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RPT-FOCUS-With Singapore lockdown underway, 'essential' chipmakers count on less disruption

By Stephen Nellis

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By Stephen Nellis

April 8 (Reuters) - Computer chip makers are banking on less disruptions to their factories from this week's strict lockdown in Singapore than the havoc wreaked on their supply chains last month when Malaysia and the Philippines imposed vague restrictions about "essential" operations.

In the United States, chipmakers are considered essential businesses and allowed to operate. But with no uniform global definition of "essential," industry executives say their delicate supply chains have hit snags as lockdowns played out differently in different countries, with Malaysia and the Philippines both shuttering or reducing work at factories.

Chip firms hope Singapore, where officials explicitly named semiconductors as an essential business, will cause fewer disruptions. Micron Technology Inc and Applied Materials Inc both told Reuters on Monday they believe their factories in Singapore will be allowed to run with protections in place for workers. Qualcomm Inc, which last year acquired a chip factory in Singapore, declined to comment.

Earlier lockdown confusion affected makers of all sorts of chips, from memory that goes into laptops and internet servers to specialty chips destined for ventilator manufacturers scrambling to combat the coronavirus pandemic.

In Malaysia, for example, where American semiconductor firms have had facilities since the 1970s, officials did not declare semiconductors essential until after issuing initial lockdown orders on March 16.

Micron's factories in Muar and Penang “were briefly shut down” before officials there declared chip factories essential, Chief Executive Sanjay Mehrotra told investors on a conference call last month. He said the factories “have since been able to return to production on a very limited basis, in compliance with local regulations.”

Micron did not elaborate on how the delays affected shipments, if at all. Texas Instruments Inc, which said last month its factories in Malaysia and Singapore will "operate at significantly reduced levels in these two countries through mid-April," said it was adjusting delivery dates for about 3% of items in its product lineup.

After chipmakers were declared essential in Malaysia, each one needed to get government approval for its employees to come to work, which instantly created a “backlog by the thousands,” said a person who worked with chip companies to help them re-open.

For decades, scores of semiconductor companies have had facilities in Malaysia where chips are packaged and tested. Intel Corp, for example, opened a facility in Penang in 1977. An Intel spokeswoman said its Malaysian operation "remains operational and compliant with local government requirements," but declined to comment further on whether production had been reduced. Intel Chief Executive Bob Swan said last month that Intel's factories were operating with on-time delivery rates above 90%.

Cypress Semiconductor makes high-reliability memory chips that go into ventilators, vital machines that have come into short supply in many parts of the world.

When movement restrictions hit on the island of Luzon in the Philippines last month, the orders interrupted operations at a Cypress facility near Manila that packages those chips, said Sonal Chandrasekharan, who heads the company’s RAM chip business unit.

While government officials provided an exemption for businesses that exported products, it was not immediately clear whether that applied to Cypress’s operations. Cypress worked with government officials to get a skeleton crew back to the factory, providing workers lodging nearby.

There was no disruption to the supply of ventilator chips, Chandrasekharan said, because Cypress has alternative locations to package those chips, which are also common enough that ventilator makers would also likely be able to secure them from another vendor if required.

But the confusion and uncertainty around whether the various pieces of the delicate semiconductor supply chain count as essential should serve as a warning to chipmakers, Chandrasekharan said.

“Everyone needs to be worried about disruption in supply chains,” she said. “It is real.”

(Reporting by Stephen Nellis in San Francisco; Editing by Greg Mitchell and Edward Tobin)