Events News

electronica 2020 CEO Roundtable - where is the electronics industry heading?

10th November 2020
Joe Bush
0

At every electronica one of the show highlights has always been the CEO Roundtable. Despite the fact that the 2020 instalment of the electronics industry’s biggest event is taking place virtually, this year was no exception.

Dr. Reinhard Ploss, President and CEO, Infineon Technologies; Kurt Sievers, President and CEO, NXP Semiconductors; Jean-Marc Chery President and CEO of STMicroelectronics; and Dr. Gunther Kegel, CEO, Pepperl+Fuchs, gathered together to discuss the latest developments in the industry, with particular focus on the impact of the COVID-19 pandemic.

Introducing the session, Falk Senger, Managing Director of Messe München, commented: “Due to COVID-19 and the associated travel restrictions we decided to relocate this year’s electronica into the virtual world. This way we can offer our customers an online platform during this challenging time while supporting exchange within this industry. The CEO roundtable plays a very important role in this exchange, and has over the years grown to be an integral part of the trade fair.”

Kicking things off Chery was asked about the moment he realised that the coronavirus crisis was escalating.

“I was in London for the financial roadshow just after our Q4 2019 earnings announcement. I received an email from our Vice President in charge of assembly and test, warning me that we were starting to see a severe situation in the Shenzhen area, where some employees had not been able to join the plant during the weekend.

“After having some meetings on my return to France we decided to set up a corporate crisis team and to prepare for the virus moving across the world. For a semiconductor company to manage contamination is something we are used to in our assembly plants etc, and we decided to adopt a similar clean concept approach in our various locations around the world to protect first of all employees and then our supply chain.”

How did you manage the crisis in the early days?

Kegel: “We installed a COVID-19 emergency response team that coordinated all the COVID task force in our different facilities and so far we have been able to protect all our employees globally from infection. Sadly we have seen employees get infected with the virus, but no one was able to carry it into the facilities and plants to infect other people. We enforced the necessary hygienic countermeasures and so far, we have been very successful in maintaining all operations and maintaining all the functionalities of the company.”

Were you faced with factory closures?

Sievers: “We did not have to close complete factories, but there were a few weeks of government audits where we saw a reduction of workforce in some of our Asia Pacific factories. However, given the low demand in those early days of the virus, that could all be handled without any disruption.

“Next to the safety and health of our people, the biggest challenge has actually been to keep up the engagement and the collaboration between our employees. We put our people into a work from home situation, but in a high tech environment, which is all about collaboration, putting people together and creating ideas, this is a significant challenge. So we put a lot of effort and focus into communication, both from a tool perspective but also from an effort perspective, into communication between people, to make sure that people don’t start to feel isolated. And that also the productivity of the work, especially of our engineers, wouldn’t be impacted.

“Looking back now, I think it was advantageous that the virus came in stages (China being stage one) as it allowed us to learn and gain experience which we could then replicate into the rest of our operations when the virus hit the rest of the world.”

What are the main drivers behind the speedy recovery of the semiconductor industry?

Sievers: “The recovery of the industry has probably been faster than most of us had anticipated. There are several reasons for this. One is that the end consumer demand for the type of products that we in the microelectronics industry are supporting has partially benefited from the pandemic.

“It sounds a bit cynical, but everything that goes into laptops and into all the technology needed for the work from home revolution is booming this year. And that is a significant part of the semiconductor industry.

“Secondly, we work a lot in contactless technologies, and if you think about mobile payments for example, this is strongly benefiting from the pandemic because people don’t want to touch cash anymore and contactless payment is one of the means to protect yourself from an infection.

“Thirdly, the car industry, which is a huge part of our market for us as a European semiconductor company, is recovering fast, because people are avoiding public transport. There is a clear trend in China that people are going back to using individual cars, in order to avoid close proximity to other people on public transport.”

Kegel: “The automotive industry has recovered quite significantly since June. Also the rate of new installed cars has recovered to what it was before the crisis. When coronavirus hit our economy, we decided to throw away all forecasting, budgeting and all the other usual procedures and switched over to what we call ‘scenarios’ which gave us the capability to switch from one scenario trajectory to the other, in a very agile way.

“Currently our order intake is slightly above the compared previous year’s month, so we expect a pretty solid year in 2021. My gut feeling at the moment indicates a more dynamic growth going forward, so it could be that we recover what we lost in 2020 as soon as 2021, so that’s a very positive outlook.”

Chery: “We do believe that next year the market will come back to growth, although it’s too early to say by what percentage. There are some key growth verticals which are going well such as personal electronics, communication infrastructure etc. We are also seeing some mega trends in automotive around the electrification of cars, digitalisation, driving assistant monitoring systems etc.”

What impact is the China/US trade war having on the industry?

Ploss: “For many years there has been significant political interest in electronic communications, and it has always been an area of political intervention, mainly around subsidies and creating an uneven playing field. This has increased significantly in recent years as 5G, artificial intelligence and compute capability are becoming core technologies, and with regards to the technical leadership from some of the world’s major players.

“From our point of view the semiconductor industry has developed quite nicely, and we are enjoying an environment of production and supply, as well as markets which are seeing very limited restriction. This was leading to a situation where, for advanced semiconductor chip manufacturing for example, we saw that there is significant scale of economy, which we can use in foundries etc. There’s a significant question mark around how this type of competition will develop.

“We’re already seeing that some of the value chain is reconfiguring and moving around the world. So I believe we have to make sure we have a solid position going forward as an industry, avoiding being too dependent on single sources. The tech war is on - my personal take is that we in Europe have to act together, and strengthen the position through collaboration with others, or even locally in Europe.”

Sievers: The trade tensions between the US and China are leading us to go backwards from a globalisation perspective, and in general I see that as a negative, because I think what we are all doing as an industry has the potential to do a lot of good for the world. We can help to deal with climate change, and to reduce fatalities in traffic accidents etc. So, I believe if we go backwards in globalisation, we will decelerate the speed of innovation, and that is a pity.

“From a supply chain perspective, both through the pandemic and through the global trade tensions, our global supply chains are actually quite robust. So, we do not see an immediate need to make massive changes to our supply chains globally. However, what will become more important is to be very thoughtful about the supply chain of IP, which is actually the core value of a product, because that seems to be something which gets into the wheels of those trade tensions.

“In general, I am hoping that following the election result in the US, things become a little bit more diplomatic in terms of how different parts of the world deal with each other. And I would also say that Europe needs to get on its feet and has to start levering much more as a joint union in how we play this game.

“I personally think the fight between the US and China opens up a great opportunity for Europe, but not for any individual countries within Europe. It will only work if Europe can act as one entity. We have a very deep vertical value chain in Europe, starting from semiconductor tools, all the way down to consumer products, such as cars or industrial automation machines. And that is a huge advantage for Europe and I think we should leverage this much more. Then the trade tensions could actually become an opportunity for us, but we have to do it jointly.

“The biggest impact from the trade tensions came from the ban on Huawei. Basically, everybody was prevented from selling any semiconductor or any other device into Huawei by the middle of September. In our case, that led our sales to Huawei for the fourth quarter being set to zero.

“That of course had an impact, however, market forces will come into play. A large part of Huawei is mobile phones. I do not believe that the demand for mobile phones is going to go away, just because Huawei cannot build them anymore. There will be competitors to Huawei, which will still be building mobile phones (and will probably be building more to pick up the market share from Huawei). Given our strong leadership positions in the mobile market, I’m not worried about this because I’m pretty convinced that what we would have shipped to Huawei will just be used by their competitors.”

What is Europe’s role in the trade war?

Kegel: “From a legal standpoint, whenever trade comes up there is only a European way forward. Legally Germany is not able to come up with trade agreements individually with countries, so it has to be a European voice, and a very strong European standpoint.

“This can only be achieved by finally recognising that the peaceful world of multilateral global trade is really endangered. We can see already in our product baskets a lot of products we sell to China or to the Americas are loaded with additional tariffs which come with additional costs, and that puts us out of competition in these particular regions.

“Currently it is only a small part of our business, but it will definitely be a tremendous threat for medium sized companies. We are simply too small to produce our portfolio three or four times around the globe. We currently have our manufacturing sites oriented in a global way, but every manufacturing site is producing a part of the portfolio and sends it into the global markets, so every facility produces for the world.

“If that’s not possible anymore because we’re falling into trade zones rather than maintaining global trade, then the medium sized companies in Germany will suffer - 50% of what we do is made outside of Europe, and this is now really endangered. Our strategy is around using the economy of scale by only entertaining manufacturing facilities that serve the world, and not just a trade zone.

“Europe is still the largest consumer market in the world. But I’m absolutely sure if we don’t come to a mutual and peaceful settlement in this trade dispute, the entire global economy will suffer. The only win-win situation is maintaining multilateral trade inside the entire global economy. This is a political agenda - this has to be done by the European politicians - to set up scenarios and really fight for open multilateral global trade.”

What will China’s role be in the industry going forward?

Chery: “The first question we have to ask ourselves is what will become the archetypal economical model in the world? Today it is a global model, so any actor in the world can access the market from anywhere. If we remain in this global situation then of course Chinese actors will come into the market because the Chinese authorities want to have a better balance in their business because they import a lot of semiconductors.

“But the real point is, if we are moving to a world which will be partially or fully decoupled, it means that if you want to access a market, you will need to produce locally, and to a certain extent you will have to develop IP and content locally. This is a different story entirely, and will be to the detriment of innovation. We are facing many future challenges to build an economy which is able to grow, but with respect to the planet, and therefore, there is no place for an economy which will become siloed. We have to fight against the decoupling of the economy, which will long term curb innovation and the progress of the world.”

Is the rising tension between Taiwan and China a concern?

Sievers: In general, we always monitor all the risks across the supply chain and will adjust accordingly. For example, Taiwan Semiconductor Manufacturing Company (TSMC) (the world’s biggest foundry) is also a global company so there are investments from TSMC clearly outside of Taiwan. So even if there are more tensions between China and Taiwan locally, there are ways to deal with it, given the increased globalfootprint going forward from TSMC.

“We are global companies, and we are dependent on global markets. And to deal with that in the most appropriate way, we are dependent on constantly adjusting globally in order to best serve these markets. The Taiwan situation is a new one which is being discussed currently, but there will always be something that comes up and we have to adjust accordingly.

Will you still be planning in ‘scenarios’ in the future?

Kegel: Essentially, we skipped all the budgeting, planning, and forecasting procedures in the early stage of the pandemic because nobody knew what would happen, including our customers. And so, since people were unable to give us any solid forecast, we developed five different scenarios and we were actually prepared to switch from scenario to scenario in a very agile way, and adopt cost cutting measurements or even investments into one direction or another.

“Meanwhile while we have been adapting to this new normal, we can compare our forecasting and planning but still keep these scenarios and underline these with the necessary planning and forecasting procedures. We came into this new world very rapidly and were thrown in at the deep end, but we learnt to swim and to tackle the new challenges. In all honesty, we do not think that the coronavirus pandemic will be our largest problem in the coming year. We will see other shockwaves and specifically the tensions between the US and China is worrying us much more than the question of whether our industry will recover from the pandemic.

“With the new administration in the US at least it is likely to be more talk and less Twitter. There will be more negotiations and more friendly agreements, however, the general tension between the US and China, and their fight for the world leading position (not only economic power but also in regards to defence investments etc), will not go away simply because we have a new President of the United States. The root cause of all the tension will remain, the question is whether the world will be able to solve this in a diplomatic way or whether we walk further into the trade war that we can already see on the horizon.”

What’s behind the significant rise in M&A activity in the sector?

Chery: “Behind every mega deal there is always a strategy. Take the example of Nvidia. It is clear for artificial intelligence in the cloud, and artificial intelligence at the edge, you have a critical enabler which is the processor. And, if you want to attack this market successfully, it is key to have the critical enabler of your business under your control.

“So, each time there is a strategy and a specific target followed by a group, and this must be the substance of the merger and acquisition activity. If you want to become a leader in your market then dimension scale is critical. Why? Because our industry is operating expense intense in terms of R&D. Yes, other deals will happen in the future but not opportunistically. They will be totally endorsed by a clear strategy.”

What is it like to lead a company under the current restrictions?

Sievers: It is a privilege actually - I would not call it a challenge. It’s certainly different than it has been in the past, but I take that as a positive learning point. I’m convinced that things will never go 100% back to where we were before the pandemic - even if a vaccine is found and we don’t have travel restrictions in place.

“We have all learned that, at least for certain meetings and transactions, there are ways and means which are much more effective and efficient to achieve the same result, or even be more productive than before. This is just another transition - our industry has always dealt with rapid change, and this is another one. We are going to learn from it and build on that positively going forward.

“I really believe that the next ten years in microelectronics are going to be all about secure edge processing, which is building on what has driven the industry over the last decade, which was smartphones and cloud computing.

“There is the same opportunity now ahead of us which is built on secure edge processing, especially for European companies and for NXP. It is a fantastic outlook and opportunity, and while the pandemic is obviously a heavy burden for this year for all of us, the opportunity for the future far outweighs this. So, yes, we have to plan in scenarios etc but for me, the strategy is unchanged and still stands.”

When will we return to normal?

Kegel: I honestly don’t think we will ever go back to life before the crisis. There are bad things that have happened of course, but there are other things that might change for the positive. Either way the world will definitely be very different after COVID-19, so hoping that everything will just resettle and return to what it was before is not realistic.

“Look for example, at international travel flights. These have traditionally been subsidised by business travellers. Business travel will not go back to previous levels quickly, because we have learnt now that our business partners around the globe are much more accepting (at least partially) of virtual meetings instead of visiting in person.

The former head of HR at Siemens said the best thing that can happen after coronavirus is that we will finally lose the attitude that working in an office is the priority and of only appreciating office work. So, maybe the world after COVID-19 will give us much more opportunities than we ever thought.”

Featured products

Product Spotlight

Upcoming Events

View all events
Newsletter
Latest global electronics news
© Copyright 2024 Electronic Specifier