How China lockdowns play havoc with chip provides, demand • The Register

Lockdowns in China have been disrupting provide and demand for a wide range of semiconductor corporations amid broader challenges created by the continuing world chip scarcity.

Several publicly traded semiconductor corporations mentioned the impression of COVID-19 lockdowns in China at various lengths throughout incomes calls this week with analysts whereas additionally pointing to different sources of disruption, together with an earthquake in Japan and an influence line hearth in France.

For occasion, Texas Instruments lower its income forecast by 10 p.c for its second quarter, which ends in July, as a result of a number of Chinese prospects haven’t been in a position to obtain orders attributable to lockdowns, firm executives stated throughout its Tuesday earnings name [PDF].

The freight forwarders won’t take our elements from our distribution facilities to ship them to the factories in China

This quantities to roughly $500 million in anticipated misplaced income for the three-month interval, which signifies that the American big now expects roughly $4.5 billion as a substitute of roughly $5 billion for the second quarter. Due to the uncertainty of the state of affairs, Texas Instruments provided its official second-quarter steering within the vary of $4.2 billion to $4.8 billion.  

“We’re seeing cases where [customers’] factories are shut down, and they just will not accept — they cannot accept deliveries,” stated Rafael Lizardi, CFO at Texas Instruments, on the earnings name.

“In other cases, the freight forwarders will not take our parts from our distribution centers to ship them to the factories in China, particularly in the Shanghai area, because those are shut down,” he added.

Lizardi stated whereas there are “dozens, if not hundreds,” of factories shut down in China, there are a whole lot extra working at completely different ranges, since COVID restrictions differ all through the nation.

“There are factories operating at zero, like complete shutdown. There are others operating at 20 percent, 50 percent and so forth,” he stated.

‘Under stress’

The lower in Texas Instruments’ income forecast prompted concern amongst monetary analysts that lockdowns in China would impression different semiconductor corporations working in related markets and product segments, together with Switzerland’s STMicroelectronics.

STMicroelectronics has needed to briefly cut back operations at its Shenzen, China, manufacturing plant attributable to COVID-19 restrictions, CEO Jean-Marc Chery stated throughout a Wednesday earnings name.

This harm gross sales within the first quarter for the corporate’s automotive division, Chery stated, however robust microcontroller gross sales allowed the chip producer to nonetheless ship income and gross margin that was above the midpoint of its earlier outlook.

For the chipmaker’s second-quarter steering, Chery stated he anticipated STMicroelectronics to overlook out on a “few tens of million dollars” in income attributable to lockdowns in China in addition to an influence line hearth in early April that briefly halted the corporate’s manufacturing plant in Crolles, France.

Chery stated there may be loads of demand for the corporate’s merchandise, however the lockdowns in China, the momentary plant shutdown in France, and shortages from numerous suppliers have resulted within the chipmaker’s backlog reaching 30-40 p.c above its manufacturing capability.

“All the supply chain is under tension,” Chery stated.

On the intense aspect

Some semiconductor corporations didn’t anticipate the lockdowns to have a serious impression on their enterprise, although they did not present any estimates for the way a lot cash they’ve misplaced or may lose.

For occasion, Japanese chipmaker Renesas Electronics doesn’t anticipate lockdowns in China to have a big impression on its income in the best way that it did for Texas Instruments, CEO Hidetoshi Shibata stated within the firm’s Wednesday earnings name.

“I don’t mean to deny any chance of going behind our forecast, but I do believe the risk is still within the level that we’d be able to absorb elsewhere if something goes negatively against our expectation,” Shibata stated, based on an interpreter.

One factor that has weighed down on Renesas was a March 16 earthquake in Japan that disrupted operations at three factories.

Shibata stated after the factories got here again on-line, the corporate manufactured extra wafers to make up for the earthquake’s disruption, but it surely will not “directly translate into higher revenue going forward.”

UMC, a contract chip producer based mostly in Taiwan, noticed some drop in demand for smartphone and PC chips in China associated to the lockdowns, President Jason Wang stated throughout its Wednesday earnings name.

However, he added, that weak point was offset by “strong demand” for chips within the automotive, server and networking markets.

“For the overall 2022, it still remains a challenge for us to meet the aggregate demand from our customers,” he stated.

Qualcomm, a serious chip designer for smartphones based mostly in San Diego, California, noticed a “slight decrease” in demand for elements utilized in low-end smartphones, CFO Akash Palkhiwala stated in the course of the firm’s Wednesday earnings name [PDF].

Palkhiwala stated the lockdown-related dip has been factored into the corporate’s outlook for the third quarter. At the identical time, the US biz expects a restoration in China by the tip of that interval, although the manager added that it is “an evolving situation.”

“I said earlier, China is 20 percent of the global market. You still have the remaining 80 percent where we’re seeing a lot of positive trends from a consumption perspective with a strong demand for premium high-tier devices,” Palkhiwala stated.

Reallocation is the secret

One fabless semiconductor firm that has apparently fared nicely amid numerous provide and logistics challenges is Austin, Texas-based Silicon Labs, which makes chips for a wide range of IoT functions.

CEO Matt Johnson stated on the corporate’s Wednesday earnings name that among the firm’s prospects have needed to push out orders attributable to lockdowns in China.

However, he added, the chip designer has been in a position to hold income flowing by reallocating merchandise to different prospects “because the demand is meaningfully outpacing supply.”

“Within that, we continue to increase our supply. And that’s important,” he stated. “That’s a statement for the coming quarters and for 2023.”  

On the provision aspect of issues, Silicon Labs is working with prospects on “supply alternatives” to assist them get the chips that they want.  

“We’re still spending a lot of time on supply alternatives for our customers, working through their demand gaps and trying to help them navigate and bridge every quarter as we keep incrementing up supply,” Johnson stated. ®

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