The pandemic in Malaysia may exacerbate the shortage of chips

The growing number of new cases of COVID-19 in Malaysia may exacerbate the shortage of chips and other components, which have been hampering car production for months and threatening electronics manufacturers. Although this country in Southeast Asia is not as important in chip production as Taiwan, South Korea or Japan, it has become a major center for chip testing and packaging in recent years. Several major companies have their plants there, such as Infineon Technologies, NXP Semiconductors and STMicroelectronics, which are among the key suppliers. In Malaysia, however, the number of infected people is rising sharply, jeopardizing plans to lift the blockade and restore full production capacity. Ford Motor announced last week that it would temporarily stop production of the popular F-150 pickup in a US plant due to "a shortage of semiconductors in connection with the pandemic in Malaysia". Authorities in the Asian country are working to speed up the detection of outbreaks and have granted exemptions to some producers in an effort to keep the economy on track. Key companies could continue to operate with 60 percent of the workforce during the June blockades and will be able to return to 100 percent when more than 80 percent of employees are fully vaccinated. But at the same time, according to unofficial rules, factories must be completely closed for two weeks in order to be disinfected if more than three employees become infected with the new coronavirus. At the same time, the delta variant is spreading in the country, which is much more contagious and difficult to stop. This could seriously affect many large companies that have factories with several thousand employees. STMicro and Infineon, key suppliers to the automotive industry, have already had to close some operations. The problems in Malaysia could thus exacerbate the shortage of semiconductors, which has already reached crisis levels. According to research firm Susquehanna Financial Group, delivery times for chips, from ordering semiconductors to taking delivery, increased by more than eight days to 20.2 weeks in July compared to the previous month. This is the longest waiting period since the start of data monitoring in 2017. Malaysia's role as the primary base for chip testing and packaging is very important as it is the final step in semiconductor manufacturing. Any disruption anywhere in the supply chain will affect the whole "ecosystem". According to the Ministry of Industry, electronics and electrical products account for 39% of total exports from Malaysia. Vaccination is therefore crucial to ensure Malaysia's important role in the supply chain. According to the Ministry of Health, approximately 57% of the total population received at least one dose of the vaccine. Officials work with large companies to prioritize their staff when vaccinated. Nevertheless, Infineon warned in August that production problems in Malaysia were likely to continue to affect sales in the current quarter. CEO Reinhard Ploss estimated their overall impact at "high double-digit" million euros, although he expects the country's plants to reach "normal" capacity by the end of the month. Another STMicro company recently had to stop production at its Muara plant for 11 days due to the pandemic. According to CFO Lorenzo Grandi, the incident will reduce the company's ability to meet deliveries, which will affect its sales and gross margin.