Semiconductor supply chain too concentrated in Asia, says Smiths Group

The head of Smiths Group, the UK engineering conglomerate, has criticised semiconductor supply chains for being too concentrated in Asia and warned of disruption due to a global shortage of the crucial component.

Andy Reynolds Smith, chief executive of the FTSE 100 group, told the Financial Times he was concerned about the effect on its customers amid tight supply and rising prices for chips.

“There’s too much production in Asia,” he said. “Recent prices have exposed the concentration in the semiconductor supply chain. Demand is going up in a non-linear way.”

Smiths, which supplies baggage scanners to airports and seals to industrial processors, has “reasonable stock” for its own use, he added. The company also provides devices testing semiconductor performance to the chipmakers themselves.

His comments came as the group reported a jump in revenue derived from semiconductor testing, after manufacturers ramped up production capacity for graphic chips and other microprocessors to meet swelling demand for laptops, data centres and game consoles during lockdowns.

The growth helped cushion a drop in sales to industrial customers and security providers at stadiums and metro systems in the six months to the end of January.

Revenues fell 7 per cent to £1.15bn, while pre-tax profit slipped 9 per cent to £145m. Operating profit fell 6 per cent year on year to £166m but was still ahead of analysts’ expectations and the group predicted improving order books in the months ahead.

It raised its interim dividend to 11.7p, up from 11p over the same period a year ago.

Shares in the group rose almost 5 per cent on Friday morning.

Reynolds Smith predicted a future boom for biological detection technologies, which can identify diseases such as Covid-19 and pathogens, to monitor the environment, check for food safety and screen mail.

“There could be units in schools, hospitals, offices, government buildings, sport stadiums and air conditioning systems, so the potential is huge,” Reynolds Smith said, although he declined to provide an estimate of how much the business could be worth.

Smiths has secured an order from Heathrow airport to supply a new system of cabin baggage scanners that do not require passengers to take items out of their handheld luggage, which would help speed up queues.

The group is also spinning out its medical division, which makes products such as syringes vital to Covid-19 vaccination campaigns, which the company said remained on track to be completed by the end of its financial year in July.


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