Broadcom Says Chip Orders Require Six Months’ Lead Time

Broadcom Inc., a chipmaker that supplies crucial components for Apple Inc.’s iPhone, told customers that disruptions to the global supply chain caused by the Covid-19 pandemic means they’ll need to place orders for parts six months ahead of time.

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. “Air and sea transport options have become unreliable and become more expensive and have increased delays,” Mistry wrote. The San Jose, California-based company declined to comment.

Broadcom is a critical part of the supply chain for products ranging from mobile phones to data-center 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.

Wireless customers include Apple and Samsung Electronics Co., which use Broadcom chips to add Wi-Fi and other connectivity to some of the world’s best-selling smartphones. In networking, its switch chips are the market leaders, going into machinery that’s used by all of the biggest equipment makers, including Cisco Systems Inc. and Huawei Technologies Co., and companies such as Amazon.com Inc. that build their own gear.

The chipmaker’s letter to customers didn’t specify which products are experiencing delayed shipments and what the normal lead time is between orders and delivery, compared with the 26 weeks specified in the letter.

“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,” Mistry said in the letter.

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

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 hadn’t see any negative impact in the first quarter of the year, “visibility was lacking.”

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As part of a bond offering last week, Broadcom warned investors that 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. The warehouse is fully operational, but “many of the facilities of our suppliers and service providers are not,” the company said at the time.

“An extended closure of these facilities may require us to move assembly and test services to providers in other countries, and may, eventually, lead to a shortage of some components needed for our products,” Broadcom said. “In the event restrictive measures in Malaysia are intensified and our warehouse is shut down or required to operate at a reduced capacity, our ability to deliver product to our customers would be severely limited.”

The test and assembly of chips includes coating them in protective plastic, adding electrical contacts that let them communicate with the rest of the device, and making sure they function. Such work is less expensive and easier to conduct than the processing of silicon wafers that make up the fundamental circuits of the chips. Much of the packaging work was shifted to countries with lower labor costs decades ago.

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