Global Semi Crunch Could Once Again Worsen, As Delta Variant Ravages Key Production Outpost In Malaysia

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by Tyler Durden
Tuesday, Aug 24, 2021 - 10:25 PM

The rise in the Delta variant of Covid-19 in Asia is starting to gum up the works of what was thought to be the potential road to recovery for the global semicondcutor shortage.

Now, it looks as though Malaysia is once again becoming a bottleneck. 

Malaysia is home to names like Infineon Technologies AG, NXP Semiconductors NV and STMicroelectronics NV, who all have operating plants in the country. With Covid infections soaring locally, plans for lifting lockdowns and re-opening production look as though they could fall by the wayside, according to Bloomberg.

Daily infections are up to 20,000 per day, up from just 5,000 per day in late June. 

Just last week, Ford cited “a semiconductor-related part shortage as a result of the Covid-19 pandemic in Malaysia" as a reason for temporarily suspending production at one U.S. plant. 

Malaysian companies were allowed to operate at 60% of capacity during June lockdowns and they will be able to move to 100% capacity when more than 80% of their workforce is vaccinated, the report says.

Despite this, factories have shuttered for weeks at a time for sanitation guidelines and the Delta variant is proving "difficult to stop". 

Samuel Tan, a semiconductor analyst with Kenanga Investment Bank, told Bloomberg: “This could be very disruptive for Infineon and other companies that have plants of a few thousand workers.”

Lead times for chips increased by more than eight days to 20.2 weeks in July, from June. It is the longest wait time since Susquehanna Financial Group began tracking the data. 

Wong Siew Hai, president of the Malaysia Semiconductor Industry Association, commented: “Malaysia is a key player in the global semiconductor trade. Thus, any disruption anywhere along the supply chain will have knock-on effects elsewhere in the ecosystem.”

Rabobank also put out a note on Tuesday of this week expressing concern regarding Malaysia: 

Recent (partial) port closings in China and the spread of Covid in many parts of Southeast Asia suggests we haven’t seen the end to supply disruptions. Indeed, mismatches may well be expected to increase in upcoming months. Taiwan and South Korea have recently been singled out as the main countries to watch when it comes to global chip shortages, but Malaysia should not be overlooked, as Bloomberg reports. The country has advanced its position as a major chip testing and packaging sector in recent years, but may – as a result – turn out to be another weak part in the chain given the rampant pace of delta, which has forced companies to cut back operations in the country.

Recall, in a note we put out just days ago, we made light of the fact that IHS predicted 2.1 million auto units could wind up being lost in the third quarter of 2021 alone due to continued semi shortages. 

There is still little in the way of normalization to be optimistic about until the second quarter of 2022, IHS estimated. 

An IHS report stated: “The situation is still fraught with challenges. We are also seeing additional volatility due to Covid-19 lockdown measures in Malaysia where many back-end chip packaging and testing operations are performed.”

Toyota Purchasing Group Chief Officer Kazunari Kumakura said this week: “Especially in Southeast Asia, the spread of Covid and lockdowns are impacting our local suppliers.”