After local holidays were extended, Chinese companies are challenged to resume full operations. Electronics distributors report delays but no shortages.
The coronavirus outbreak has delayed the Chinese electronics industry’s post-holiday return to work by as much as two weeks. In addition, many cities have effectively self-quarantined and restricted traffic, straining the entire high-tech supply chain.
An online survey conducted by EETimes partner ESMChina found chips, foundries, packaging & testing plants, and terminal OEM/ODM/EMS manufacturing plants have all been impacted by low employee-return rates, resulting in limited production capacity. Manufacturers of medical equipment and medical instruments are priorities for the nation, but components demand still exceeds supply.
As of February 10, China’s return-to-work rate was less than 30%. Only 18% of enterprises resumed work on February 3 (including remote offices); and 50% of enterprises resumed work on February 10; 19% of the companies resumed work on February 17 or longer, and 13% did not have a clear plan to resume work, ESMChina’s survey found.
February 10 was the target date for return to normalcy but returning employees fell far short of estimates. Although 68% of enterprises have resumed work, they are still restricted by local policies. Enterprises must obtain a “pass” issued by the local government before resuming production. Employees returning from overseas need to be quarantined at home for 7-14 days before they can officially go to work. Hubei employees are still restricted from returning.
The shortage of medical and health protection materials such as masks and thermometers are also a barrier for employees to resume work. If companies suspect or confirm an employee’s exposure to the coronavirus, all workers must be isolated in a large area.
The ESMChina survey found 38% of enterprises have a return rate of 10-20%; 20% of enterprises said their rate of return was 20-30%; 12% of businesses report worker returns at 30-50%. Twenty-three percent of companies had 50-80% of their workers return, and 7% saw 80-100% of their employees come back to work.
The electronics supply chain is causing the most concern, ESMChina found. Only 20% of employees returned to work in that sector. One of the biggest barriers for companies is a shortage of medical and protection materials. Companies also cited challenges in logistics and transportation, labor costs, office and plant pressures, order cancellations and tight cash flow.
Chip maker Jiangsu Runic Technology Co., Ltd. employees have been working from home since February 3, according to Cheney Don, sales director. However, due to city and road closures, the resumption of work for most customers is being postponed, resulting in delayed demand for the corresponding orders. The urgent task is to confirm the customer’s resumption and subsequent order changes as soon as possible, and to adjust stocking plans in a timely manner.
Adjusted demand may have an impact on supplier inventory, Cheney Don frankly stated. In extreme cases, such as individual customers failing, it may cause suppliers to have bad debts.
Baoping Yang, Managing director of Shenzhen C&B Eureka Innovation Electronics Co., Ltd. reported that C&B Eureka Innovation Electronics Changsha R&D and manufacturing base had resumed work on February 2 because it needed to supply medical equipment to support the epidemic efforts. The necessary personnel of Shenzhen headquarters and local offices planned to return to work February 17.
The extension of the holiday has had a great impact on the company’s product development progress, Baoping Yang stated. It had a new product launch that has been delayed for at least a month. It can only temporarily handle basic affairs at home.
Distributors respond to customers’ urgent needs
Unlike original component manufacturers (OCMs), distributors (considered OCM customers) are focused on fulfilling orders. Employee return rates are less of a factor. Among distributors, the advantages of component e-commerce platforms are particularly prominent. Distributors have spot inventory and can respond quickly to medical equipment manufacturers. However, online distributors can only solve the problem of ordering; delivery is up to warehouse personnel on the ground.
Peter Tang, the operation director of Oneyac Technology Co., Ltd., told ESMChina from February 3, Oneyac started online offices for all employees except for the warehouses. In terms of warehouses, Oneyac asked a small number of people to work. With the warehouse staff returning to Xiamen one after another and staying at home for 14 days, it is expected that the warehouse will be able to return to work after the 18th.
Even so, efficiency will be greatly reduced, resulting in partially shipped orders. Peter Tang said decreased shipments, increased labor costs and security concerns have exerted tremendous pressure on the company’s operations. The only thing that can be done is to ensure that the warehouse is error-free and that all employees are safe and healthy, maintaining normal shipments.
Unlike local e-commerce platforms such as Oneyac and CECport, international distributors such as Digi-Key and Mouser have limited influence. Tony Ng, Digi-Key’s vice president of marketing for Asia Pacific and general manager of China said that as of now, there has been no change in the business of companies outside China, including purchasing, inventory and logistics operations. In China, Digi-Key’s two offices in Shanghai and Hong Kong have responded to urgent medical customer orders and have opened remote offices.
“For the urgent orders for components needed for medical equipment such as CT, MRI, etc., — urgently needed by Wuhan Hospital — we supported them well before the government stipulated resumption time,” said Tony Ng. “During this period, we also provided emergency components to a large medical customer in Suzhou. It is worth mentioning that the customer obtained special authorization for some imported components during the Spring Festival at the end of January through Digi-Key. In addition, we also got some urgent orders, such as a certain factory in South China, which bought 300 3M eye masks from us.”
For international distributors such as Arrow, Digi-Key, and Mouser, customs clearance and logistics transportation directly affect the supply chain. Arrow’s Hong Kong Logistics Center was operational on February 3; offices in Beijing, Shanghai and Shandong officially opened on February 10. Offices in Hangzhou, Xiamen and Northeast were expected to resume work on February 17.
“At present, we are seeing some domestically manufactured products facing production delays and delivery times may be extended,” said Arrow Asia Pacific sales vice president Arthur Jiang. “We will continue to evaluate these developments and help customers handle supply chain management.”
Daphne Tien, vice president of marketing and business development for Mouser APAC, told ESMChina that Mouser’s customer service team actively responds to customers’ procurement needs and technical issues through remote office work. “We ship within 24 hours after stocking, and we do our best to protect customer needs,” she said.
All employees of Mouser’s China office, with a few exceptions, have worked remotely since February 10. The company measures the temperature of people who must enter offices; disinfects offices; and supports customers’ efforts toward epidemic prevention.
According to ESMChina survey results, the extent to which electronics companies are affected by logistics and transportation is second only the resumption of work and the shortage of medical supplies for employees.
Daphne Tien said that except for orders in Hubei Province, shipments in other regions of the country are normal. Logistics in some regions will be affected to varying degrees. “Mouser will make corresponding adjustments in accordance with the latest logistics control issued by the country and local governments.” Logistics providers such as FedEx and DHL can be used to arrange delivery when the customer specifies.
For Digi-Key, all orders involving USD (US dollar) transactions are not impacted, because these goods will be arranged by customers for logistics transportation after arriving at the port, Tony Ng said. For orders involving RMB (renminbi) transactions, goods have to shipped from North America to Hong Kong. With the Shenzhen Customs and Shenzhen Logistics Company resuming work, Digi-Key’s goods can be sent to Shenzhen distribution centers, through Shenzhen Customs, and then to all parts of the country.
Upstream and downstream restrictions
In addition to their own problems, the delay from upstream and downstream electronics industry partners is stressing the electronics supply chain. According to the ESMChina survey, 97% of the companies said that their revenue in February will be affected to some extent.
In the early days of the outbreak, C&B Eureka Innovations Electronics delayed some resistor shipments. Although the amount involved was not large, it seriously affected the supply of epidemic protection materials. Baoping Yang suggested that some local governments should open a channel for upstream material companies that can certify the safety of urgently needed medical equipment and materials.
Challenges from downstream
Fenglei Bi, general manager of e-commerce platform iCEasy Technology Co., Ltd. said customers have felt the greatest impact from work delays. As of February 7, a large number of customers had not restarted.
The most immediate impact of customer delays is on receivables and inventory. These should have picked up after the holiday. However, the billing period of iCEasy for customers is often achieved through banks or financial companies. The company itself has no concerns about receivables, and its inventory is mostly general-purpose materials.
For well-stocked distributors (especially e-commerce), the impact from upstream OEMs is limited, but the decrease in downstream orders may have some impact.
Digi-Key’s Tony Ng said the distributor has 6-9 months of inventory in stock. He said existing inventory is sufficient to support the company’s normal demand, but shutdowns throughout the electronics industry could reduce demand.
Mouser also said its stock is sufficient for normal demand. Daphne Tien is optimistic that the following outbreak-related delays, pent up demand for electronics will spur growth.
A few components are scarce
The core components used in medical electronic products are divided into five categories: sensors, power management, signal conditioning circuits, and displays and processors.
The surge in demand for components from medical equipment/instruments has put some pressure on upstream suppliers, but most interviewees said that the shortage is limited.
As of February 14, the supply of temperature sensors, memory chips, PCBs, MCU microcontrollers and peripheral connection components was tight.
Cheney Don told ESMChina that demand has increased for precision op amps, LDOs and analog switches. There is no obvious shortage, but lead times may extend by 4-6 weeks
Digi-Key’s Tony Ng said in medical applications, whether it is sensors, passive devices or other semiconductor devices, needs can be met.
The epidemic has increased demand from the medical, testing, security, and R&D sectors. Mouser’s Daphne Tien said the distributor has a “medical” sub-site on Mouser.cn.
At present, components supplied to medical device manufacturers are mainly connectors, sensors and resistors. Brands include are TDK-epcos, TE Connectivity, Panasonic, Phoenix. Peter Tang believes that as the upstream factories resume work, delivery pressure will gradually ease, but delivery times will be delayed.
iCEasy’s Fenglei Bi said there is currently no large-scale component shortage. There are gaps in the short term, but how long the shortage can continue depends on the duration of the outbreak.
For more information, please follow the March issue of ESM China.
[Note: Arrow Electronics is the corporate parent of Aspencore Media. -ed.]