Chip makers predict second half bounce

April 28, 2020 //By Nick Flaherty
Covid-19 bounce
The first quarter results from chip makers are showing a dip as a result of the Covid-19 lockdowns around the world but are confident demand will be back in the second half of the year.

ST Microelectronics, Texas Instruments and Teledyne all see a bounce for the end of the year despite lower sales in the first quarter. Part of the supply chain challenge has been the shutdown and limited capacity at test and assembly plants in Malaysia and the Philippines as all fabs have remained open.

“During March we started to see slowdown in automotive particularly in legacy automotive in European and the US but we are now starting to see some recovery in China,” said Jen Marc Chery, chief executive of ST. “Demand is still solid. In Q2 we anticipate all manufacturing sites will be operational but with reduced capacity and we expect Q2 to be the most challenging quarter.” 

Part of this was also down to logistics. “We experienced many flights grounded and many borders closed, and in the very last of days of the quarter this hit our sales by 20 to $25m, with $40m lost in manufacturing in the very last days,” said Marco Monti, president of the automotive and discrete group and General Manager Automotive Product Group.

“We are starting to find alternative ways to support our companies, so we will see $80m to $100m from loss of manufacturing and logistics in Q2,” he said. The company also lost a few days of production at assembly plants in Malaysia and the Philippines. It has also cut back on its capital expenditure, partly as the lockdown has meant building at the facility at Agrate in Italy has been put on hold.  

Texas Instruments is also quietly confident despite the fall in the automotive market.

“Our lead times remain short and unchanged and that we could respond to short term demand. This is because we invested in inventory, have robust business continuity plan and invested in geographically diverse internal manufacturing footprint,” said Rich Templeton, chief executive of TI. “Our manufacturing teams are operating throughout the world, including countries like Malaysia and the Philippines, where local restrictions have resulted in partial operations.”

He points to the 2008 financial crisis as a parallel. “if you look back to 2008 and specifically to September 2008, all new orders turned off overnight. This led to a 26 percent sequential drop of revenue in the fourth quarter of 2008, an additional 16 per cent sequential decline in the first quarter of 2009 and then a rapid snapback for the next six quarters.”

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