Coronavirus to delay tech production lines

The coronavirus outbreak is expected to significantly delay tech production lines and product launches, with Apple extending its retail store closures in China, and Amazon being the fourth company to pull out of the upcoming Mobile World Congress (MWC).

The outbreak, rampaging across China, has already killed over 900 people and infected over 40 000, with more cases being reported in Britain and Spain.

The World Health Organisation has warned the coronavirus could be more dangerous than the 2003 Severe Acute Respiratory Syndrome, with more people having been killed by the coronavirus and new cases expected to accelerate.

The outbreak, which originated in the central city of Wuhan in December, has seen several technology companies ‒ including Amazon, Microsoft, Samsung, Google and Apple ‒ impose travel restrictions to and from China, with some altogether suspending their office operations in mainland China, Hong Kong and Taiwan.

Last weekend, Apple announced on its Web site that all of its 42 China-based stores will be closed, shutting down all operations, including corporate offices, stores and contact centres, until 9 February. This was followed by Samsung Electronics announcing it will temporarily shut down its flagship store in downtown Shanghai.

Apple has since extended its retail store closures, saying new dates to re-open will be determined this week.

“We are working toward re-opening our corporate offices and contact centres the week of 10 February, and we are making preparations to re-open our retail store,” the company said in a statement sent to Reuters. “We will continue to update our customers as opening dates are finalised.”

Apple's head of people, Deirdre O'Brien, on Friday reportedly sent out an e-mail to Apple employees, which was seen by MacGeneration, as some employees prepare to return to work.

“Apple’s retail stores are actively working to re-open at a date that will be determined next week. Additional cleaning, health protocols and local restrictions around public spaces will factor into this decision,” noted the e-mail.

“Retail teams will receive updates from their managers on the opening date for their store and on other supportive steps we are taking. Individual business leaders will be reaching out to you soon with more information relevant to your work.”

Almost half of the Fortune 500 companies have investments in Wuhan, with most technology giants having their manufacturing hubs in China, where a range of devices including PC components and peripherals, and consumer devices are manufactured.

Analysts have warned South African tech companies doing business in China could be severely affected, resulting in a massive shortage of tech components and products.

The virus is expected to have a negative economic impact on China, which will be concentrated in the first half of 2020, with a reduction of global real GDP of 0.8% in Q1 and 0.5% in Q2, according to research firm IHS Markit.

China is a manufacturing base for Apple iPhones, Macs and iPads, and accounts for roughly 20% of Apple’s revenue. The American multinational company is among the top five smartphone vendors in China and arguably the most successful US technology firm in the country.

Arthur Goldstuck, CEO of World Wide Worx, says in a worst case scenario, the coronavirus could result in reduced business activity, trade and tech product shipments, potentially creating scarcity which would lead to increased prices, and shift the balance of sales away from Chinese brands to South Korean, Japanese and US brands.

“Given that Apple's stellar results for the last quarter of last year were based partly on its strong showing in China, where it has entered the top five of smartphone vendors, it is the global manufacturer most likely to see a significant impact on sales.

“For other manufacturers, who do not rely on dedicated stores and also sell online, sales will only be constrained by supply chain issues. Samsung will be the big winner, but it would also be an opportunity for LG, Motorola and Sony to regain market share, if they can reduce reliance on Chinese manufacture,” explains Goldstuck.

Research firm TrendForce, in a report released today, says it is lowering its 1Q20 smartphone production forecast to a 12% decrease year-on-year, due to several factors, including the reduction in the public’s willingness to buy smartphones and delayed work resumption in light of the coronavirus.

“Several factors have negatively affected smartphone production: first, the labour-intensive nature of the smartphone industry; second, China’s delay in work resumption until 10 February and population movement control; finally, the reduction in the public’s willingness to buy,” says TrendForce.

“Delayed work resumption and uncertainties in employees’ returns will cause the monthly delivery of key components to be postponed, thus affecting the progress of smartphone production. Fortunately, 1Qs have historically been weak seasons for smartphone production; also, manufacturers typically maintain a healthy inventory before the Chinese New Year. Therefore, the outbreak is not expected to cause an immediate break in the supply chain, once work resumes at smartphone assembly vendors’ production bases on 10 February.”

Future developments of the smartphone market will depend on the work resumption status of upstream supply chains and the import/export of goods through customs. In particular, the shortage of components and camera modules will exacerbate the problem of smartphone component shortage because of their low inventory levels or labour-intensiveness, according to the report.

Facebook has announced production of its Oculus virtual reality headset will be negatively impacted and it has stopped accepting orders for the latest model, Oculus Quest.

The world’s largest social media network, which has production sites in China, also told employees last month to cancel all non-essential trips to China due to the outbreak.

According to a statement sent by a Facebook spokesperson to virtual reality publication UploadVR, the company is taking measures to circumvent the virus.

“Oculus Quest has been selling out in some regions due to high demand. That said, like other companies, we’re expecting some additional impact to our hardware production due to the coronavirus. We’re taking precautions to ensure the safety of our employees, manufacturing partners and customers, and are monitoring the situation closely. We are working to restore availability as soon as possible.”

Amazon became the latest big tech company to withdraw from global tech trade show, MWC, over the outbreak, after LG, NVIDIA and Ericsson also pulled out over the past week.

Nokia says it is still contemplating its decision to attend the event, which attracts over 100 000 visitors to Barcelona.

“Due to the outbreak and continued concerns about the new coronavirus, Amazon will withdraw from exhibiting and participating in Mobile World Congress 2020,” according to a statement released on Sunday.

Organiser of the MWC, the GSMA, released a statement saying while its sympathy goes to all those affected by the coronavirus, it has taken preventative measures to ensure the health and safety of attendees.

“All travellers from the Hubai province will not be permitted access to the event; all travellers who have been in China will need to demonstrate proof they have been outside of China 14 days prior to the event (passport stamp, health certificate); temperature screening will be implemented and attendees will need to self-certify they have not been in contact with anyone infected.”