The coronavirus epidemic is affecting every industry, and semiconductors are no exception.
While most industries have shut down, necessities in the medical, food, and logistics industries have carried on working. Semiconductors are one of the industries that have carried on production—even in Wuhan itself. There couldn’t be more of a striking example as to how important the semiconductor industry is to the Chinese government. It can’t stop for a week, even for covid-19.
Will this crisis have lasting effects on the Chinese semiconductor industry?
Two key companies in China’s semiconductor plans, YMTC and XMC, are located in Wuhan. For years, China has complained about the US-Korea-Japan memory cartel, and what it sees as price fixing. Since virtually every electronic device we use requires some form of memory, and China is the largest manufacturer of said devices, buying memory from the likes of Micron, SK Hynix, Samsung, and Toshiba is one of the key factors adding to China’s semiconductor deficit.
While there are other key Chinese memory companies—e.g. Changxin memory in Hefei—the two Wuhan memory makers have both have confirmed they are not stopping production. While the rest of us are forced to work from home due to covid-19 fears, two companies at the heart of the epidemic cannot be allowed to discontinue production.
It may sound crazy to carry on working in Wuhan right now, but shutting down a fab, even temporarily, is very expensive. Fabs usually run 365 days a year. They may sometimes undertake “warm” shutdowns for a few days for maintenance work, but almost never come to a complete stop. In a warm shutdown, the machines are kept on doing dummy runs to keep the equipment stable so production can continue straight away, meaning staff must be on site.
To get staff out of the plants would mean a full “cold” shut down in which all equipment is turned off. Some parts of the process can’t be stopped without destroying product. Once turned back on, it takes a number of dummy runs for each equipment before they can get back to normal. Since this could mean over a month to restart, cold shutdowns nearly never happen, and companies will do nearly anything to avoid them.
The companies claim to be taking all precautions necessary to ensure no infected employees return, including having employees live on-site, but from what we know about covid-19 it may be hard to even know one is infected for up to 14 days. Of course, in fabs everyone wears masks, goggles, and gloves all the time anyway. Let’s just hope they don’t face a shortage like the rest of the country.
YMTC claims production won’t be affected. This may be true, but I would worry about the company’s long-term goals. Chinese memory companies have made news with the large pay packets they rely on to attract experienced Korean, Japanese, and Taiwanese employees with, but even these may not be able to convince these employees to come back after they’ve been evacuated from a disaster zone. This may affect these companies’ long-term goals to catch up with their international rivals. MYMTC’s goal of moving from 64-layer NAND flash to 96-layer and above becomes a lot more difficult without international talent. Perhaps they can set up an offsite R&D center for such talent to work remotely from outside Wuhan. Moving staff out of Wuhan for a long while may be necessary if they are to retain talent but may not be workable from a practical standpoint.
China is taking a gamble here. While a cold shut down would be a big set back for China’s memory ambitions, even one infected employee on a production line would be much worse. Not knowing who could have been cross infected or what surfaces are contaminated would mean a much longer shutdown. Since it may be months before Wuhan returns to any kind of normalcy, perhaps carrying on is a risk worth taking.
HiSilicon doesn’t stop
Huawei’s HiSilicon is perhaps just as important to China’s semiconductor plans as memory self-sufficiency. It’s China’s largest semiconductor design company and key for the country’s wireless chip development. It’s no surprise then that, as contacts have confirmed, many of the Guangdong company’s employees continued working at their offices throughout the government-mandated “work from home” period. HiSilicon is a fabless semiconductor design company, not a fab, but a physical presence on-site is still necessary for much of the work involved. This is a highly secure company—they don’t just let employees log into their workstations from home.
With this being a key year for China and 5G it is even more important Huawei keeps the wheels moving. The big trade show of the year, MWC, may be difficult for some key Huawei employees to attend. MWC is requiring proof that all travelers have not been in China for at least 14 days before the event. This means the event will be difficult for any Chinese company to visit or exhibit. It will be interesting to see how this plays out.
It seems in Wuhan they have concluded the costs of a cold shutdown outweigh any risk of infection at these facilities. Fabs are the cleanest places around, so they should know what they are doing when it comes to prevention.
I don’t expect Hubei’s memory situation to have any effect globally. The main effect on memory pricing will be more related to the electronics industry as a whole slowing, and thus memory demand dropping. However, in the long-term, we may see these companies struggle to retain international talent, and thus lose ground in their bids to catch up.
HiSilicon has been dealing with enough troubles as of late. This is yet another, and affects all in the industry in China, but is a challenge that I believe they are best placed to cope with. Shenzhen is a hotbed for covid-19 cases, though, so they need to be careful.
Without any doubt though we can conclude that like supermarkets, delivery services, and the medical industry, the semiconductor industry is one key sector the government cannot allow to slow at any cost.