Pandemic aggravates semiconductors shortage in Southeast Asia

• Demand for semiconductors in Southeast Asia is increasing because of the pandemic
• Semiconductor shortage impacts multiple industries
• The pandemic is accelerating growth opportunities for the semiconductor industry in Southeast Asia

The surge of COVID-19 cases in Southeast Asia, a critical link in the semiconductor supply chain, has opened a new front in the battle to fix manufacturing woes that have rippled across industries during a global shortage of computing chips. The Southeast Asia region is one of the world’s top destinations for assembly and testing of the devices that control smartphones, car engines, medical equipment, and more. Disruptions in the region threaten to prolong the uncertainty over chip supply well into the next year.

Demand for semiconductors in Southeast Asia is increasing because of the pandemic

The chip shortage in Southeast Asia has been worsened by the pandemic. Digitalisation is accelerating during the pandemic due to the increase in remote working and schooling arrangements, remote monitoring of factories and manufacturing plants, and demand for smart devices and equipment. Furthermore, during the pandemic, consumers have moved towards online channels, and companies and industries have responded in turn. The monitoring of the virus has also increased the demands for CPUs and computers by governments and organisations.

The situation on the ground remains volatile. Factories have to pause production if there are workers infected by COVID-19. The Delta variant is also proving particularly infectious and difficult to contain. In August 2021, Toyota Motor suspended production at 14 plants because suppliers of semiconductors, particularly in Southeast Asia, have been hit by new COVID-19 infections and lockdowns. It is a domino effect whereby a worker infected by the virus leads to the suspension of production in the factory that manufactures semiconductors, thus aggravating the shortage of chips.

Semiconductor shortage impacts multiple industries

“The reasons that there are vaccines in less than one year is because of semiconductors,” said Ajit Manocha, president and CEO of SEMI, during SEMICON Southeast Asia 2021. Pharmaceutical companies will not be able to carry out genome sequencing of vaccines without semiconductors. Across multiple industries, semiconductor chips are replacing dated technologies, and managing machines faster, cheaper, and more efficiently. Advances in design have led to lighter and sleeker smart devices and equipment. The global chip shortage highlights the importance of semiconductor chips, and restoring and increasing their production is essential to modern living. “Semiconductors enable every new emerging technologies and even the green economy that we all need,” Manocha added.

Restoring the supply and demand balance will take time because semiconductor manufacturing is not suited to respond to rapid and large shifts in demand. As manufacturing has consolidated to a small collection of big chipmakers, predominantly in Asia, demand far exceeds the available supply. These manufacturers do not have the capacity to meet the increased demand in the time required. Over the past decade, the production of semiconductors and microelectronics has moved offshore for cost-reduction purposes, and supply chains have become more global. In 1990, 37% of chips were made in US factories. By 2020, that number had declined to just 12% with manufacturing now concentrated in Taiwan, South Korea and mainland China, according to Forbes.

The pandemic is accelerating growth opportunities for the semiconductor industry in Southeast Asia

While the threat of the pandemic persists globally, the opportunity that has been underway for the last five to six years for the semiconductor industry has accelerated. Emerging technologies have led to a long-term growth in artificial intelligence, 5G, 6G, autonomous machines and more.

Supply chain disruptions and price pressures could expect to begin easing early next year. But the disruptions to the semiconductor industry would most likely last longer, which in turn has a negative impact on automotive production. Carmaker Ford paused production of Fiesta models in its factory in Cologne, Germany, because of a shortage of semiconductors usually sourced from Malaysian factories, which had been hit hard by the pandemic. Hence, there are questions of firms permanently moving away from global supply chains in the future if the spread of the pandemic worsens. While the second quarter of 2021 marks the peak of disruption, it will take several quarters for the production of semiconductors to return to normal.