- and potential long-term impact could be significant.
    • In contrast to the parts shortage and unpredictability of supply chains dragging down the industry, software is a growth catalyst.
    • Companies with remote-working technologies are already seeing increased demand as businesses increase their remote-working capabilities.
    • Security software will see third-order benefits from a growing remote workforce. IT spending on security software will increase as organizations race to secure endpoints, particularly cloud-based tools, log management, and VPNs.
    • Hardware companies may see major demand coming from enterprises, who are placing large orders for laptops and mobility devices to support employees now working from home.


    IT services

    • IT spending forecasts indicate continued demand for cloud infrastructure services, and potential increases in spending on specialized software. Forecasts also anticipate increased demand for communications equipment and telecom services as organizations encourage employees to work from home, and schools move to online courses.
    • Most organizations do not have a tech stack in place for a reliable business-continuity plan (BCP). Due to enhanced remote work scenarios, IT departments will play a larger role in future BCPs, and will need help from IT service providers in procuring devices,  setting up a resilient, flexible and  secure network, disaster recovery systems, IT security,  etc.
    • The need for ever-faster access to data and  automation will enhance the  focus on network equipment and  communications as never before, speeding up 5G network deployments and adoption of 5G equipment.



    • Raw-material supplies such as aluminium, copper, and chemicals are affected by disruption, with delay in delivery by up to a quarter, and will be difficult to re-inventory.
    • Near-term actions are resulting in supply and fulfilment disruptions up and down the electronic manufacturing value chain. This may result in a shortage (or lack) of components, creating choke points at board and systems manufacturing.
    • In the longer term, new product schedules might get delayed and product go-to-market strategies may need to be changed to meet the velocity of the value chain (designs, decisions, etc.). Delays could result in reduced participation in customer meetings, internal meetings, and external events.
    • In the long term, companies could be required to address the risks of geographical concentration and lack of resiliency to avoid single points of failure and limit future disruption.
    ELE Times Bureau
    ELE Times Bureau
    ELE Times provides a comprehensive global coverage of Electronics, Technology and the Market. In addition to providing in depth articles, ELE Times attracts the industry’s largest, qualified and highly engaged audiences, who appreciate our timely, relevant content and popular formats. ELE Times helps you build awareness, drive traffic, communicate your offerings to right audience, generate leads and sell your products better.

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