The coronavirus has disrupted supply chains, industry events, and product releases, and compelled components suppliers to find new ways to serve customers.
The novel coronavirus known as COVID-19 has disrupted every aspect of life in China’s Hubei province and its capitol Wuhan, the epicenter of the outbreak. Hubei is also a major hub for electronics manufacturing, producing memory chips, semiconductors, optics, fiber optics, automotive components, wire and cable, displays, connectivity products, and other critical parts. The automotive, telecommunications, and medical markets are particularly dependent on manufacturing capabilities that are centered in this region, and 230 of the Fortune 500 companies have operations there.
During DesignCon 2020, connector companies expressed concern as China’s state council announced a move to extend the traditional Chinese New Year factory closings to February 2 as a measure to help contain the virus. At that point, company representatives said that any downtime beyond that point would introduce delay into supply chains. As the month progressed, most factories in Wuhan province and other electronics manufacturing regions in China remained closed until February 17 and many workers who traveled during the holiday were required to follow an additional 14-day quarantine before returning to work. This means that China’s manufacturing capacity continued to operate at reduced levels until March. This unpreceded interruption will reverberate across supply chains for months to come, with some experts anticipating a three- to six-month disruption of electronics supply chains.
The impact on end products is expected to be significant, as Hubei province is home to both component suppliers and OEMs. Many companies have downgraded their first quarter (Q1) forecasts to factor in the factory closures, supply chain disruptions, and shipping delays. Apple announced that its iPhone 9 would be delayed because of the virus. The automotive and consumer electronics categories anticipate sales will fall by millions of units. Some analysts believe the rollout of 5G will be delayed, due in part to delays of 5G phones and base stations and in part to the delay of the 5G Release 16 standard, as the working groups have been unable to meet in person. The World Trade Organization’s Goods Trade Barometer predicted falling year-over-year trade growth for Q1 2020 and noted that this forecast “does not account for recent developments such as the outbreak of COVID-19, the new coronavirus disease, which may dampen trade prospects further.”
Outside of China, a significant outbreak in South Korea is impacting production of mobile devices, screen technologies, chips, and other electronic products. Samsung Electronics, LG Innotek, Hyundai, and factories that supply Apple closed after employees tested positive for the virus.
The Electronic Components Industry Association (ECIA) is surveying member manufacturing and distributor companies to determine the scope of impact the electronics industry is experiencing. The first survey, ending February 7, focused on providers of semiconductors and electromechanical and passive components. The majority of respondents anticipated an extension of lead times by two or more weeks. A follow-up survey concluding on February 21, confirmed those lead times and noted that visibility of the supply chain is improving, although in the semiconductor segment, it remains poor. The passives and electromechanical segments reported that visibility is improving and they anticipate impact to be minimal to moderate.
A survey conducted by the global trade association IPC found that, on average, electronics manufacturers anticipate at least a five-week product shipment delay from suppliers due to the coronavirus epidemic. “The delays will likely have ripple effects for the rest of the year,” said John Mitchell, IPC’s president and CEO. “The longer China is affected by the epidemic, and the more it spreads to other parts of the world, the supply chain will experience more and varied strains and disruptions.”
Distributors, with their broad, globally sourced line cards, are well positioned to weather delays, but the scope of this situation is putting pressure on them too. TTI Inc. reopened its warehouses in China, Hong Kong, and Singapore on February 10. The company is tracking the status of its largest suppliers online, noting which companies are experiencing delays. TTI has also implemented a travel ban to and from Asia. “TTI continues to communicate regularly with our suppliers to capture updated status information and to keep our customers informed of any changes in potential impact to delivery of components manufactured in the affected regions within China,” said company representatives. Digi-Key says that its deep warehouse inventories will help insulate customers from delays related to the outbreak. The company is closely watching the situation and it, too, is providing an online status report of key suppliers. Most suppliers have reported a delay in shipments.
Samtec reopened its two manufacturing facilities in China on February 10 and 11, although stringent virus containment measures mean that not all workers have returned and operations are hampered by frequent health screenings and safety mandates, such as a requirement to expand space between workers to limit potential for transmission of the virus. The company anticipates that orders placed after February 11 will have a two-week lead time added to their delivery date. “Samtec is in the process of assessing our supply chain by working with our vendors to determine if we need to move component sourcing to vendors that are not impacted by the coronavirus,” said Scott Lamb, director of global sales operations, Samtec. “At this point, most of our major Chinese suppliers have reopened their facilities and are experiencing similar associate return rates as well as output rates as Samtec.”
METZ CONNECT reopened its facility in Guangdong province on February 13, with 30 of its typical 150 workers. The company has implemented a number of measures to protect its employees, including a travel ban, daily health monitoring protocols, and flexible mealtimes to limit potential for virus transmission. The company reported no cases of infection and will hopefully continue to grow its worker population as individuals safely pass the quarantine period.
Würth Elektronik said that it was focused on supplying its customers from its existing warehouse stocks, but the company anticipated future delays based on factory closures in its supply chain that extended to February 17. “We are in close contact with our teams in Asia and are constantly reevaluating the situation according to the latest information,” said Dirk Knorr, head of total quality management, Würth Elektronik. “Our supply chain management, productions and also our sales department are working on solutions to compensate the current situation in the best possible way and to avoid noticeable delays.”
Industry Events Hit Hard
To limit the potential for transmission of the virus, many companies are limiting their presence at technical conferences, trade shows, and other industry events. Key technology events in Asia have been cancelled or delayed, including electronica China, Semicon Korea, Semicon China, and the UL and IWCS China 2020 Cable & Connectivity Symposium. Organizers of Mobile World Congress, scheduled to be held in Barcelona in late February, also cancelled the event due to the virus.
Embedded World 2020 carried on as planned in Nuremburg, Germany February 25–27, but many electronics companies withdrew from the show, including Avnet, AVX, Digi-Key, Newark, Würth Elektronik, as well as Future Electronics, STMicroelectronics, Amazon, Intel, Microchip, Micron, Mitsubishi Electric, NXP, Renesas, and Silicon Labs. About 900 exhibitors presented at the show, a decrease from 1,117 in 2019 as concerns about the virus in Asia and an outbreak in neighboring Italy compelled many companies to limit travel.
“We are disappointed to miss the opportunity to connect with our customers at such an important event in the electronics industry, but believe this to be the right decision at this time. Embedded World draws over 30,000 visitors and exhibitors from across Europe and overseas and while the risk of contagion may be small, health and safety is our first priority,” said Avnet representatives. “As a global company, we are closely monitoring the outbreak of the coronavirus and taking actions such as this one to protect our employees, partners, customers, and industry colleagues worldwide and to do our part to maintain business continuity.”
Another major German event, Hannover Messe, is scheduled for April 20–24 in Hannover. “We invite the world,” said Dr. Jochen Köckler, chairman of the Deutsche Messe managing board and Hannover Messe organizer. “We must certainly do more in preventive care than we did before with protective measures such as disinfection.” With an expected 200,000 visitors and 5,500 exhibitors, organizers are taking extra precautions, including enhanced cleaning measures and the addition of medical personnel with experience in infectious diseases.
The World Health Organization now expects COVID-19 to continue to spread around the world and become a continuous presence until vaccinations can provide herd immunity. That means China will eventually become just one of many countries dealing with this public health concern. However, the significant numbers of people affected in China and the profound measures the government has taken to contain the virus will have a dramatic impact on the electronics industry. Ultimately, COVID-19 will become a cautionary tale that shows companies exactly how risky it is to concentrate critical operations in one region. coronavirus