Broadcom sounds alarm on unforeseen tech industry disruptions

Taipei, San Francisco

BROADCOM Inc warned customers they will 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'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.

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While China is recovering its footing, lockdowns and quarantine orders in crucial regions such as South-east 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," Mr Mistry wrote. His letter to customers did not 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," he added.

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

Terry Gou, whose Hon Hai Precision Industry makes many of the world's most recognisable consumer electronics including the iPhone, said in March that 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 is a critical link for products from mobile phones to data-centre 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 will report earnings next week, when they are certain to face questions from investors about their ability to keep their factories running and fill customer orders.

Products from companies such as Qualcomm, Nvidia and Advanced Micro Devices are built mostly by Taiwan Semiconductor Manufacturing, then tested and packaged by other companies in China and South-east Asia. Some companies perform elements of the process in-house, and a shrinking group are capable of doing all the steps themselves.

Wireless customers include Apple and Samsung Electronics, 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 is used by all of the biggest equipment makers, including Cisco Systems and Huawei Technologies, and companies such as Amazon.com 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 had not seen 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. BLOOMBERG