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COVID-19 and its effect on the electronics manufacturing industry

Posted: 25th February 2021

COVID-19 and its effect on the electronics manufacturing industryDuring the COVID-19 pandemic every country in the world entered some form of lockdown and this has had a considerable impact on the world’s manufacturing industry. Initially, factories were forced to close or to operate on vastly reduce staffing levels, which left them at a fraction of normal output. At the same time, industries including hospitality, retail and travel have been affected due to the significant drop in consumer spending across the world.

Now things are slowly picking up again…some markets could be said to be booming. Unsurprisingly, consumer electronics such as headsets, gaming PCs, and video conference systems are seeing a massive surge in demand. This is contributing to a world shortage of integrated circuits, or as it has also been referred to in the press, chipageddon!

Unfortunately not all industries will pick up to the levels they were at pre-COVID. Many companies in the electronics industry find that they don’t have the cash resources to support products with less obvious or immediate profits. On the other hand, many manufacturers have taken the opportunity to streamline their product lines. The support for older products or less profitable product ranges has been withdrawn. This has had a knock-on effect down through the supply chains. Furthermore, components which were near the end of their profit curve are no longer being supported. Slowly, equipment which was fully depreciated already and saw little use, is now seeing no use. In addition, floor space is better used for new investments.

Lack of travel means business relationships with suppliers are harder to manage. Video conferencing systems are used to continue with formal processes such as audits, meetings and reviews, however the informal discussions that happened over dinner are missing. Similarly, observations that used to be gained from walking through a supplier’s factory and witnessing the investments are lacking. Also, speculative visits made to investigate alternative supply chains and gain market knowledge have stopped.

As the demand increases, especially in the Asian markets, this puts pressure on the factories to produce more parts. Consequently, this impacts order levels as they reach maximum capacity, therefore lead times are extended and pricing increases. In addition, the capacity on air and sea freight is still limited and gets more and more expensive. This causes even longer lead times and higher costs. Moreover, factories concentrate their resources on a smaller range of products which may force customers to use other products which are still produced. This causes even more demand for the existing parts and equipment investments are made to address this. However, lead times on manufacturing equipment are always long and the market uncertainty means confidence in this investment is needed.

In the end how does this affect customers? It means there are significantly more end of life (EOL) notifications than one might expect. This also means that some of these are occurring with less notice than expected.

IQD has been affected by this, but no more, and no less than any other manufacturer. The company is managing this by increasing the warehouse capacity to double the value of previous years. Furthermore, regular meetings with suppliers are maintained and contractual arrangements are being put in place to minimize disruption to customers. IQD has always had a wide range of products and will continue with this.

Where there are EOL notices or exceptionally long lead times IQD are well placed to discuss alternative products. With IQD’s exceptional level of expertise the Sales and Engineering teams can help with market insights, selecting the best components for customers’ designs within budget, lead time and scale. IQD can also perform testing to give confidence in new product selection. In addition, the company can offer warehousing options such as buffer stock arrangements and discuss payment terms to suit business needs. IQD has been supporting customers with their design needs for 48 years now, and will continue to support customers well beyond these current market conditions.