China's lockdowns have once again thrown the global supply chain into chaos. Although Taiwan-based IC design houses are less reliant on the Chinese market and production has been largely unaffected, they worry about how the logistics problems could impact demand and customer stock ups.
Based on the current situation, regardless of when the lockdowns end, they are guaranteed to impact business operations in second-quarter 2022, either with short-term order delays or long-term demand decline.
The lockdown in Kunshan, an important production hub for Taiwanese companies, has been extended to April 19. Shanghai is aiming to lift its lockdown on April 18. Based on the current COVID-19 situation in China, unless the Chinese government abandons its zero-COVID strategy or unilaterally declares zero-COVID, it will be difficult to lift the lockdowns at the planned time. Guangzhou, an important city in southern China, has also begun a lockdown, which is likely to bring on a new wave of operating risks for supply chains.
Supply chain companies pointed out that the impact on logistics is the biggest risk from the lockdowns. In terms of land transportation, crossing over province and city lines requires trucks to go through heavy red tape, substantially increasing logistics costs and causing Chinese logistics companies to reduce long-distance logistics demand on a large scale. Regarding sea transport, a build-up of cargo ships has once again emerged offshore of the Yangtze River Delta. This is causing materials and finished products to be stuck aboard ships for a long period of time, which is not what IC design houses want to see.
IC design houses said since the second half of 2021, the distribution of end products has been disrupted. As a result, customers cannot get a clear sense of actual end demand, which then reduces the IC pull-in momentum. China's logistics shutdown is highly likely to exacerbate this problem.
Even if the lockdowns in Kunshan and Shanghai are lifted on schedule, logistics will not return to normal overnight. In terms of land transportation, the fight between electronic products and staple goods for logistics resources will create some degree of chaos. As for shipping, 2021 showed that port congestion takes time to alleviate.
If the lockdowns were only short-term, all the negative effects could be absorbed within the second quarter at the earliest. However, long-term lockdowns and prolonged suspension of economic activities have a larger impact on the consumer electronics market the longer it goes on. It could also erode demand in the peak season of the second half of the year.
Faced with policies that could result in citywide lockdowns at any time, end customers and assembly factories are more inclined to maintain high inventory levels. It remains to be seen whether this means after lockdowns are lifted, in addition to deferred revenue due to logistics issues, IC design houses will see a new wave of retaliatory pull-in orders.
Those in the IC design industry say the current economic base is different from 2021. Figuring out which is higher and which is lower between actual end demand and customer inventory levels has become more difficult to assess than before. The uneven materials supply and logistics situation are both factors in this. Based on different IC products and end applications, the impacts vary based on the company. Overall, the length of the lockdowns this time around is certain to impact orders in the second half of the year.
