Recent events around COVID-19 have left us all uncertain of what the future holds, and critically, what the world will look like when it's all over.
The coronavirus pandemic has rapidly shifted from being a mild inconvenience to something that is dominating our every waking moment - particularly given the UK Government's decision over the last 48 hours to close all pubs, bars, clubs and restaurants.
In last month’s issue of Electronic Specifier Design magazine, we spoke about the cancellations, postponement, or depletion of certain trade shows around Europe. Now, less than 30 days later, those irritations seem a world away as countries begin their individual ‘lock-downs’ and we all begin to self-isolate.
In addition to global health concerns, the fall-out from restrictions placed on the public (whether they be self-imposed or otherwise), are now starting to be realised, with the travel and hospitality industries particularly at risk, and our health service under increasing strain. What we will be left with when it’s all over is a matter of some conjecture. But what of the electronics industry?
Despite the rapidly changing situation, we felt compelled to reach out to the experts in the industry to gauge opinion and glean some insight, judging the impact of the virus on electronics manufacturing, the supply chain, legalities and economic fallout.
Please see a link below to the latest Electronic Specifier Insights podcast looking at the landscape of the electronics sector and the impact COVID-19 is having upon it - with contributions from the ecsn, Mouser, Digi-Key, and many more. Click Podcast icon.
In addition, due to this rapidly changing situation, be sure to check www.electronicspecifier.com for regular industry updates.
In addition, please see a link to the latest issue of Electronic Specifier Design magazine - March issue. Click here to read.
Hello, my name is Joe Bush, I’m the managing editor at electronic specifier and welcome to today’s podcast looking into the impact of the current coronavirus outbreak on the electronics industry.
Recent events around COVID-19 have left us all uncertain of what the future holds, and critically, what the world will look like when it's all over. The coronavirus pandemic has rapidly shifted from being a mild inconvenience to something that is seemingly dominating our every waking moment.
In a recent issue of Electronic Specifier’s Design magazine, we spoke about the cancellations, postponement, or depletion of certain trade shows around Europe. Now, less than 30 days later, those irritations seem a world away as countries begin their individual ‘lock-downs’ and we all begin to self-isolate.
In addition to global health concerns, the fall-out from restrictions placed on the public (whether they be self-imposed or otherwise), are now starting to be realised, with the travel and hospitality industries particularly at risk. What we will be left with when it’s all over is a matter of some conjecture. But what of the electronics industry?
The situation has been described as “bizarre” by Mark Burr-Lonnon, Senior Vice President, EMEA, Asia and Global for Mouser Electronics. Highlighting however, that the company has a depth of inventory that will enable them to help customers with any supply chain worries over the next three to six months.
Burr-Lonnon’s concern is parts manufactured primarily in China, most notably multi-layer ceramic capacitors and chip resistors. He said that most of the world’s chip resistors are made in China and we’ll have to wait and see what the long-term impact of the coronavirus on the supply chain will be. He added that he heard of companies down to 30% of production output while others were at 70%, and when he spoke to us in early March he warned that there is just not enough product coming out of China.
He added that Mouser has inventory bought before the coronavirus outbreak so can hold prices for the time being, but if the situation continues some suppliers are talking about 30% price increases in the longer-term, and it’s even possible we could see price increases of 50% to 70%.”
Cancellations
For the first time since the show began back in 2006, the Mobile World Congress show in Barcelona was cancelled back in February after leading tech companies including Sony, Nokia, LG Electronics, Intel and Ericsson announced they would not be attending amid coronavirus fears.
However, another trade show that took place at the same time, and one that the Electronic Specifier team attends every year, embedded world in Nuremberg, went ahead as planned. However, the number of exhibitors and visitors was significantly down from the previous year with a number of notable absentees including ARM, Cypress, Digi-Key, Intel, Microchip, Mouser, NXP, Renesas, Silicon Labs, Texas Instruments and Xilinx.
A hotspot for industrial transformation, HANNOVER MESSE typically sees around 200,000 visitors and 5,500 exhibitors, with 80 forums and conferences taking place over the space of one week. However, this exhibition has also bitten the proverbial dust. The event was due to take place on 20th-24th April but has been moved to the week of 13th-17th July.
Supply chain
Industry events aren’t the only thing that’s been affected by COVID-19 however. The virus has highlighted the increasingly important role China plays in global manufacturing, from clothing and chemicals to mobility, and especially technology. ecsn Chairman, Adam Fletcher, shared his thoughts with us on how the ongoing crisis may affect the UK and global electronic components market.
He highlighted that China is well established as the manufacturing power-house on which countless global industries depend, but the disruption of COVID-19 to large swathes of the Chinese manufacturing industry has resulted in fear, uncertainty and doubt throughout the country.
Fletcher commented that the initial concerns of the ecsn were primarily related to supply because many Chinese organisations were reporting that less than 50% of their employees had made themselves available for work, resulting in a dramatic reduction in China’s manufacturing output, and for that matter in the availability of the road, rail and air services needed to move products around or out of the country. This concern, whilst not being resolved, has significantly diminished over the last few weeks as employee participation rates have increased to more than 85% and manufacturing output in China has ramped up probably close to 80% of normal capacity.
He added that in its technology sector China is both the dominant supplier and a major consumer of numerous electronic components. Many international high-volume manufacturing customers located elsewhere in the world rely on ‘Lean’ or ‘JIT’ (Just In Time) manufacturing processes and need a constant stream of information about the progress of goods on order, or to manage any delays. In early February the answer to many urgent questions from customers about goods due or overdue from China-based manufacturers was an inscrutable “we just don’t know”, however this visibility has now improved significantly.
Obviously, the situation is far from normal but Fletcher stressed that manufacturing and delivery priorities are being set in an effort to maximise output and meet delivery expectations. There will be some delayed shipments and disruption, with manufacturer lead-times on many components extending in some cases. However, the vast majority of customers in the UK are served by Manufacturer Authorised Distributors, who are fortunately holding sufficient inventory to support their customers’ current demand for at least two months with manufacturers striving hard to meet the global demand for electronic components.
It appears that all electronic components manufacturers and authorised distributors are implementing disaster recovery plans with the aim of protecting their employees, customers and organisations. However, Fletcher intimated that if the current situation escalates further, it’s more likely that a shortage of employees, rather than a shortage of electronic components, is going to be the ‘bottleneck’ to production.
As for production strategies, Steve Rawlins, CEO of Anglia Components, told us that it’s no surprise that in some cases Anglia customers are considering moving production away from China - either on a short-term or longer-term basis. However, he warned that identifying a suitable supplier with the capacity and expertise to take over the work is only one half of the challenge in doing this - the other being diverting the supply chain to ensure that the parts required are delivered to the new manufacturing location seamlessly and promptly.
He added that when a customer chooses to move their manufacturing to China, Anglia are able to remove many concerns regarding the quality, continuity of supply and protection of IP by working closely with the customer and OEM/EMS factory to offer a seamless migration path, coupled with global price support, ensuring continuity is maintained.
Providing customers fully consider the supply chain implications, Rawlins stated that there is no reason why they can’t move production away from China relatively quickly if required. Adding that Anglia has partnered with many customers as they moved production to China, and there would be no difficulty in putting these arrangements into reverse.
Legal
John Warchus, Partner and Specialist in Commercial Law, at law firm Moore Blatch, shared his insights on the current situation and its legal implications of the delays manufacturers are reporting in the supply of basic components from China and Asia.
On top of this, he added that the coronavirus outbreak is an illustration of the legal principles of force majeure which can, in the correct circumstances, excuse a company’s non-performance and/or lead to the early termination of a contract. Under English law, an express force majeure clause can protect a party from legal liability for delayed or non-performance of its obligations where this is due to a force majeure event.
If the force majeure clause refers expressly to ‘epidemics’ or ‘diseases’, there is a reasonable chance that the virus will be seen as a qualifying force majeure event. Even if such wording is not present, many force majeure clauses refer to any circumstances beyond a party’s reasonable control and so it may also be possible to show that coronavirus should be seen as a force majeure event.
He added that companies within the electronics industry should be focusing, now more than ever, on the wording of all their supply contracts which are affected and the legal and business implications of delays within their supply chains.”
Conclusions
Amid the many trade shows being cancelled or postponed, it’s nice to hear that some are finding a way around the coronavirus obstacle. The CEO of software company, Inspekto, Harel Boren, has had to self-isolate in his home in Tel Aviv, following the expansion of Israel’s coronavirus quarantine restrictions. This was bad timing for the autonomous machine vision outfit, who were due to deliver a press conference at the Modex exhibition taking place in Atlanta, US, on 9th March. However, coronavirus did not stop the CEO from giving his press conference - instead delivering it virtually from his home in Israel, using conferencing tool Zoom.
Likewise, Texas Instruments were due to host an Automotive trends roundtable at embedded world, covering wireless technology, HEV/EVs and ADAS. The company are now hosting this virtually on 23rd March.
It’s safe to say that there’s not a single industry that hasn’t been affected by the coronavirus. The rapidly spreading disease (now an official pandemic) is currently driving people to stockpile toilet roll, hand sanitiser (if you can get your hands on some) and pasta. And although some of us might consider this extreme and may even start to roll our eyes every time someone mentions it – it’s important to take a moment and remember that many have lost their lives and loved ones due to this outbreak.
Teri Ivaniszyn, Digi-Key Electronics Vice President, Operational Excellence, echoed this sentiment by stating that the company’s thoughts were going out to everyone impacted by COVID-19 worldwide, and that Digi-Key’s primary concern is for the health and safety of its team members, customers and business partners.
He added that the business model positions Digi-key with substantial inventory to offer minimal disruption to its customers, and has worked closely with its multiple carrier partners to mitigate impact on cargo plans. Digi-Key are also providing updates and FAQs online and are in constant communication with suppliers.”
Clearly the situation related to COVID-19 is changing on an almost hourly basis. So be sure to check www.electronicspecifier.com for updates from the electronics industry.
Thank you for listening to today’s podcast, please join us for our next instalment but in the meantime stay safe. Good bye and thanks again.