COVID-19 is a black swan event for the global economy with extreme aftermath across industries and markets. This unprecedented event has impacted almost 200 countries in just a few weeks, resulting in travel bans, country-wide lockdowns, slowing down of supply chains, shaken business confidence, and high panic among people.
While its full impact on the semiconductor industry, positioned above the digital devices market and IT spending worldwide, remains uncertain, an IDC forecast has estimated it to the tune of approximately US$26 billion.
The report further specifies that there is an 80% chance for significant contraction in semiconductor revenues during 2020, which is a substantial rollback from the previously estimated growth rate of 2% for the industry.
According to market analysts, while some segments such as those related to cloud computing data centers are expected to be healthy, others such as automotive, industrial, and consumer with previously high investment and growth forecasts are now severely impacted by COVID.
Need for continual operations
Despite the growing uncertainties, chipmakers must continue sharpening their long-term strategies while also collaborating with partners and customers, as they look toward specific markets for consistent business stability.
At present, the semiconductor segment domain is focusing on the health and safety of its employees, along with constant efforts for research, design, and manufacturing processes. This continuity in the semiconductor industry is essential as it underpins today’s key segments, including medical and healthcare and several complementing technologies such as Industry 4.0, AI, and 5G, as well as other segments that are repurposing themselves to combat the epidemic.
These industries, including telecom, utilities, and manufacturing that manage communication networks, critical infrastructure, and essential supplies are largely dependent on the efficacy of semiconductor offerings and related supply chains.
Furthermore, with businesses increasingly implementing work-from-home policies, schools conducting classes online, and people consuming more content on digital platforms, the significance of storage solutions for data centers and computers has gone up.
In this environment, government authorities across regions are prioritizing the continuity of operations for semiconductor companies and their suppliers by categorizing the industry as an “essential business.” Another aspect that must be taken into account is that the semiconductor supply chain is highly globalized, and shortages due to operating restrictions in one location might not be adequately compensated by production in other areas.
Critical areas of focus for the semiconductor industry
In short to medium term, the semiconductor market is expected to show a decline from 2019. According to the latest McKinsey report, this decline can be anywhere between 5 to 15% in 2020. However, the impact will vary significantly by end-user segments—while automotive and wireless communication segments are likely to decline steeply from 10 to 25%, such as PC/servers, consumer electronics, and industrial are expected to witness a moderate decline, anywhere between 1 to 10%. On the other hand, demand from the wireline communication segment will see a positive growth due to factors such as increased broadband usage, higher demand for cloud services, video streaming, etc.
However, in the medium to long term, we will find COVID-19 further pushing up the need for digital transformation, technologies such as 5G, the IoT, AI, and intelligent edge computing would be at the core of efforts for optimization and recovery.
The opinion that every company is now a tech company has been repeatedly stated for the past few years. And, during these times, it would turn out to be a valid assumption.
Indeed one of the primary outcomes of COVID-19 on business is expected to be a more robust demand for 5G. The technology has already enabled connectivity for critical resources to fight the pandemic in Wuhan where Huawei had installed a specialist hospital in 3 days—5G-enabled robot-assisted doctors in taking care of patients, reducing the amount of time the medical staff needed to spend with infected patients. 5G performance will also shine in areas such as telehealth. Government stimulus and incentives may further accelerate the demand for 5G infrastructure and hence the semiconductor demand originating from this segment.
IoT is also a critical area that deserves more attention from the semiconductor players. The technology is helping authorities to curb the spread of COVID-19 and treat those who are infected. Kinsa Health has used data collected from more than one million connected thermometers to build daily maps showing the particular US counties that are witnessing more cases of high fevers. Such data points can offer significant real-time disease surveillance and serve as early warning signs for possible hotspots of the disease.
Another new trend is a rising demand for more integrated offerings from semiconductor companies. For years, manufacturers have focused on creating microchips as parts of more significant domain-specific systems. Now, organizations expect them to deliver not only the chips, but also the system which houses the chips, including the electronic hardware, integrated applications, and business intelligence capabilities.
Managing operations in a changing environment
The operation protocols of the semiconductor industry, including cleanroom environments and high levels of automation, already make semiconductor manufacturing facilities more resistant to the effects of COVID-19. Cleanrooms that typically cover thousands of square meters are specially built facilities where contaminants, including airborne particulates, get eliminated through specialized filtration processes. There are stringent measures to manage airflow, pressure, humidity and temperature. Workers operating in these zones enter and exit via airlocks, and wear full protective clothing, including face masks, gloves and coveralls.
However, for further safety of all workers the industry should implement all recommended best practices. These range from social distancing norms and mandatory daily health declarations to regular sanitization of facilities and requirements for even non-factory workers & engineers to wear protective masks.
The managerial teams should conduct risk reviews and assessments while updating and deploying business continuity planning.
Learnings and the path ahead
With limited visibility into the future, most businesses have figured out optimal ways to address the current operational challenges around workforce availability and safety, as well as short-term initiatives to keep the business liquid. However, looking ahead into the future and thriving in the new normal is equally essential. Organizations must plan for getting back to business, finding the right direction, and scaling up quickly when the times become conducive. Here is how:
Ace up your game: Semiconductor companies must live in the future. A typical manufacturing cycle takes about two years. Once the chip moves to a vertical solution, it may take another year of data gathering to build the intelligence that makes it apt for delivery to the marketplace. The chip becomes fully ready for mass adoption in another 4 to 5 years.
The changes brought by COVID-19 have only intensified the need to shorten the ASIC production cycle and accelerate time-to-market. This is essential to deal with the repercussions of the pandemic, bring the digital economy back on track, and be better prepared for such unpredictable events in the future.
Semiconductor companies should also closely monitor the changes in the market and identify the end markets that would show positive growth in the post-COVID-19 era, and shift focus toward such segments.
Build ecosystem resilience: Many companies have geographically concentrated their operations to leverage the benefits of economical labor, tax incentives, and synergies with both vendors and customers. However, the same model also brings significant risks and single points of failure into the industry. This was experienced even during disruptive events in the past, such as the Japan earthquake and tsunami of 2011.
The semiconductor players can, therefore, consider shifting to an agile supply chain network model that has multiple pathways to prevent single points of failure. It can help them to balance costs with better assurance for business continuity and sustainability.
Shifting from single country hubs to more extensive regional supply networks calls for collaborative partnerships and industry associations. Stakeholders should invest in resources and infrastructure that can quickly enable new manufacturing and supply nodes to be scaled up whenever required.
In a bid to boost the recovery of local economies, governments may also provide incentives for local sourcing. This would also lead to re-evaluating sourcing strategies.
Ramp up digital transformation efforts: Decline in consumer demand and revenues, loss of working hours, and stalled production are the most common and pronounced challenges faced by every industry. However, companies that had invested in digital transformation are faring better in terms of productivity, agility, and connectivity and hence are more resilient to the disruption. Such companies are also likely to bounce much sooner than their counterparts
Summing up
COVID-19 serves as a reminder that most industrial practices are still fragile, and disasters can abruptly initiate from unexpected sources. It also brings in an opportunity for companies to reconsider and redesign work paradigms to protect their employees while ensuring business continuity.
For the semiconductor manufacturers, their suppliers, and technology partners, this unique event has brought more robust demands driven by higher adoption of cloud, mobility, AI, IoT, ML, and automation solutions. They can work on more collaborative networks and diverse supply chains to build a more resilient future and increased capacity to respond to unanticipated global disruptions.
At Cyient, we understand the uncertainty and the impact the semiconductor industry is going through. We have immediately enabled all engineers’ working from home with secure connectivity, including VPN, to ensure no projects are delayed and our customers get updates and releases on time. Using our decades of experience in semiconductor, power electronics, embedded software, industry standards, and regulations, we are helping solve our customers’ problems through collaborations for crucial applications.
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