From our Obsession
Looking at Big Tech as the next Big Oil.
The spread of the deadly coronavirus has rattled the tech industry.
From iPhones to LCD televisions, much of the world’s consumer technology is either made in China, or relies on parts made there. The nation is the world’s largest manufacturer of mobile phones, computers, and televisions. It exports billions of dollars of goods every year.
Coronavirus has had an obvious and immediate impact on that productivity, as offices and factories across the nation halt operations. Depending on how quickly the virus continues to spread, analysts say the global tech supply chain could take a serious hit, leading to product delays and shortages.
China has been the world’s largest smartphone market since 2013, giving birth to companies like Huawei, Vivo, Oppo and Xiaomi. Even if the threat from the coronavirus begins to recede soon, it could take weeks for China’s mobile phone manufacturers to restore their operations, including supply chains and logistics, wrote Gerrit Schneemann, an analyst at IHS Markit, in an email to Quartz. Domestic smartphone sales will likely drop dramatically in China this month, and are unlikely to recover until March. But that’s only if the epidemic is contained in the next couple of weeks.
“However, the possibility of this situation being prolonged beyond a month or two cannot be ruled out. In the long term, the recovery of the supply chain will take a longer time, which will affect not only China and Asia-Pacific, but also the global supply,” Schneemann wrote.
A Huawei spokesman told Quartz that the impact of coronavirus on its supply chain was “limited,” though it was monitoring the situation. Earlier this month, the company resumed production of consumer devices and carrier equipment after a temporary closure. The company’s employees in Hubei province, where doctors have diagnosed hundreds of people with coronavirus, have been working remotely. The company also postponed its annual developer conference in Shenzen, which was scheduled to begin Feb. 11.
Companies from elsewhere—like Samsung, Google, Sony and others—have gradually moved their smartphone factories out of China in recent years, relocating to countries with lower manufacturing costs, like Vietnam or India. But these companies still rely on China for many of the components used in their smartphones, such as sensors or glass screens.
Apple’s supply chain, for instance, remains deeply linked to China. At Foxconn plants in Zhengzhou and Shenzen, where Apple’s iPhones are assembled, only about 10% of employees had returned to work as of Monday, according to Reuters. The factories make up a large part of the global iPhone assembly line, and any further delays could impact worldwide shipments.
Apple closed all of its retail stores, corporate offices, and contract offices in mainland China on Feb. 1, out of “an abundance of caution.” And while Apple’s Chinese retail business was expected to resume nationwide on Feb. 9, those re-openings now appear to be delayed indefinitely. Apple was expected to release a lower-cost iPhone SE2 in March. But that too may now be postponed, suppliers told Nikkei Asian Review.
China also makes roughly half of the world’s LCD panels for TVs, laptops, and computer monitors. There are five LCD factories located in the city of Wuhan, a provincial capital and commercial hub that is at the center of the coronavirus epidemic. Operations at those factories were disrupted after Chinese authorities placed the entire city under quarantine last month. IHS Markit analyst David Hsieh said in an email to Quartz that capacity at these factories could fall by as much as half in February. This will likely force Chinese manufacturers to raise prices to deal with the shortage.
Facebook last week said that the coronavirus will impact production of its Oculus Quest headset, according to UploadVR. The company recently stopped taking new orders for the standalone VR headset.
Coronavirus’ consequences for Big Tech can be felt even outside of its effects on the global tech supply chain.
Several companies have pulled out of this year’s Mobile World Congress (MWC) in Barcelona due to fears of surrounding the virus. MWC is widely considered the most high-profile event of the year for the mobile phone industry. Companies like Intel, NTT Docomo, Sony, Amazon, ZTE, LG, NVIDIA and Ericsson have all canceled their appearances. Others have scaled back their plans for the conference, which is scheduled to begin Feb. 22. TCL, the Chinese multinational electronics company, canceled its scheduled press conference at MWC, but will still attend the show and announce new devices. Samsung will also have a limited presence at the global tech event, with many of its Korean and American employees opting to stay at home.
Huawei still plans on attending, but will require its employees who reside in China to remain isolated for a period of time. The conference’s organizers announced on Feb. 9 they are banning all travelers from China’s Hubei province, and will require all other visitors to prove they’ve been outside of China for at least 14 days, which is the incubation time for the disease. MWC attendees can expect regular temperature screenings and a “no handshakes” policy.
One sector of the tech industry that hasn’t suffered from efforts to contain the outbreak is online entertainment. As millions of Chinese citizens stay home from work and school for days on end, many have turned to video games, movies, and social media for a distraction. Barrons reported that China’s play times and in-game purchases have surged since January. But if the virus continues to spread, threatening one of the world’s largest economies, such gains likely won’t last.
