GEORGE TOWN: The electronics and electrical (E&E) industry players are bracing for an uncertain outlook, amid the acute global shortage of integrated circuits (ICs) or “chips”, which is expected to drag on into 2022.
The current chip shortage situation has been described by industry observers as one of the worst to hit the E&E industry.
According to PIE Industrial Bhd managing director Alvin Mui, the chip crisis is expected to last till the middle of next year.
“There are uncertainties right now as the lead time for critical ICs used in the consumer electronic goods and automobiles have hit 52 weeks compared with 26 weeks prior to the global shortage,” he pointed out.
PIE is an electronic manufacturing services (EMS) group involved in printed circuit board assembly products.
“Most EMS companies here with orders to fulfil by mid-2022 would have already placed their orders earlier.
“If they haven’t done so, it is unlikely they will get their supplies on time to start production,” Mui told StarBiz.
Given the situation, some ICs manufacturers have even refused to accept new orders from their customers.
“If they accept such orders, the lead time can be ridiculously long.
“The other best alternative is to source from stockists. However, the cost is going to be many times higher,” he explained.
On PIE’s operations, he said the group had placed its orders, and the raw materials are arriving in stages.
“Our customers will have to absorb the higher raw material costs.
“Whether the semiconductor industry will still experience robust growth in 2022, will depend on further disruption, if any, in the supply chain moving forward,” he added.
For semiconductor test equipment maker Pentamaster Corp Bhd, the lead time of critical chips used in test equipment and automation has now extended to 24 weeks compared with 10 weeks before the global shortage crisis.
Group chairman CB Chuah said: “This is the worst crisis to hit the E&E industry.
“Having the cash to pay upfront will help you to secure the timely delivery of raw materials.
“However, there is still looming uncertainty... what if there is an unexpected delay and the lead time will need to be extended?”
Chuah noted that Pentamaster group’s raw materials are expected to arrive in the first quarter of 2022.
Meanwhile, Globetronics Technology Bhd chief executive officer Datuk Heng Huck Lee said many manufacturers are still facing material shortages that have led to disruption in production across the entire E&E industry.
“We have adequate supply to cover our orders for the next six months,” he added.
Given the rising cost of chips, Chuah noted that the selling price of the group’s test equipment is between 7% and 15% higher.
Meanwhile, Globetronics Technology Bhd chief executive officer Datuk Heng Huck Lee said many manufacturers are still facing material shortages that have led to disruption in production across the entire E&E industry.
He envisaged that the current chip shortage crisis will continue into 2022 and set to normalise only by year-end.
Some analysts have projected an excess supply situation in 2023 due to the additional capacity that has kicked in, added Heng.
He also noted that Globetronics has sufficient raw materials to cover for its production in the next three months.
This is provided that there is no disruption in the supply chain or a sudden surge in demand.
“We are moving into uncharted terrain next year. The group is built to order with about four to eight weeks lead time.
MIER head of research Shankaran Nambiar said: “The forecast made by the report is highly unlikely due to the current acute shortage of chips.”r
“We also have to share the higher raw material cost with our customers,” Heng added.
Meanwhile, Malaysian Institute of Economic Research (MIER) projected that a more realistic growth for the local E&E exports would be around 2% to 2.4% in 2021 and also, close to 2% in 2022.
This is in comparison to the Finance Ministry’s Economic Outlook 2021 and 2022 report, which forecast a 3% increase in 2021 and a 2.4% rise in 2022, driven by the rollout of 5G infrastructure, demand for intelligent telecommunication products, and automatic data processing equipment.
MIER head of research Shankaran Nambiar said: “The forecast made by the report is highly unlikely due to the current acute shortage of chips.”
The Malaysia External Trade Development Corp reported that E&E exports currently made up about 36% of total exports compared with 40% last year.
Nambiar said the E&E product value averaged out over the January to October period to between RM34bil and RM35bil, with a monthly median growth of about 2%.
The figure fluctuated, reflecting the global chip shortage situation, added Nambiar.
He also pointed out that many E&E companies were expecting the chip shortage to impact their revenues by at least 10% in 2021.
“Based on the average monthly growth trends and the EMS feedback, we think a 2% to 2.4% growth for E&E export is a more realistic and achievable target in 2021,” he said.
Nambiar added that EMS companies have to wait 52 weeks for the ICs to reach them.
“The lead time was previously 26 weeks.
“Further disruption in the supply chain could overturn the global E&E industry in 2022.
“The Finance Ministry 2021 Economic Outlook report was released a year ago, and it didn’t take into consideration that the delivery time of ICs and other critical components had worsened since,” explained Nambiar.
If there is still no solution soon, the E&E export growth in 2022 could be closer to 2% rather than the 2.4% as projected.
In addition, both the raw material and logistic costs have risen sharply.
“The prices of electronic products have risen significantly by between 15% and 20% due to the shortage of raw materials, while logistic charges went up by 60% to 70%.
“The high logistic charges negates any positive impact the higher pricing of electronic products will have on the country’s export revenue,” Nambiar added.
According to the International Data Corp (IDC), the crisis will persist until the first half of 2022 before it normalises.
“IDC anticipates the excess chip manufacturing facilities that have kicked in to create an oversupply situation in 2023.
“An oversupply situation will lead to a plunge in the semiconductor prices and earnings of industry players,” he added.