Impact of Covid-19 on the chip market and consumer electronics

The Covid-19 pandemic has led to unexpectedly large problems in the electronics industry worldwide. The pandemic is still in full swing, but analysis companies such as IDC and TrendForce are already trying to analyze the extent of the problems that have arisen and the consequences for production and supply chains. Other institutions such as ABI Research have recognized that something fundamental needs to change in the economy, production and lifestyle. The industry needs a new direction.

SARS-CoV-2 is having a serious impact on the entire supply chain - from material and component manufacturing through to the production of modules, subsystems and final appliances. But sales are also stagnating for many finished products. There is great uncertainty in the global economy, including the electronics industry, and market research companies are conducting initial studies in an attempt to outline the extent of the damage that has occurred and its consequences for the supply chains. It's a bit like poking around in a haystack at the moment. Three studies are presented below, the first of which deals with the beginning of the supply chain, i.e. the chip market, and the second with consumer electronics as the end of the production chain. The third paper turns to fundamental questions of future production, including the question of the sense of the current over-enthusiastic just-in-time principle.

The pandemic and the global chip market

Originally, many analysts expected the global chip market to show moderate growth in the single-digit percentage range in 2020 compared to the previous year. However, from February onwards, the enormous impact of the Covid-19 pandemic was felt and all previous predictions were quickly overturned.
At the beginning of March, the US market research company International Data Corporation (IDC) attempted to roughly analyze the impact on the chip market despite the ongoing spread of the pandemic and the associated rapid changes in the situation. As a result, serious changes can be expected this year. Accordingly, 2020 will be another year of decline in the semiconductor market [1]. On their first website, the analysts give the following advice in capital letters: Meet the challenges from Covid-19 head on. You could also translate it as follows: Bite the bullet and make the best of the situation. There is probably no other option.
Taking into account the very dynamic changes in the coronavirus, social and economic sectors at the time of the analyses (March), IDC forecasts that the most likely outcome in 2020 will be a global decline in sales of 3 to 6% compared to the previous year. IDC gives this scenario a probability of 54% and also points out that a larger decline is also possible with a probability of around 25% due to the uncertain progression of the situation. Alternatively, 2020 could still be a very slight growth year in the event of a rapid recovery and very favorable developments. As things stand now, a global recession is likely, as the disrupted supply chains cannot be fully restored in the blink of an eye.

"New technologies ... will be fundamental to a general recovery of the technology sector."

Assuming the real pandemic situation in the US at the end of March, i.e. well after IDC's observations, the 3-6% decline in sales for the current year cited above is likely to be much greater.

Four different scenarios

The IDC report considers four scenarios for the development of sales in the semiconductor industry, which are based on different assumptions and the severity of the impact on business for technology providers (Table 1). The statements made above are based on this table. The first two scenarios assume negative growth of between -3% and, in the worst case, more than -12%, while scenarios 3 and 4 optimistically assume positive growth of +2% to +6% or higher. Accordingly, the recovery of supply chains (technology supply chain recovery) will take varying lengths of time. And depending on this, the global economy and technology (Global Disruption to Economy and Technology Demand) will be set back by a few months or, in the worst case, more than a year, depending on the duration of the supply chain recovery - depending on the scenario in Table 1. According to IDC, scenario 1 is the worst, as it can take 12 months or longer for everything to 'get back on track'.

"The advent of Covid-19 has brought with it travel bans and quarantines, massive supply chain slowdowns, stock market uncertainty, declining business confidence and growing public panic," said Mario Morales, an analyst at IDC specializing in semiconductors. "New technologies such as 5G, the Internet of Things, high-performance computing and artificial intelligence (AI) will be fundamental to an overall recovery in the technology sector." In other words, the recovery phase is likely to be as rapid and serious as the industrialized countries will turn to these new technologies again after the coronavirus crisis.

IDC assumes an 80% probability that semiconductor sales will fall into negative territory in 2020 instead of the previously expected growth of 2%. However, this still leaves a 20% chance that the semiconductor industry will quickly 'bounce back' due to a bounce effect and return to positive growth despite everything. IDC's preferred scenario is that the semiconductor market will recover from Q3 2020 when the quarantine period is over and travel bans are eased.
The result will be a loss of around USD 25.8 billion in chip revenue from the market. According to the IDC, there will be less availability of components in the short term, but this will also be offset by lower demand over a period of time that cannot yet be precisely predicted. The question here is to what extent the two will roughly coincide in terms of content.

Tab. 1: IDC scenarios for the development of the semiconductor market
under the influence of the coronavirus crisis and its consequences for the economy

Tab. 2: Comparison of market development forecasts for consumer electronics for the first quarter of 2020
before and after the start of the coronavirus crisis (in millions of units, as at: 14.02.2020)

Note 1: The smartphone forecast refers to units produced; the automotive forecast refers to units sold; all other forecasts refer to sell-out shipments
Note 2: Previous forecast includes data from January 2020; revised forecast includes data from February 14, 2020
Source: TrendForce, February 2020

Covid-19 and the consumer electronics market

The Taiwanese market research company TrendForce (based in Taipei) addressed this issue. It was founded in 2000 and is a global provider of market information for various technology sectors [2].
TrendForce consists of 5 main research areas: DRAMeXchange, WitsView, LEDinside, EnergyTrend and Topology Research Institute. The research areas include the following technology directions: DRAM, NAND flash, smartphone, notebook, tablet, TV, monitor, display, LED, lighting, solar energy, lithium battery, energy storage systems, xEVs (electric cars), semiconductors, telecommunications and AI. More than 200 employees serve customers all over the world.
Naturally, TrendForce has placed one of its main focuses on monitoring and analyzing the Chinese electronics industry in particular, with several offices operating directly in the People's Republic of China. Its Topology Research Institute focuses on research in the semiconductor industry in China and Taiwan. So if interested parties from Western countries need first-hand information about the Chinese electronics industry, TrendForce is a good address [3].
In the consumer electronics sector, TrendForce provides information on sales trends for various consumer electronics products such as PCs, notebooks, cell phones, tablet PCs, digital cameras, ultrabooks, e-readers, etc. Being at the center of the global IT industry, the company has become one of the industry leaders for consumer electronics market information.
If you look at the publication dates of TrendForce's market analyses for various types of consumer electronics devices with regard to the coronavirus, you can see that, as with IDC, work on updating the market forecasts followed its 'usual path' until the end of January 2020. From February 2020, there was an abrupt shift to 'emergency mode', i.e. towards monitoring the impact of the incipient pandemic. TrendForce took its analyses for 2020 provided in January 2020 and began to review them with regard to the impact of the coronavirus (SARS-CoV-2) by individual country. The revised data shown in Table 2 is as of February 14, 2020.

Complex impact on the entire supply chain

The impact of Covid-19 on the consumer electronics supply chain is inherently multi-layered. They range from a decline in demand for new devices to problems with the production of components and subsystems and logistics.
While the direct impact of job closures is not expected to last too long, the indirect economic impact of suppressed demand could take up the first half of 2020, according to TrendForce.
The expected rebound year for smartphones - due to 5G rollout - is now not expected in 2020, but rather split between 2H20 and 1H21. TrendForce has reduced its estimate for smartphone shipments in the first quarter of 2020 from 307 million to 275 million units. This decline of 10.4% leads to a decrease of 12.1% in the first quarter of 2019 compared to the first quarter of 2019 (Table 2).
The upturn will come in the second half of 2020 with the market launch of new 5G and multi-camera cell phones. TrendForce has revised its forecast for the year as a whole from 1.41 billion units to 1.35 billion units, which corresponds to a decline of 4.3 %. This corresponds to a decline of 3.5% in 2020 compared to 2019.

"Before we feel these potential long-term effects, there will be some serious short-term implications"

The notebook market will be affected in a similar way, according to TrendForce. The company almost halved its estimate of notebook shipments in February: from 10.8 million units to 5.7 million. For the first quarter of 2020, the estimate was reduced by 21.4% from 35 million to 27.5 million, which corresponds to a year-on-year decline of 26%. According to TrendForce, the effects of the pandemic outbreak are expected to last between one and three months and the supply chain will not return to normal levels until the second half of March at the earliest. These statements can now be compared with those of IDC in Table 1.
If one assesses TrendForce's estimates, which have February 14 as the cut-off date, from the perspective of the real situation in Asia and China at the end of March, the revised figures in Table 2 should probably be significantly lower, as many electronics companies in China, Taiwan and South Korea only began to gradually ramp up production again at the end of March. This process depends crucially on how workers in China, for example, are allowed to return to their jobs on the one hand, and on how many of them actually want to come back on the other. It can therefore be assumed that the supply chains in the Asian electronics industry at least could return to normal by July 2020 at the earliest. However, nobody probably knew exactly when this article was written at the end of March. That is why predictions such as those made by TrendForce and IDC are only guesses for the moment.

Companies need new strategies

While market research companies such as IDC and TrendForce are primarily concerned with the impact of the coronavirus crisis on specific product lines, companies such as US-based ABI Research are turning their attention to more fundamental issues, namely what Covid-19 is teaching countries and the economy in general [4].
ABI writes: The Corona pandemic has created a chain of events unlike anything we have seen in our lifetimes. Our daily routines, both at home and at work, have been inundated with uncertainty. This has led to questions about the future state of our global economy.
There is no doubt that the coronavirus outbreak will have a significant impact on technology companies, companies that invest in technology to improve operations, and the customers of those companies.

Fig. 1: Cover of the white paper from ABI Research

A new white paper from ABI Research looks at the likely short and long-term impact of the coronavirus pandemic on key technologies and end markets (Fig. 1). According to the paper, the outbreak of the pandemic and the global response to it will force companies to radically rethink the way they operate and make technology investments. In the free whitepaper, the company's analysts examine the current and future impact of Covid-19 on technologies and industries [5].
The whitepaper provides insights into:

• the current state of technologies
• and end markets after the pandemic
• Short and long-term effects of Covid-19
• Recommendations for weathering the storm and strategies to help companies recover and thrive after the pandemic slowdown

"To bring about change," said Stuart Carlaw, Chief Research Officer at ABI Research, "there needs to be stimulation at a scale that means businesses can do nothing but make bold decisions to survive. Covid-19 is that scale."
According to the analysts, such bold decisions and technological investments could lead to outcomes such as the following:

• A concerted and significant move towards lights-out manufacturing ("human-less factory", autonomous manufacturing)
• Increased use of autonomous material transportation and commercial vehicles
• A more integrated, diverse and coordinated supply chain
• Moving to virtual workspaces and practices
• Investment in smart cities to support population resilience

The priorities leading to the outcomes are clear: greater digitalization and fast data networks, more automation, AI, autonomous vehicles, decelerated just-in-time principles, more localized manufacturing and less globalization, healthier lives for people in healthier (smart) housing estates.
"Before we feel these potential long-term effects, there will be some serious short-term implications," Carlaw said. "Declines in consumer spending, supply chain disruptions and reduced availability of components will create 'rough seas for all boats'. In the short term, the outlook will worsen and investment in modernization will be reduced as survival instincts initially trump the drive for prosperity."
It will be interesting to see which of these proposals or ideas will actually be realized or can be realized in the capitalist mode of production based on constant economization, increased efficiency and growth. -psm-

References:
[1] www.idc.com
[2] www.trendforce.com
[3] www.trendforce.com/research/cn_semiconductor
[4] www.abiresearch.com/
[5] https://go.abiresearch.com/lp-taking-stock-of-covid-19