Southeast Asia: Major Manufacturing Hub with Major Supply Chain Setbacks

Southeast Asian countries, also grouped together under the Association of Southeast Asian Nations (ASEAN), are combating another wave of COVID-19, while simultaneously facing catastrophic events wreaking havoc on their economies. The extreme weather conditions, which include severe flooding and typhoon season in the Pacific are among calamities ASEAN is facing that add to the mounting manufacturing delays.

Malaysia, Vietnam, Thailand, the Philippines, and Singapore are a few of the countries part of ASEAN that contribute to a large quantity of electronic component manufacturing.

Malaysia alone has major manufacturers like Infineon, AMD, NXP, Nexperia, Onsemi, Renesas, and ST Micro factories located there. In July, Malaysian authorities declared the electrical and electronics industry as essential services during the country’s COVID-19 lockdown, which allows 60% of the workforce to be onsite at factories. Some manufacturers, like ON Semi and AMD, have had to completely shut down factory production due to COVID-19 outbreaks at their facilities. Automotive and industrial chip production are a couple of the industries affected by these delays, which is leading to a scramble to strategically allocate labor to meet demand. The lockdown has recently been extended another six weeks or until the country can vaccinate 10% of its population.

The semiconductor industry is fairly new to Vietnam with its market share valued to grow by $6 billion between 2020-2024; however, the pandemic might be a hiccup in this growth period as factories shutdown and delays start to mount amid rising chip demand. The recent outbreak of COVID-19 in Vietnam has suspended operations at several factories located at its Saigon Hi-Tech Park. Intel and Samsung both have factories located there and have had to reduce operations. Intel has delayed production on its next generation CPU due to manufacturing obstacles and Samsung component prices have increased and lead times are being extended. The COVID-19 lockdown in Ho Chi Minh City is also adding to drastic lead time increases for ON Semi, which is seeing expected delivery dates extending into 2022. ON Semi sent a letter to customers in Q3 notifying them of delays at manufacturing sites in Vietnam and Thailand.

NXP, Macronix, Intel and Samsung also have factories in Thailand and are navigating the country’s government-imposed restrictions amid its COVID-19 outbreak. The continued infections at factories have led to reduced workforce capacity and complete shutdowns in some cases—further straining manufacturing operations. Thailand’s export business relies heavily on the country’s electronics and electrical (E&E) industry, which semiconductor manufacturing falls under. Southeast Asian exporters estimate a $9 billion decrease in exports if disruption continues from August through December. The E&E industry accounted for 24% of Thailand’s exports in 2019.

Semiconductor manufacturing makes up roughly 73% of the Philippine Electronics Industry, which combined with the electronics sector is valued at $17.99 billion. The industry holds a large fraction of the country’s economic growth through exports, manufacturing, assembly and packaging of electronic components. For instance, 19% of the Philippine’s exports go to Hong Kong, while 13% goes to the US with China, Singapore and Japan also in the top five export destinations. The Philippines is located in the “Pacific Ring of Fire,” which makes it susceptible to earthquakes and most recently, back-and-forth evacuations due to the danger of the Taal volcano emission and potential eruption danger. Monsoon rains flooding some areas of the Philippines, the pandemic, and the vulnerability due to the seismic activity in the area are among the factors affecting manufacturing and trade in the country. In April, the Philippine port in Manila yielded a trade deficit of $2.73 billion, which marked it as the 10th consecutive month the gap exceeded $2 billion. Additionally, the recent surge of COVID-19 is prompting government restrictions, impacting Murata and Samsung manufacturing factories that primarily produce MLCCs. The imminent factory shutdowns and reduced workforce capacity will add to the increased likelihood of the looming MLCC shortage amid the heightened demand for smartphones, electric vehicles and growth in 5G production.

Within this common theme of economic growth the semiconductor industry is contributing to ASEAN countries, Singapore has built its “10-Year Plan” around its manufacturing market share. The plan aims to strengthen the manufacturing sector, which contributes to the 21.7% growth in electronic output that the country has already seen this year. In 2018, the country held 11% of the global market for chip production, with Micron, Texas Instruments, GlobalFoundries and Infineon among the companies invested in chip plants there. Singapore’s trade position attracts manufacturers since it dominates the port and refining facility sector, which is valued at $30 billion. While natural disasters are the primary threat to the supply chain for other ASEAN countries at the moment, the greatest challenges Singapore faces are COVID-19 government restrictions and competition from other demographics vying for semiconductor sovereignty.

Is the Supply Chain Going to Recover Anytime Soon?

Companies that rely on components continue to struggle to keep up with demand of parts needed for consumer electronics, vehicles, 5G network equipment, and the like. Analysts are already anticipating chip shortages to persist through 2023 based on pricing, lead times and production delays in previous quarters — but the question stands, what are the main obstacles prolonging the delay of a market recovery?

Holistically, the global supply chain is volatile, but a large contributing factor to electronic component manufacturing strain pertains to the lack of global diversity in the locations of semiconductor production facilities. Asia holds roughly 75% of the semiconductor manufacturing market share, which is motivating the EU and US strategy to ramp up plans to reallocate production over the next few years across different regions. Building factories and getting them fully staffed and running doesn’t happen overnight, which means that manufacturers are making do with current operating chip fabs (mainly located in Asia) to navigate the unpredictability of the global supply chain.

Disruption on a Global Scale

ASEAN is not the only demographic affected by COVID-19 and the extreme weather incidents, which will likely affect expected semiconductor shortages.

Eastern China is experiencing major flooding and affects from typhoons that have led to airport and trading port closures. The Yangshan port, which is offshore to the south of Shanghai and part of the world’s largest cluster of container terminals, evacuated hundreds of vessels in response to typhoon In-Fa’s impact in the region. The stoppages at major ports will affect all vessel movement and warehouse deliveries until operations are able to resume and will likely increase shipping and commodity pricing. The Yantian port closure in Q2 due to a COVID-19 outbreak has already impacted prices and the backlog of shipments—added obstacles are sure to tack onto the increases.

The North Asian country of Taiwan holds 53% of the global semiconductor market on its own, with major manufacturers TSMC, UMC and Samsung factories located there. The island is experiencing its worst drought in 50 years, which has left some factories at a standstill even with reallocation efforts in place. However, even with the drought and outbreak of COVID-19, Taiwan is still seeing economic gains amid the demand for semiconductors and electronic components, which was at an all-time high in May and June. Although the high demand is positive, manufacturers like Macronix are struggling to keep up. Macronix temporarily closed one of its Taiwan factories due to COVID-19, which delayed all June and July shipments. Lead times increased to 18-24 weeks and Q3 prices are expected to increase by 18-40% on Macronix ICs.

Western Europe is seeing similar devastation and supply chain disruption caused by heavy rainfall and flooding. The significant flooding in Germany, Belgium, Switzerland, Luxembourg and the Netherlands also affect trade across the board for a variety of goods as the countries attempt to recover from the extensive damage. The destruction to parts of the railway system will delay cargo movement and affect trade in a variety of sectors, including the automotive industry. Automakers are already experiencing severe supply strain amid the global semiconductor shortage.

The widespread scale of the global supply chain woes indicates an unpredictable end in sight for the pain points semiconductor manufacturers are currently experiencing. As companies and manufacturers look ahead to 2022, the market behavior and events that have disrupted the supply chain in recent months indicate a rocky road ahead.


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