The semiconductor supply chain faces a new problem: the Shanghai lockdown. Shanghai is an important center for the semiconductor industry in China holding a complete supply chain of design, fabrication, and ATP (assembly, test, and packaging). In each of these verticals, Shanghai accounts for roughly 20% to 25% of China’s sales. The city is also famous for SMIC, China’s premier chip fabrication company.

In addition, Shanghai’s semiconductor industry is connected to its own electronics industry as well as nearby tech zones in Kunshan and Suzhou, which house electronics manufacturers such as Luxshare, Wistron, Pegatron, Foxconn, Logitech, Bosch, and Plantronics, among others. Many of these companies are customers of the semiconductor companies and also have operations or factories in Shanghai linked with the international ports there.

Closed loops and working from home

The center of Shanghai’s chip industry, and indeed China’s high-end semiconductor manufacturing industry, is Zhangjiang High-Tech Park in the city’s eastern Pudong district. While there are supporting areas in Shanghai and a strong ATP industry in Suzhou, Zhangjiang is the core where companies such as SMIC, ASE, and Huahong can be found.

To maintain production, Shanghai’s fabs have created closed-loop systems. The majority of employees are working on-site. Huahong is the most publicized of these. It has over 6,000 employees working and living at its Shanghai facility, converting meeting rooms and corridors into bedrooms, even making shower rooms. SMIC and TSMC Shanghai operations claim to be maintaining full production through similar closed-loop systems with some teams working from home but most on-site.

Shanghai is also a center for semiconductor materials such as polishing liquids and photoresist removers from companies such as Shanghai Xinyang and Anji Technology. Sales of these materials to fabs are said to be ongoing but experiencing some problems with “pandemic-related delays and customer production line conditions”. This suggests things might not be fully up to speed at fabs and ATP facilities in Shanghai.

Semiconductor equipment is also experiencing logistics delays, meaning fab expansion plans could be delayed too. For example, SMIC is one key company expanding its capacity and is experiencing hold-ups receiving equipment. Logistics in neighboring Jiangsu and Zhejiang provinces are reportedly experiencing setbacks and congestion. The main issue seems to be getting equipment or other supplies from the port to the fab or from neighboring provinces. Despite the fact that ports and customs clearance seem to be running smoothly, and online portals using WeChat have been set up to help semiconductor companies get goods through as fast as possible, equipment deliveries are still struggling to get from the port to the customer. If such delays become frequent it could increase the time new lines aren’t making money for fabs and are a burden. 

Equipment is still being manufactured though. Like the fabs, equipment companies like AMEC, an etch equipment company, have also implemented a closed-loop system to maintain operations.

It’s a different situation for chip design companies, however. Roughly half of China’s major chip design companies are in Shanghai, and it is home to most large international players’ R&D offices. HiSilicon, Unisoc, Nvidia, and NXP are among the numerous firms to all have operations in Shanghai. For the most part, these integrated circuit (IC) design companies can carry on working from home but there are limitations. A small number like Espressif Systems, therefore, have staff including its CEO working and living in their offices. 

Where chip design companies are working from home, there may be further disruption. Company workstations may not have been able to be brought home so employees may be using their own computers to VPN into office workstations. Many companies will have limited VPN access or none at all though, and even with a VPN there could be security issues they would not face otherwise. Using home connections may also result in limited bandwidth and a slowing down in the amount of work that can be completed each day. If any hardware expansion is required, this also isn’t possible – no one can visit the equipment room to install a new server or storage rack. Many companies have multiple locations around China or even the world, but at best this means there will still be delays as part of their team is working from home. There is potential for global projects to be held up, including for foreign companies; of course, many companies don’t even have this luxury, with their whole team in Shanghai. Finally, some work just can’t be done from home: how does one go about contacting upstream companies, testing wafers in labs, getting them to ATP facilities, and then to electronics companies? Working from home and with the current logistics situation, this seems like a difficult task.


While semiconductor manufacturers and design companies have found ways to carry on their work, we can expect significant delays. Working and living in the same space in unfavorable conditions isn’t consistent with good work morale and high efficiency, especially when there is no clear end date in sight. A single Covid case in any of these facilities could spell temporary closure; we have already even seen one key oxygen facility stop production after staff tested positive for Covid, despite them producing something you’d think would be essential to many of the patients in the city, so there is no reason to think semiconductor plants couldn’t also be closed if one experienced an outbreak.

While working on-site in a closed loop is a good idea to keep production moving under China’s Covid policies, it’s no good if the fabricated chips cannot get to downstream industries or if production line expansion is held up due to equipment shipping delays. OnSemi recently stated its China distribution center was forced to shutdown due to Covid – the product may be there but there is no way to get it to customers. In a best-case scenario, we see lags in getting chips to customers and delays in capacity expansion; in the worst case, there is a complete stopping of production. Chip design industries, while coping better than fabs, will also face design delays and security issues. Cloud-based electronic design automation (EDA) solutions may help with some of these bottlenecks, but they seem unlikely to solve all of the current issues. These design setbacks could add to chip production lead times for the next year or two.

Chinese fabs and fabless companies potentially face the most delays in getting products to market. Overall, this means downstream industries like consumer electronics devices and automotive could face shortages and price hikes; the consumer and economy will therefore suffer.

The real solution is a policy one. Working from home keeps chip design going but naturally incurs delays. For chip manufacturing, it is impossible in the long-term; living in the fab can only be temporary. Only policy change therefore can get the industry back to where it needs to be. A band-aid approach simply won’t cut it.

Stewart Randall is Head of Electronics and Embedded Software at Intralink, an international business development consultancy which helps western tech businesses expand in East Asia. You can connect with...