Brazil industry association warns semiconductor supply problem not over anytime soon

The global problems with production and supply of semiconductors could drag on until 2023, according to Abinee, the Brazilian electrical-electronics industry association.

In a survey with its members, which on the IT and telecom side includes companies such as Apple, Cisco, Dell, Ericsson, Foxconn, HP, Intel, Motorola, Nokia, Qualcomm, Abinee found that 25% expect normality in the supply of semiconductors to return in 2023, while 39% see it happening in the second half of 2022.

The shortage these components has been one of the main hurdles facing the industry this year, along with the difficulty in acquiring raw materials and the consequent increase in components prices, Abinee executives told a press conference.

Although the problem affected deliveries and production, the impact was felt less by electronics manufacturers than by carmakers, they said.

According to Abinee's president, Humberto Barbato, while telecom and IT products grew significantly at the onset of the pandemic crisis, the demand for cars fell abruptly and the auto industry was also forced to halt its operations.

As a result, the electronics sector ended up occupying part of the space in the semiconductor market that previously belonged to car manufactures, Barbato said.

“The industry didn't suffer so much because it didn't face stoppage. What happened to us is that no factory in the [Brazilian electronic] sector ever stopped production. What eventually happened was a reduction in the pace of activity, in shifts.”

The executive said the electronics portfolio (mobile phones, tablets, computers, etc) that is offered in the country is extensive and unless the consumer is very demanding in terms of models, there is always products available.

Mauricio Helfer, head of Abinee's informatics department and director of computers at Dell Brasil, said that the semiconductor problem was more acute last year, although it continues to hamper the electronics industry's forecasts. 

The auto industry has not made stock allocations for these products in advance, unlike companies in the electronics sector, according to Helfer.

“The main impact in the electronics sector was largely the issue of the cost of these items. And that's what we expect in terms of normalization, a reduction in prices,” he said.

Abinee executives are also awaiting approval of a bill in the senate for the extension to 2025 of the Padis program, which offers tax benefits to companies in the semiconductor sector. The bill passed the lower house on Wednesday.

According to Barbato, although the country does not dominate all stages of chipset production, it does have several companies in this industry. 

The extension of the program, he said, should "significantly expand the part of design-house and product termination, encapsulation." And it will eventually help bring new semiconductor investments to Brazil, Barbato added.

PERFORMANCE AND PROJECTIONS

The electric and electronics industry is on track to end 2021 with 214bn reais (US$38.3bn) in revenues, with real annual growth (discounting industry inflation) of 7%, according to Abinee. 

The figure is 6% higher compared to the pre-pandemic 2019.

"Despite the remaining difficulties from the pandemic and the instability of the economic scenario, we managed to return to 2019 levels, with growth in the sector's revenue and production", Barbato said.

Among the main problems faced by the electronics industry this year, in addition to the raw materials and components issues, were logistical bottlenecks, with a strong increase in freight prices, and the depreciation of the Brazilian real.

Nonetheless, industrial production increased by 3% in 2021. The utilization of installed industrial capacity increased to 80% from 78%, surpassing the average of the last nine years, according to Abinee.

"As we predicted at the end of last year, when we were confident that 2021 would make us resume investments and expansion plans, we had a good year," said Abinee's chairman of the board, Irineu Govêa.

The sector's exports grew 26% last year to US$5.6bn, returning to 2019 levels. Imports also rose 26%, to US$39.4bn.

The association reported an 8% increase in the number of people employed in the electric and electronics industry: from 247,000 in December 2020 to 266,000 today. And in the last two years, 32,000 jobs were created by the sector.

For 2022, 65% of its members project growth in their sales compared to this year, while 29% forecast stable sales and only 6% believe they will fall. 

More importantly, 74% of companies said they plan to expand investments next year.

Abinee expects 2022 sales to reach 233bn reais for an inflation-adjusted growth rate of 2%.