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COVID-19 COVID-19 to have a significant impact on the semiconductor industry

From Luke James

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Without a doubt, COVID-19 will have a devastating impact on the global economy. And just as the semiconductor industry was set to spring back from a period of downturn, its recovery is being threatened by the ongoing pandemic.

The COVID-19 pandemic will shrink worldwide demand for everyday products powered by semiconductors
The COVID-19 pandemic will shrink worldwide demand for everyday products powered by semiconductors
(Source: Adobe Stock)

In just three months, the backdrop for the semiconductor market has changed. However, long-term issues remain. The semiconductor industry entered 2020 amid slowing growth globally, and the COVID-19 pandemic will shrink worldwide demand for everyday products powered by semiconductors. It also means that much of the industry is operating at half capacity or below.

This is the general theme, according to analysts, some of whom in March identified which chip stocks they believe are the best and worst positioned amidst the COVID-19 pandemic.

According to these analysts, some segments of the industry will fare better than others. Those involved in cloud computing and data centers—segments which are seeing an increase in demand—are performing better than segments like consumer electronics and automotive, for example, which are bearing the brunt of the pandemic's impact. Consequently, these semiconductor market segments are more likely to be hit hard by the impending economic downturn, with S&P estimating that the slowdown in smartphone sales will have an impact of 0.3 percent on global GDP in 2020.

Research firm IDC has also weighed in, warning in early March that COVID-19 will have a significant impact on the global semiconductor industry. Its estimations, which make for troubling reading, include a near-80 percent chance that semiconductor revenues will see a considerable contraction. These figures come not too long after the firms' pre-COVID-19 estimates were published, which said that the industry was on track to see a minor growth figure of around 2 percent. Now, the IDC says, the most likely outcome is a year-over-year fall in sales of 6 percent for 2020.

"The emergence of COVID-19 has brought with it travel bans and quarantines, massive slowing of the supply chain, uncertainty in the stock market, falling business confidence, and growing panic among the population," analyst Mario Morales said in a news release.

Supply chain bottlenecks caused by COVID-19 disrupt the global Semiconductor industry

The global trade association that serves the printed circuit board and electronics assembly industries, IPC, also commissioned its own survey. The results, which were published in early February, report that of its 150 participants, 65 percent reported delays from suppliers due to COVID-19. These participants, many of which are major manufacturers, operate across different industries and domains. They rely on acquiring components from different suppliers to assemble their own components (for example, memory units) and ship them off to the ultimate client, usually a consumer brand like Apple.

As there are many different companies involved, components and other necessary elements must be received on time so that production can take place, and unnecessary stockpiling is avoided.

COVID-19 is disrupting this process, though, with many of the survey's participants reporting delays of three or more weeks. This has caused some respondents to report a grave concern, with 30 percent admitting "extreme concern" and one source telling IPC that they believe "…the worst is yet to come,"

Now, as the world reaches what many believe to be the pandemic's peak, only time will tell what the wider actual ramifications will be.


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