How China lockdowns play havoc with chip supplies, demand • The Register

Lockdowns in China have been disrupting supply and demand for a variety of semiconductor companies amid broader challenges created by the ongoing global chip shortage.

Several publicly traded semiconductor companies discussed the impact of COVID-19 lockdowns in China at varying lengths during earning calls this week with analysts while also pointing to other sources of disruption, including an earthquake in Japan and a power line fire in France.

For instance, Texas Instruments cut its revenue forecast by 10 percent for its second quarter, which ends in July, because multiple Chinese customers have not been able to receive orders due to lockdowns, company executives said during its Tuesday earnings call [PDF].

The freight forwarders will not take our parts from our distribution centers to ship them to the factories in China

This amounts to roughly $500 million in anticipated lost revenue for the three-month period, which means that the American giant now expects roughly $4.5 billion instead of approximately $5 billion for the second quarter. Due to the uncertainty of the situation, Texas Instruments offered its official second-quarter guidance in the range of $4.2 billion to $4.8 billion.

“We’re seeing cases where [customers’] Factories are shut down, and they just will not accept — they cannot accept deliveries,” said Rafael Lizardi, CFO at Texas Instruments, on the earnings call.

“In other cases, the freight forwarders will not take our parts from our distribution centers to ship them to the factories in China, particularly in the Shanghai area, because those are shut down,” he added.

Lizardi said while there are “dozens, if not hundreds,” of factories shut down in China, there are hundreds more operating at different levels, since COVID restrictions vary throughout the country.

“There are factories operating at zero, like complete shutdown. There are others operating at 20 percent, 50 percent and so forth,” he said.

‘Under tension’

The cut in Texas Instruments’ revenue forecast prompted concern among financial analysts that lockdowns in China would impact other semiconductor companies operating in similar markets and product segments, including Switzerland’s STMicroelectronics.

STMicroelectronics has had to temporarily reduce operations at its Shenzen, China, manufacturing plant due to COVID-19 restrictions, CEO Jean-Marc Chery said during a Wednesday earnings call.

This hurt sales in the first quarter for the company’s automotive division, Chery said, but strong microcontroller sales allowed the chip manufacturer to still deliver revenue and gross margin that was above the midpoint of its previous outlook.

For the chipmaker’s second-quarter guidance, Chery said he expected STMicroelectronics to miss out on a “few tens of million dollars” in revenue due to lockdowns in China as well as a power line fire in early April that briefly halted the company’s manufacturing plant in Crolles, France.

Chery said there is plenty of demand for the company’s products, but the lockdowns in China, the temporary plant shutdown in France, and shortages from various suppliers have resulted in the chipmaker’s backlog reaching 30-40 percent above its manufacturing capacity.

“All the supply chain is under tension,” Chery said.

On the bright side

Some semiconductor companies did not expect the lockdowns to have a major impact on their business, though they didn’t provide any estimates for how much money they had lost or could lose.

For instance, Japanese chipmaker Renesas Electronics does not expect lockdowns in China to have a large impact on its revenue in the way that it did for Texas Instruments, CEO Hidetoshi Shibata said in the company’s Wednesday earnings call.

“I don’t mean to deny any chance of going behind our forecast, but I do believe the risk is still within the level that we’d be able to absorb elsewhere if something goes negatively against our expectation,” Shibata said, according to an interpreter.

One thing that has weighed down on Renesas was a March 16 earthquake in Japan that disrupted operations at three factories.

Shibata said after the factories came back online, the company manufactured more wafers to make up for the earthquake’s disruption, but it won’t “directly translate into higher revenue going forward.”

UMC, a contract chip manufacturer based in Taiwan, saw some drop in demand for smartphone and PC chips in China related to the lockdowns, President Jason Wang said during its Wednesday earnings call.

However, he added, that weakness was offset by “strong demand” for chips in the automotive, server and networking markets.

“For the overall 2022, it still remains a challenge for us to meet the aggregate demand from our customers,” he said.

Qualcomm, a major chip designer for smartphones based in San Diego, California, saw a “slight decrease” in demand for parts used in low-end smartphones, CFO Akash Palkhiwala said during the company’s Wednesday earnings call [PDF].

Palkhiwala said the lockdown-related dip has been factored into the company’s outlook for the third quarter. At the same time, the US biz expects a recovery in China by the end of that period, though the added that it’s “an executive evolving situation.”

“I said earlier, China is 20 percent of the global market. You still have the remaining 80 percent where we’re seeing a lot of positive trends from a consumption perspective with a strong demand for premium high-tier devices,” Palkhiwala said.

Reallocation is the name of the game

One fabless semiconductor company that has apparently fared well amid various supply and logistics challenges is Austin, Texas-based Silicon Labs, which makes chips for a variety of IoT applications.

CEO Matt Johnson said on the company’s Wednesday earnings call that some of the company’s customers have had to push out orders due to lockdowns in China.

However, he added, the chip designer has been able to keep revenue flowing by reallocating products to other customers “because the demand is meaningfully outpacing supply.”

“Within that, we continue to increase our supply. And that’s important,” he said. “That’s a statement for the coming quarters and for 2023.”

On the supply side of things, Silicon Labs is working with customers on “supply alternatives” to help them get the chips that they need.

“We’re still spending a lot of time on supply alternatives for our customers, working through their demand gaps and trying to help them navigate and bridge every quarter as we keep incrementing up supply,” Johnson said. ®

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