Infineon, Applied Materials and Broadcom have withdrawn their 2020 outlook. Others, including On Semi and NXP, are reducing guidance numbers.
Infineon Technologies has withdrawn its earnings outlook for the 2020 fiscal year, stating that the economic impact resulting from coronavirus pandemic “can currently not be reliably assessed” and is resulting in “low visibility”.
Expectedly, the lockdowns in many countries around the world have impacted supply chains and it was just a matter of time before semiconductor industry earnings would also be impacted more long term. Earlier this month, Broadcom also withdrew its 2020 guidance, while companies like Applied Materials, NXP Semiconductors and ON Semiconductor all reduced their quarterly earnings guidance as a result of the impact of coronavirus.
According to Infineon’s statement, it said the more and more pronounced coronavirus pandemic worldwide is causing severe disruptions to global supply chains, end markets and economies. Developments around the coronavirus are very dynamic and result in low visibility.
The company said: “In view of this, Infineon Technologies is withdrawing its outlook for the 2020 fiscal year. Originally the company had anticipated to grow revenues by 5% year-over-year (plus or minus 2 percentage points). The impact of the coronavirus pandemic can result in a deviation from this expectation and can lead to a noticeable decline in revenue compared to the last fiscal year. The anticipated reduction in revenue will weigh on Infineon’s profitability in the 2020 fiscal year, as underutilization charges will go up further compared to the original assessment.”
“At the same time, existing cost containment measures will be continued and actions to safeguard profitability and strengthen cash-flow generation will have high priority. Over the long run, however, structural growth drivers such as electro-mobility, IoT or renewable energy remain intact, or might even be accelerated as a consequence of an overcome coronavirus crisis. At this point in time, given the uncertainty regarding the severity and the length of the pandemic`s economic impact, the specific implications on sales and earnings for the 2020 fiscal year cannot be reliably assessed or quantified.”
Meanwhile, Infineon said all its worldwide manufacturing sites are still operational, though some at reduced load levels. This includes fabs in jurisdictions where government-imposed lockdown regulations are especially strict, such as Malaysia or California. It said, “The quick and decisive implementation of precautionary measures with respect to hygiene and social distancing has helped to ensure business continuity.” It added that sufficient procurement of raw materials is in place, and logistic chains including alternative freight routes have been set up for continuous deliveries to customers. Also, research and development, marketing, sales and administrative areas stay functional, largely by working remotely from home offices.
Pointing to the second half of the 2020 fiscal year, Infineon said it will be impacted by the negative economic consequences of disruptions caused by virus containment measures across several of its key end markets and regions. The number of cars produced and sold is predicted by market researchers to decline considerably in all major markets compared to 2019, caused by a combined supply and demand shock: several leading automotive OEMs and Tier-1s have announced temporary shutdowns of their production facilities in Europe and in the U.S.
On a brighter note, Infineon commented that the situation in China is appearing to normalize slowly. However, automotive customer demand is negatively affected by stay-at-home regulations in a multitude of countries. Also, market expectations for several industrial applications are being meaningfully reduced. In contrast to this, certain areas of Infineon’s business are holding up comparatively well amid current turbulence. This applies to products for data centers and communications, driven by the surge in online collaboration and data traffic. In general, fiscal and monetary responses by governments and central banks will take time to show effect.
European Chip Production Amid Covid-19
NXP, ON Semiconductor reduce Q1 guidance
Earlier this month, NXP Semiconductors announced it expected revenue for the first quarter of 2020 would be reduced due to potential impacts from coronavirus. Richard Clemmer, NXP chief executive officer, said in a statement, “Getting our arms around the actual business impact of the virus has been a challenge given the fluid and dynamic situation. What we have seen is lower than expected sell-through and order push outs in both our distribution channel and with direct customers. While we have not seen any material order cancellations, we currently expect the impact to revenue in the first quarter to be in the range of $50 million to $150 million.
“At the lower end of this range, the $50 million impact is what we’ve actually seen so far, with the weakness most pronounced in the weeks after the Lunar New Year holiday, however, we have now seen more normal order levels in the last two weeks. The $150 million upper range is estimated on a scenario where we would see a return of weakness in the coming weeks.”
Also at the beginning of the month, ON Semiconductor’s president and CEO, Keith Jackson, said, “Based on preliminary assessment of the current business environment, we anticipate that our revenue for first quarter of 2020 will be in range of $1,275 million to $1,325 million, as compared to our earlier guidance of $1,355 million to $1,405 million, which we issued on February 3, 2020. We saw soft order trends in China in the weeks following Lunar New Year holidays, but orders have since picked up, and we have not seen any significant cancellations of orders. Furthermore, our factories in China have returned to normal levels of operations after mandatory shutdown following the end of Lunar New Year holidays.”
Applied Materials: supply chain and manufacturing impacted
Meanwhile, Applied Materials last week withdrew its business outlook for the second quarter of fiscal 2020, ending on April 26, 2020, because the evolving worldwide response to COVID-19 is impacting the company’s supply chain and manufacturing operations.
The company said that while its global operations network is designed to provide significant flexibility and redundancy, various governmental orders in the U.S. and other countries as well as reductions in airline schedules around the world are resulting in major disruptions to the supply chain and logistics operations that support the industry. “The situation is fluid, and we will provide more information during our next earnings webcast,” its statement noted.
Applied added it is navigating these challenges with strong customer relationships and from a position of financial strength and technology leadership. “We are maintaining our focus on enabling the powerful, long-term trends that we expect to drive future growth in the electronics industry. We remain committed to the proposed acquisition of Kokusai Electric and are working to close the transaction, subject to regulatory approval.”