"Pandemic" is a challenge, but also an opportunity

Looking back at the two decades from 2001 to 2020, global semiconductors have experienced four major shocks: the first is the Internet bubble in 2001, which caused global semiconductor sales to drop by 32% year-on-year; the second is the financial subprime crisis in 2009, global semiconductors Sales fell by 9%; the third is the double impact of the "cyclical adjustment of the semiconductor industry and the deterioration of the memory market" in 2019, and semiconductor sales fell by 12%-15%; and the fourth is the new crown epidemic in 2020.

In 2020, the semiconductor industry was expected to use the "inventory adjustment period" to reverse the decline in 2019, but unexpectedly encountered the "black swan" event of the new crown epidemic, which completely disrupted the operation order of the electronics industry supply chain. Chain" dilemma.

"The biggest crisis of the epidemic lies in its unpredictability. With the second round of the epidemic in the second half of 2020, some European countries have begun to order the country to close the country, which makes the export prospects of other countries full of uncertainty." Avnet Asia Said Lin Jinsheng, senior director of regional supplier management.

PEI-Genesis (Beijie Connector) Asia General Manager Xu Menglan believes that the new crown epidemic has intensified the imbalance between supply and demand of components as the biggest challenge. During the epidemic, delayed deliveries of European and American original factories frequently occurred, and a large inventory of spot parts became a strong support to effectively make up for the shortcomings of the original factories. At the same time, Xu Menglan also believes that the economic decoupling between China and the United States has increased the possibility of restructuring the global supply chain. He judged that China's domestic industrial demand will accelerate the pace of increasing the proportion of localized parts.

"The impact of the new crown epidemic will continue into 2021!" Zhu Weidi, business president of eLuomeng Asia Pacific, witnessed the crisis brought by the epidemic to the industry. First, the traffic blockade and factory closures caused a severe setback for the manufacturing industry. Part of the period during the initial outbreak of the epidemic Factories that can produce as usual have also stopped work because they cannot obtain parts, or cannot ship finished products; second, the industrial chain is facing greater challenges from logistics and warehousing management.

When there is "danger", there is "opportunity". Tony Ng, vice president of business development for Digi-Key Asia Pacific, believes that the crisis comes from the disruption of the electronic supply and demand rhythm by the epidemic, while the opportunities come from the surge in demand for medical equipment and equipment, the continuous growth of digital consumer products (i.e. mobile apps), and the necessary corporate needs. Growth in investment demand.

Choon Byun, president of Smith's Asia-Pacific region, is also deeply moved. He said that in the early stage of the outbreak of the new crown in 2020, many distributors faced logistics challenges due to the implementation of the "work from home" strategy, but the business of international distributors including Smith in the Asia-Pacific region Still benefited from the increased demand for 5G, EV, ultra-large-scale data centers, and artificial intelligence to maintain strong momentum.

It goes without saying that the 2020 new crown epidemic has made the component distribution industry that has been ravaged by the trade war "exacerbated". In particular, European countries such as the United Kingdom and France have initiated two rounds of national and city closure measures, and market demand has once again frozen. In contrast, China's economic recovery has been faster than expected after the epidemic has been effectively controlled. According to data from the National Bureau of Statistics of China, except for February, China has had a PMI index of over 50 for 10 consecutive months, which shows that China's economy is developing in the direction of steady growth.

As a representative of China’s local component distributors, Cui Rongguo, CEO of Huaqiang Semiconductor Group, said that the overall business is growing this year. Although Sino-US trade has a certain degree of negative impact on a small number of original factories, the supply is tight, but from the whole year It can be seen that the direct impact of the epidemic is not very significant. This is mainly due to the active prevention and control of the epidemic by the Chinese government from the beginning, and the rapid recovery of the manufacturing industry after a short-term decline. Huaqiang is less affected because of the even distribution of agency lines and excellent business resources. Except for a few original factories, most of the brands in Japan and China (including Taiwan) performed well.

China and the United States are growing, and China’s “new infrastructure” has become a global focus

At present, China and the United States are the world’s two largest semiconductor markets. From the perspective of their contribution to the global semiconductor market, China accounts for about 33% and the United States for about 20%. In 2020, the United States will be more affected by the new crown epidemic. Its duration, number of infections and deaths are all ranked first in the world. However, compared with the negative growth in Europe and Japan and the low growth in mainland China, US semiconductors have remained unchanged since March With a high growth rate of more than 20%, the performance is very eye-catching.

On the whole, firstly, due to the lower revenue in the U.S. market in 2019, the comparison base in 2020 will be lower. Secondly, due to the strong drive of the digital transformation of the society brought about by the new crown epidemic on the data center, high-performance computing and other markets, U.S. semiconductors Has always had a higher right to speak in this field.

In contrast, the growth of China's semiconductor market has mainly benefited from the effective control of the epidemic and the rapid recovery of demand. Therefore, China has become one of the most important markets for international semiconductor manufacturers. According to the analysis of Zhu Jing, deputy secretary general of the Beijing Semiconductor Industry Association, in 2020, despite the adverse effects of the new crown epidemic and export controls, China's semiconductor industry will still maintain a relatively high growth rate. The annual revenue is expected to exceed 800 billion yuan, a growth rate. Nearly 20%, imports are expected to exceed US$300 billion.

The development of the Chinese market in 2021 is still strong. According to data from the Research Department of CITIC Securities, 2021 is the first year for China to implement the "14th Five-Year Plan" and the "2035" long-term plan. China will take the initiative to meet new challenges and continue to deepen supply-side structural reforms to build a Based on "new infrastructure", with a new pattern of "internal circulation as the leading factor and dual economic cycles of internal and external economics".

From the perspective of distribution leaders, China’s proposal of “new infrastructure” is a feedback to the current world pattern. “New infrastructure” will promote the domestic use of digital economy to empower “internal circulation” and “double circulation”, which will undoubtedly give the world a boost. Semiconductors bring a new round of opportunities.

E Luomeng Zhu Weidi said frankly that the demand for electronic components and chips in the seven key areas supported by the "new infrastructure" will grow rapidly, which is an important business opportunity and growth point.

The core concept of "new infrastructure" is technological innovation, including applications such as 5G networks and 5G mobile phones, industrial automation, robotics, the Internet of Things, intelligent Internet of Things, and new energy vehicles, which will bring huge business opportunities. Avnet Lin Jinsheng believes that under the influence of the new crown epidemic and the international political and economic environment, "new infrastructure" will become a key measure to effectively stimulate domestic demand.

Souceability Asia Pacific Executive General Manager Kevin Wang believes that "new infrastructure" will bring accelerated upgrades to the underlying construction of technology and data, such as the digitization of the supply chain, the digitization of collaborative manufacturing, and the improvement of demand immediate response capabilities.

In Tony Ng's view, the desire for growth and the drive of economies of scale may cause many Chinese manufacturers to divert their attention from finding new markets. Throughout 2020 (and 2019), all Chinese manufacturers are forced to re-plan their domestic market operations. Digi-Key expects that supply and demand will continue to evolve: from products, to manufacturing agility, to material procurement. The wider range of product selection and service localization of international distributors are still the key to assessing their continued success.

As an organic part of the manufacturing sector, component distribution is facing new challenges while meeting the opportunity of "new infrastructure". This is mainly reflected in the traditional distribution companies that rely solely on sales and technical support and after-sales service as their main models will gradually Lose competitiveness. The smart industry driven by the “new infrastructure” and the “inner loop” aimed at driving consumption will make downstream applications more fragmented. Such new industry changes have put forward higher requirements for distribution companies in terms of agency product portfolio, service types and service quality.

Huaqiang Cui Rongguo believes that distributors in the "new infrastructure" era should continue to strengthen the team’s knowledge acquisition and service awareness based on the traditional distribution model, and in particular should establish a professional application development and support team with applications as the core, and become passive. Customer technical support is provided for proactive solutions, establishing deeper technical and product cooperation with customers.

According to relevant reports, the state’s total investment in various “new infrastructure” projects will reach 34 trillion yuan, of which 50% will be generated in the next five years. How to seize the opportunity?

Lin Jinsheng put forward several directions: First, strengthen training for sales staff, improve the quality and level of service to customers, and at the same time expand the sales team to meet the ever-increasing demand for customer service. In addition, expand the FAE/product engineer team to support customers in developing innovative projects, especially the seven key areas of new infrastructure. Take Avnet as an example. In addition to the three aspects of AI, 5G, and Industrial Internet, its new infrastructure deployment has begun to deploy high-speed rail, power grids and other fields very early to accurately understand the actual needs of customers and participate in customer business throughout the design and supply chain. Help customers solve supply chain problems.

Xu Menglan also said that Beijie felt that under the "new infrastructure" policy, the entire China's R&D investment was continuously increasing, and Chinese-funded and local enterprises were moving upstream in the industry chain as a supply oriented to provide high value-added products. When formulating industrial strategies, Baijie must consider the needs of customers and projects on the one hand. On the other hand, Baijie and the original factory will also lead the market and promote industrial upgrading through mature solutions.

"In response to the rapidly growing Internet of Things and new energy applications, we have expanded our core device product categories on the one hand, and established our own AIoT and new energy laboratories on the other hand to provide more in-depth technical services for the original factory, and In the development of various industrial, medical, consumer and other products, many customers provide solutions, and at the same time, they will actively seek investment and strategic cooperation opportunities in the ecological upstream and downstream, and participate in the construction of new infrastructure to the greatest extent." Cui Rongguo said.

Due to the impact of the new global situation and the continuous promotion of domestic economic development, there is an increasing need to accelerate the layout of "new infrastructure". Tian Jiping, vice president of market and business development for Mouser Asia Pacific, said that in the process of implementing the "new infrastructure", more types of electronic components are needed, and higher requirements for the technical connotation and quality stability of the devices are also required. More design thinking that is synchronized with the world is needed. This is a challenge for most distributors, but it is an opportunity for distributors who are ready.

Whether distributors can seize the opportunity depends on whether they have a wide and stable source of original goods, and whether their own technical service capabilities can help original manufacturers promote new technologies and products, find more new customers, and assist customers in accelerating research and development. Design, help its projects and products come to an early stage.

Challenges still exist, face up to "margin crunch" and "stock-out tide"

Component distributors face different challenges in 2019 and 2020. In 2019, in order to obtain better profit performance, semiconductor OEMs often obtain new technologies or complementary advantages through mergers and acquisitions, and promote the further development of business in scale or breadth. However, the direct sales of original factories or streamlining of agents brought about by mergers and acquisitions greatly squeeze The survival space of distributors.

Zhu Weidi said that direct sales of the original factory are mainly for large customers and its strength lies in R&D and production. Many customers are small in the early stage and need to be nurtured. The original factory cannot provide a full range of services in time. This means that small-volume distributors can compete with the original A place where factories complement each other. He suggested that distributors must change the pure component trading model, focus on improving value-added service capabilities, including design services, technical information, component assembly, supply chain management services, etc., and strive to transform into "technology providers."

When distributors focus too narrowly on a single product or a single market, it is difficult to achieve sustainable growth, except in areas that require strong professional/technical knowledge. Tony Ng believes that in the distribution industry, mergers and acquisitions by component manufacturers will continue, and "customer arrival rate, service continuity and risk exposure management" are key areas that distributors cannot ignore.

According to Smith Choon Byun, stability is a key factor to consider when choosing a distribution partner. He believes that distributors need to have a proven track record in dealing with market fluctuations and various geopolitical climates.

Compared with the challenges of original M&A and direct sales in 2019, the challenges faced by distributors in 2020 come from the lack of stock and price increases caused by the imbalance between supply and demand. The 2020 epidemic has spawned a surge in demand for the "home economy", and the "butterfly effect" caused by related power management ICs, panel driver ICs, and discrete components grabbing 8-inch wafer production capacity has continued to chips, foundries, packaging and testing, and distribution. In the link, coupled with the United States' sanctions on China's related Foundry factories, the production capacity of 8-inch wafers has been further intensified. The industry expects that this round of shortages will continue to Q1 and Q2 in 2021.

From the perspective of foundry and raw materials, Foundry factories such as Samsung, Lianhua, GF and World Advanced have increased their prices by about 10%-15% in Q4 of 2020, and the increase is expected to be at least 20% in 2021. At the same time, raw materials such as copper clad laminates, silicon wafers, and ITO targets are also showing a price increase trend.

From the perspective of packaging and testing, many packaging and testing plants have increased the price of wire frame bonding and packaging in October 2020 due to insufficient production capacity, and the price of urgent orders and the new unitary law has increased by 10%. After November, the ball planting and packaging capacity will be full. Full, coupled with the price increase of IC carrier board due to lack of stock, the price of new orders has increased by about 20%, and the price of urgent orders has increased by more than 20-30%. On November 20, 2020, ASE Semiconductor announced that it will increase the average order price of Q1 packaging and testing in 2021 by 5-10% to cope with the rising cost of IC substrate prices and the strong demand from customers.

From the chip side, starting from November 26, 2020, NXP, Renesas, Taiwan's five major MCU manufacturers, and domestic MCU manufacturer Hangshun have successively issued price increase notices. The reason for the increase in the price of analog IC is the increase in cost, such as the increase in raw material and packaging costs, the increase in inventory costs, and the increased risk of product transportation. The reason for the increase in MCU price comes from two aspects. One is that the foundry is full of capacity and it is difficult to make new orders. The release of production capacity, the second is that the strike of ST's European fabs affected production capacity output.

In fact, in addition to demand and cost factors, there are two reasons for the out-of-stock price increase in 2020. The first is that the new crown epidemic has caused the phased shutdown or delayed expansion of some production lines in Europe, Japan, and Southeast Asia. The supply and expansion of global semiconductor production capacity are restricted; secondly, Huawei’s sanctions have caused chaos in the global semiconductor supply chain. Therefore, downstream safety stock levels have generally been raised. The phenomenon of "excess orders" is more obvious, resulting in periodic product shortages and The delivery time is extended.

Regarding this wave of shortages, distribution leaders believe that fluctuations in component prices caused by imbalances in supply and demand are the norm for industry development, and that the shortage of goods caused by the epidemic disrupting the order of the supply chain will have a strong "stamina". It is expected that some products will be at the end of Q1 in 2021. In order to initially alleviate the shortage of supply, the shortage of some components will even continue to Q2 in 2021, and the tightness of 8-inch wafers may be more long-term. In response to strategies, on the one hand, we must accurately predict customer needs and place orders with suppliers as early as possible. On the other hand, we must adopt "multi-supplier" and "alternative" strategies to prepare for emergencies. At the same time, distributors should take the opportunity to increase the depth and breadth of their services and look for new opportunities in the crisis.

Forecasts and outlook: still in 2021