Broadcom Sounds Alarm on Unforeseen Tech Industry Disruptions

Debby Wu and Ian King (Bloomberg) -- Broadcom Inc. warned customers they’ll need to place orders for parts at least six months ahead of time, a surprisingly long lead time that points to wider than anticipated disruptions to the tech industry’s global supply chain.

Lockdowns in Malaysia, Thailand, Singapore and the Philippines are “closing or severely restricting business operations,” according to a letter to customers from Nilesh Mistry, Broadcom’s vice president of sales, dated April 13 and seen by Bloomberg News. He urged clients to put in their orders at least 26 weeks ahead of delivery -- meaning anything ordered now will get shipped right around the crucial holiday season. The typical lead time for deliveries is about two to three months.

The missive from Broadcom -- which makes crucial components for Apple Inc.’s iPhone -- drives home concerns that Covid-19 is disrupting the tech supply chain well beyond China, where the novel coronavirus first emerged to impact global production lines. While China’s recovering its footing, lockdowns and quarantine orders in crucial regions such as Southeast Asia are exerting a still-unknown impact on the supply of everything from Nintendo Switches to smartphones.

“Air and sea transport options have become unreliable and become more expensive and have increased delays,” Mistry wrote. His letter to customers didn’t specify which products are experiencing delayed shipments and what Broadcom’s normal lead time is between orders and delivery. “We hope that as the global community finds better methods to address the Covid-19 pandemic, the conditions will abate and we will be able to resume our normal operations.”

Related:The Pandemic Tests the Limits of Internet Infrastructure Supply Chains

The San Jose, California-based company declined to comment.

Terry Gou, whose Hon Hai Precision Industry Co. makes many of the world’s most recognizable consumer electronics including the iPhone, said in March China’s production restart had proven faster than expected. But he was worried that disruptions outside of China could become an issue as the coronavirus spreads globally.

Broadcom is part of the same supply chain that most of the world’s chipmakers use to outsource production, testing and packaging of their products. It’s a critical link for products from mobile phones to data-center hardware. Any delays in the delivery of its semiconductors could spread throughout that supply network, potentially leading to missed launches of some of the world’s most high-profile and widely used electronic devices.

Intel Corp. and Texas Instruments Inc. will report earnings next week, when they’re certain to face questions from investors about their ability to keep their factories running and fill customer orders. Products from companies such as Qualcomm Inc., Nvidia Corp. and Advanced Micro Devices Inc. are built mostly by Taiwan Semiconductor Manufacturing Co., then tested and packaged by other companies in China and Southeast Asia. Some companies perform elements of the process in-house, and a shrinking group are capable of doing all the steps themselves.

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Wireless customers include Apple and Samsung Electronics Co., which use Broadcom chips to add Wi-Fi and other connectivity to some of the world’s best-selling smartphones. In networking, Broadcom’s switch chips are the market leaders, going into machinery that’s used by all of the biggest equipment makers, including Cisco Systems Inc. and Huawei Technologies Co., and companies such as Amazon.com Inc. that build their own gear.

On March 12, Broadcom withdrew its annual sales forecast and gave weak near-term guidance, citing the impact of the pandemic. Chief Executive Officer Hock Tan told investors that, while fundamental demand was still strong and he hadn’t see any negative impact in the first quarter of the year, “visibility was lacking.”

As part of a bond offering last week, Broadcom warned investors it was experiencing some disruption to parts of its global supply chain. In the “related risks” section of a regulatory filing, the company highlighted that a main warehouse and a number of assembly and test subcontractors are in Malaysia, which has shut down all non-essential businesses. The warehouse is fully operational, but “many of the facilities of our suppliers and service providers are not,” the company said at the time.

“An extended closure of these facilities may require us to move assembly and test services to providers in other countries, and may, eventually, lead to a shortage of some components needed for our products,” Broadcom said. “In the event restrictive measures in Malaysia are intensified and our warehouse is shut down or required to operate at a reduced capacity, our ability to deliver product to our customers would be severely limited.”

The test and assembly of chips includes coating them in protective plastic, adding electrical contacts that let them communicate with the rest of the device, and making sure they function. Such work is less expensive and easier to conduct than the processing of silicon wafers that make up the fundamental circuits of the chips. Much of the packaging work was shifted to countries with lower labor costs decades ago.