COVID-19 has obviously disrupted just about everyone and everything on the planet. It has certainly impacted the semiconductor supply chain, in multiple ways. Supply of components has been interrupted by forced work stoppages at various points along the complex sprawl of foundries, assembly & test facilities, and transportation companies. All things considered, this multifaceted global supply chain has held up reasonably well.
More damaging than supply disruption is demand disruption. Just as we were seeing the easing of a multi-quarter cyclical decline, driven by escalating trade and tariff conflicts, and a subsequent inventory correction, we entered 2020 assuming the recent cycle had bottomed out, with signs pointing to renewed growth throughout the year. COVID-19 quickly altered that landscape, and once again all forecasts and prognoses were abandoned.
Inevitable impacts on demand have emerged. The automotive industry effectively shut down, except for electric vehicles and related infrastructure. Consumer electronics has taken a hit, with the swelling unemployment, shutdown of retail shops, and the disruption of the China supply chain. With travel of all forms grinding to a halt, along with the concurrent oil trade battle, demand for industrial electronics to support the oil and gas industry has evaporated.
Near term, demand for certain other components has been very strong as companies raced to fill gaps in their supply chain and to build safety stock in anticipation of interruptions. The work-from-home mandates have increased demand for laptop computers, displays, and webcams. The network equipment & data center market has remained robust for the same reason. Parts for online gaming enthusiasts, like nVidia processors for the coveted Nintendo Switch, have also been strong. Aerospace and defense programs have shown negligible impacts from the virus.
Demand also rapidly increased for components needed for medical equipment, such as ventilators, as suppliers attempted to quickly ramp up production to meet anticipated hospital shortages. This froth in demand, combined with supply disruptions, can be particularly hazardous for markets like medical devices because by nature, the long-life cycles and extensive regulatory approvals make this industry especially susceptible to product obsolescence challenges.
Semiconductor component life cycles are driven by consumer products which turn over every 18 months or so, while medical equipment is expected to remain viable for 10 years or more, and even minor design changes can require time-consuming and costly qualification and certification efforts. Because medical device production volumes are low relative to consumer devices, they have little leverage to keep a component in production for the duration of the medical equipment lifecycle.
This resultant discontinuity of supply and demand often forces medical equipment makers to purchase hard to find end-of-life products from dubious sources. The grey market is fraught with risks, as parts may be misrepresented in their performance, quality, reliability, manufacturing source, or even their functionality. The size of the counterfeit semiconductor market, which includes parts that are reused, misrepresented, or outright fake, is estimated to exceed $75B. Reliability-risky parts are one thing when going into a consumer appliance, but quite another in a safety-critical medical device. Medical equipment companies must make extreme efforts to ensure their components are authentic. The surest method to do this is to buy only from authorized sources.
Flip Electronics is redefining component distribution with a data-driven approach to ensure the authorized supply of EOL and obsolete semiconductor devices secured directly from the manufacturers.