MEMS Supply Chain Disruption Due to COVID-19

Presented in part, at the MEMS World Summit Webinar; The response to the impact of MEMS Manufacturing amidst COVID-19, 4/15/2020. For more details visit the MWS web site and watch the 2-hour webinar. https://memsworldsummit.com/

Introduction

Covid-19 began to impact the MEMS industry in mid-January after the Chinese New Year’s holiday. In China flights to Wuhan were cancelled, the cancellations spread to other cities. A prolonged holiday break turned into remote work with some Chinese employees stuck in the US or EU, unable to return to China. Telecommuting was a new experience to our team in China- as it was to most of Asia. Having worked in Asia for several decades, long hours at the office are the norm, remote working is not. Next in early March Italy, home to many MEMS companies, and Hanking Electronics’ design offices were hit with the coronavirus and remote working became the de facto method of working there as well. The US was soon shut down in late March about the same time that workers were returning to the office in China. While Hanking Electronics and many other companies are back to work in China, there are changes due to social distancing requirements and continued travel restrictions.

Remote Working & Travel Restrictions

Working from home is an incredible shift that happened over night, especially in Asia. Cloud IT infrastructure is critical for remote MEMS and ASIC design work. With COVID-19 restrictions many engineers cannot go into the office to use work stations. Travel restrictions to and from China were implemented in February. Air travel between the US and EU were next to be imposed. Initially, returning to China required a 2-week quarantine in an airport hotel. By late March a ban on non-Chinese citizens flying into China was imposed to prevent a second wave of COVID-19 infections.

Travel bans have caused many MEMS & Semi conferences to be cancelled or postponed. Virtual conferences sprung up in late March and April, such as the IEEE Inertial Conference, originally to be held in Japan. Other conferences like Semicon China & Electronica have been moved from March to June and will now be primarily a national trade show instead of one of the biggest international Semi trade shows in the world. https://www.semiconchina.org/

MEMS World Summit is also moving from March to June and may primarily be a national conference, probably with some virtual or teleconferenced speakers, depending on the status of travel restrictions in June to China. https://memsworldsummit.com/

MEMS conferences scheduled for later in 2020 will probably have a virtual option in case of difficulties with international travel. Budget problems, as companies cope with COVID-19 related demand shock and hence lower revenue, may also impede both presenter commitment and in person attendees this year. Look for more webinars, virtual training and conferences for the rest of 2020.

Supply Chain Disruption

Not only conferences are affected by travel restrictions but wafer fabs were quickly impacted. Wafer fabs in China and other countries, that required overseas support for maintenance and installation saw delays due to COVID-19. Downtime increases were experienced in fabs dependent on such support. Fab start-ups and expansions were also affected. Planning fab and test tool installation is very difficult this year due to the travel restrictions. Fortunately, many OEMs offer remote support and trouble shooting. Some like Applied Materials and others in China have maintenance teams in country and even locally positioned in cities for immediate fab support. COVID-19 will accelerate the push for national fab tool and material suppliers, which has been ongoing in China, South Korea and Japan for decades. 

Ron Glowinsky of CNW discussed in the MWS webinar the logistic hoops that must be jumped through to move critical parts and chemicals around the world with so many cancelled flights. Just-in-Time management methods clearly failed in Q1 this year. There will be a need for wafer, chemicals, masks and other materials to be made and purchased locally and other weak points in the fab supply chain will be improved as a result of the travel restrictions. 3D printing, using a virtual warehouse of .stl files, will increasingly be adopted to locally support maintenance material for simple part replacement.

The MEMS and Semiconductor Supply chain is always in flux. We’ve seen semiconductor wafer fab infrastructure, packaging and MEMS companies grow, and move from the US, EU, Japan, South Korea, Taiwan, Singapore, China, Malaysia and most recently Vietnam- as labor rates, regulations and government incentives change. Yole has written good reports on the MEMS Supply Chain and how it operates under normal circumstances. https://www.yole.fr/

Because of COVID-19 and the quarantines imposed to counter the spread of the disease, we saw a supply shock in February for some fab and packaging materials, starting in Asia. As employees fell sick and quarantines tightened work slowed in affected regions. Fabs in Malaysia report that the government required companies to request permission to continue operating at 50% staffing levels. One wafer fab in the EU had to temporarily reduce production due to their labor union insisting on temporary workforce reductions. COVID-19 quarantines next resulted in a demand shock for MEMS containing products as people stayed home. Auto sales fell, Apple stores closed in China, soon to be followed by closures in Italy and elsewhere.   Consumer electronics sales are down, some estimate that smart phone and wearable sales will be down by at least 30%, maybe dropping 80 million units from last year according to Jupiter Research, April 2020. If one assumes each product has 5 to more than 10 MEMS chips in them, like filters, IMUs, oscillators, etc, this could be a huge reduction in MEMS shipments in 2020. 

Finished MEMS devices are in the middle of this supply chain with all the support companies like wafers, masks, chemicals, packages also being affects.  So, we’ve seen a drop in supply as factories slow and huge drop in demand due to quarantines. This COVID-19 shock to the MEMS supply chain is a multiplier to other traditional factors that are constantly shifting the location and participants in the overall supply chain.

Financial Disruption

The MWS webinar also discussed the financial impact of COVID on the MEMS industry and supplier. Eric Mounier a Fellow Analyst at Yole presented several best- and worst-case recovery scenarios for the MEMS industry at the MWS webinar. The worst-case scenario was a return to normal business operations by Q4 of 2020. Car sales in Wuhan rebounded upwards this month once the 76-day lock down was lifted. Apple stores are now open in China. We hope to see strong sales of consumer electronics and autos from pent up demand in the second half of 2020 and early 2021.

Between the demand shock, government enforced quarantines and the equity market crash we will also see a liquidity shock affecting the MEMS supply chain and MEMS business cycle. M&A activity and IPOs in our industry slowed at the end of Q1. MEMS start-ups will experience trouble as investment slows. Weaker suppliers will struggle and perhaps some go out of business or be acquired at the end of this period. We may see insolvency acquisitions at the end of 2020. 

Governments are stepping in to support critical and small businesses due to the loss of business from COVID-19 and associated quarantines. Many governments were active in supporting the Semi/MEMS Industry in the past for R&D and Education (METIS, BSAC, WIMS, Erasmus, etc.) as well as Local Manufacturing (China 2025, KTM in the UK, MEDC). The MEMS community needs to leverage these sources for funding to support businesses just like it has in the past. Government support is not even across all facets of our businesses. Currently in the US, VC funded start-ups cannot tap into this government support, and we’ve seen layoffs in Silicon Valley in the last few weeks.

Finally – Let’s talk about MEMS and Semi organizations- like the MEMS World Summit group- Business groups need to assist in lobbying efforts. SEMI has done this in the past pushing legislations that can help our industry. We need to ramp up this effort to get through the shock that COVID has brought to us. Networking is key to coming up with new ideas and organizing this type of activity, even if this networking is virtual. There will be pent up demand as a result of the quarantine and we all want to survive the financial shock and be well positioned for the big recovery that is coming. So, let’s keep networking at MWS, SEMI, MANCEF, IEEE- keep bouncing ideas off each other so we can get through this successfully.

Upcoming MEMS Conferences

MWS June 2020: https://memsworldsummit.com/

Semi: https://www.semiconchina.org/

MANCEF COMS Oct 2020: https://www.mancef.org/coms2020/

Next year in Asia at MWS in March 2021 and China COMET later in 2021 in Shenyang https://hankingmems.com/aboutus/china-comet-2021/