BLEAKEST LINK: Covid-19 Disrupts Semiconductor Chain

Recently, a statement was released by many of the associations representing hundreds of semiconductor and semiconductor supply chain companies pleading with nations to protect and support their semiconductor operations as they establish public health guidelines in their efforts to battle the COVID-19 pandemic. The semiconductor industry has consistently broadcast a critical focus on helping to combat the virus, ensuring the health and safety of its employees, and most importantly, maintaining the vital systems and technologies that keep contemporary living safe and sustained.

Signatories of the statement include associations in an array of countries such China, the EU, the U.S., Japan, Korea and Singapore, as well as semiconductor industry groups from Malaysia and the Philippines. All joined in expressing a worrying need for worldwide governments to classify semiconductor and supply chain operations as “essential businesses”. Cited was the critical importance of continuity of operations as governments imposed lockdowns, stay-at-home orders, or other austere restrictions on their respective populations. There can be little doubt that systems and products associated with semiconductors are vital components of the many technologies that contribute to essential services and infrastructure, as well as systems related to health care, water, energy, transportation, communication and banking.

Probably the most crucial point included in the statement involves the highly integrated and global nature of the semiconductor supply chain. Like any chain, it is only as strong as its weakest link and any shortages related to operating restrictions in one region can have a ripple effect in our digital economy, leading to downstream complications and drastically affecting operations in other regions. It is made very clear that governments around the world must work closely together to minimize the harmful effects of the COVID-19 crisis and to do that effectively they will have to agree to ensure that the continuity of the semiconductor industry is critical as a valuable contributor.

However, others are pointing to the current pandemic as also having a major impact on the electronics value chain. Last year, China was responsible for fifty-percent of the worldwide semiconductor consumption. Since mid-February, China has been enduring varying levels of travel restriction which idled critical manufacturing hubs. As a result, the global supply chain has suffered shortages of materials, components and goods. No single authority on the eventual impact of COVID-19 can be claimed, but what is certain is that the virus is spreading across the globe – from the US to the Middle East and beyond. As the spread widens, the electronic and semiconductor industries will be forced to consider reworking their tactical, operational and managerial global supply chain models. However, reworked models will surely disrupt supply and fulfillment, creating a shortage of components that may never actually reach their intended destination.                

Semiconductor companies may also have to consider rethinking the operating model of concentrating manufacturing in high-risk geographical locations that up to now afforded them cheap labor and incentivizing tax structures. An alternative to this geographically concentrated model would be one that is more agile, removing single points of failure and allowing for multiple pathways that balance cost with continuity and sustainability. Shifting from country-based hubs to more regional supply networks will require heavily collaborative approaches for investing and developing the talent pools and infrastructure that will allow new manufacturing to be quickly scaled up when needed.            

The full extent of COVID-19’s disruption remains to be seen, but the challenges for the semiconductor industry are crystal clear. For now, companies need to establish solid contingency plans to deal with disruptions. Eventually, an assessment of and possible modification to current supply chain strategies and operating models will be required to lessen the negative impact of single points of failure. The current pandemic highlights just how fragile global supply chains are, and presents companies with an opportunity to reconfigure existing paradigms and collaborate for a more agile and resilient future.