The Supply Chain Matters blog provides our latest news capsule format follow-up relative to the updating of prior supply chain management published developments we have shared with readers.
We now include added updates related to ongoing production disruptions amid population lockdowns across China, increasing concerns related to European supply chains, and added signs for a product demand slowdown within segments of the semiconductor industry.
China Based Manufacturers Remain Impacted by Extended Population Lockdowns
A published report by Nikkei Asia (Paid subscription or metered view) reports that manufacturers and suppliers located in the Chengdu and Shenzhen areas of China are once again impacted by a new round of population shutdowns manifested by the country’s zero tolerance Covid-19 infection policies. As noted in our last news capsule update, these new lockdown measures come as manufacturers were trying to recover from previous shutdowns caused by electrical power shortages in southwestern China as a result of severe drought conditions and lower water levels feeding hydroelectric power generation.
The latest Covid-19 related lockdowns are expected to extend another week as mass testing efforts are again undertaken.
The report makes special mention of Apple’s contract manufacturers and suppliers located in the impacted areas with firms such as Foxconn and Jabil operating facilities in the Chengdu area under “closed loop” conditions, meaning that existing workers are restricted to manufacturing campuses only. The report, citing two informed sources, specifically indicates that between 30 percent and 50 percent of Foxconn’s and Jabil’s planned production output in August were affected by electrical power rationing. Foxconn’s Chengdu facility is noted as a major production base for Apple iPads and MacBook laptops.
Such developments continue as Apple announced its new line-up of iPhones, iPads and MacBooks this week. Supplier BYD has reportedly been scrambling to secure additional production staffing at its Shenzhen facilities, where most of the region’s production facilities have been operating under closed-loop measures since the start of September.
The report indicates that as of this week, 49 cities across China were implementing some level of pandemic control measures which are affecting upwards of 292 million individuals.
Global Economy Shock Waves Pose Added Threats to European Supply Chains
The New York Times reported this week (Paid subscription or metered view) that the ongoing effects of the hostilities involving Russia and Ukraine, and the consequent impacts of severe power shortages in the coming weeks are menacing the continent: “with what some fear could become its most challenging economic and financial crisis in decades.”
Noted is an eightfold increase in natural gas prices since the hostilities began with plans for factory closings, rolling electrical power blackouts and rationing now being considered among several European countries in case such events occur. Once more, the report indicates that higher commodity prices predated the Russian hostilities. This week, Russia again cutoff the major natural gas pipeline to European countries including Germany.
With China, the Eurozone and the Unites States collectively accounting for two-thirds of global economic activity, it will be hard for any country to be insulated from supply chain and economic disruption.
In our Supply Chain Matters highlights of published global wide production (PMI) indices reported for August, there were discernible signs that China’s production disruptions coupled with decreasing global demand for products are leading to contracted production levels and clearer signs of excess capacity.
Rising interest rates imposed globally run the risk of added dampening of demand and less funds to support vulnerable populations. The report indicates that many economists are already predicting a recession in Germany, Italy and other areas of the Eurozone before the end of this year.
Samsung Indicates a Downturn in Semiconductor Sales is Coming
Predictions provided by Samsung Electronics, given this provider’s broad strategic supply networks presence in high-tech, consumer electronics, telecommunications and increasingly automotive supply networks. The company is currently viewed as the globe’s largest semiconductor and memory chip producer by revenues.
This week, Samsung’s co-CEO indicated at a media briefing that semiconductor product demand levels have “dramatically changed” and are expected to soften for the second half of this year. He further indicated that the industry downturn may well extend into 2023. Bloomberg noted in its reporting, that memory chipmakers HK Hynix and Micron Technology have similarly warned of slowing industry demand in recent weeks.
Reporting of this Samsung development, The Wall Street Journal cited forecast data from industry trade group World Semiconductor Trade Statistics, indicating that global semiconductor sales are expected to grow upwards of 14 percent this year, amounting to $633 billion. A previous growth projection called for a 16 percent rise.
While the above may not seem like a drastic cut, consider that this industry is plagued by waves of optimistic forecasting and consequent ups and downs amid aggressive order levels by customers seeking product in short supply. More to the point, reports indicate that 2023 sales are forecasted to grow a mere 4.6 percent according to this same source.
These predictions contrast that of high-performance microprocessor chip fabrication producer TSMC which raised revenue guidance in July of this year, citing strong demand for high performance computing chip demand. Considered the globe’s largest contract fabrication provider, the Taiwan based company indicated expectations of a 35 percent rise in revenues this year. TSMC’s biggest market by revenue is the U.S., with high profile customers being Apple, Qualcomm and Nvidia.
Acknowledging an ongoing inventory correction, TSMC’s CEO CC Wei indicated in July that fabrication demand will exceed the company’s ability to produce for the remainder of this year but has expressed some cautions related to next year. That stated, he indicated that inventor adjustments that occur in 2023 will be a “typical cycle” for the industry.
Amid the projected sales slowdown, producers are reportedly scaling back capacity and production equipment expansion, not only because of these signs of reduced market demand, but also the elongated lead times associated to procuring new and more advanced chip production equipment.
On another point, Samsung’s Co-CEO indicated that the company remains troubled with the increasing tensions among the U.S. and China related to semiconductor technology investments, and the company’s contained access to China’s smartphone and other markets. That stated, Samsung continues to show interest in expanding its chip production presence in the U.S. with the recent passage of the CHIPS Act.
© Copyright 2022, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.