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Photograph by China out/AFP via Getty Images
The coronavirus is killing hundreds of people and sickening thousands more. It’s also disrupting the global tech supply chain, threatening the availability of mobile phones, personal computers, and automobiles. That’s triggering concerns about March quarter financial results—and spurring worries about a potential global economic downturn.
While the current crisis raises comparisons to the 2002 SARS outbreak and the 1918 Spanish flu pandemic, for the global economy there are better comparisons. Mirko Woitzik, a risk intelligence expert at German consulting firm Resilience360, which tracks global supply chains, points to the 2016 Fukushima earthquake and tsunami, which disrupted auto industry supply lines, and the October 2011 flooding in Thailand.
At the time of the Thai floods, the country produced 40% of the world’s hard disk drives. The deluge left many factories underwater and triggered a parts shortage that reduced PC production for months, in turn cutting demand for memory chips and other parts.
The U.N.’s Office for Disaster Risk Reduction has estimated that Thailand’s 2011 flood reduced the world’s industrial production by 2.5%.
For now, it’s nearly impossible to measure coronavirus risk—consider the recent disclosures by
Apple
(ticker: AAPL), which is probably more reliant on China for parts, production, and sales than any company not based there. In the December quarter alone, Apple had $13.6 billion of sales in “Greater China,” 15% of total sales. But the impact to Apple goes well beyond those sales.
On its Jan. 28 earnings call, Apple noted that it only had a few suppliers in the Wuhan area where the virus has been most severe. On that call, Cook said Apple had closed one store and that some retail partners had closed stores or reduced hours.
By Feb. 3, though, Apple’s stance had changed. “Out of an abundance of caution and based on the latest advice from leading health experts, we’re closing all our corporate offices, stores, and contact centers in mainland China through Feb. 9,” the company said.
Evercore ISI analyst Amit Daryanani recently noted that 381 of 775 manufacturing and supply locations in Apple’s global supply chain are in China. That only two are actually in Wuhan is now besides the point. Transportation around the country has been restricted, air travel to China has been curtailed, and borders have been closed with Russia, Mongolia, and Vietnam; many countries are quarantining visitors from China or simply not allowing them in. Foxconn—Apple’s primary manufacturer—last week cut its 2020 revenue growth guidance to a range of 1% to 3% from 3% to 5%, citing the impact of the virus.
Japan’s Nikkei newswire reported that three China-based contract manufacturers that produce Apple’s popular AirPods have halted production and have at most two weeks of materials and parts on hand. On Apple.com, delivery dates on AirPods Pro orders are already a month out.
It isn’t just Apple at risk. A
Dell Technologies
(DELL) spokesperson told me that it’s “assessing all options and mitigation plans to help ensure our supply chain remains operational and we’re meeting customers’ needs.” At
HP Inc.
(HPQ), the story is much the same. “Out of an abundance of caution, we have implemented certain travel restrictions for HP employees traveling to, from, and within Asia Pacific,” the company said.
Qualcomm
(QCOM) Chief Financial Officer Akash Palkhiwala said on the company’s earnings call this past week that there is “significant uncertainty around the impact from the coronavirus on handset demand and supply chain.” The company trimmed its profit guidance accordingly.
Citi chip analyst Atif Malik last week cut his first-quarter estimates and target prices for
Qorvo
(QRVO),
Skyworks Solutions
(SWKS),
MagnaChip Semiconductor
(MX), and
Amkor Technology
(AMKR), which are all tied to the mobile phone market, based on disruptions to the supply chain.
Almost every company affected says they are “monitoring the situation.” So are the 100,000-plus people scheduled to be in Barcelona later this month for Mobile World Congress, the year’s largest wireless industry trade show. The show would typically include thousands of attendees from China. GSMA, the trade group that runs the show, says it won’t cancel. But will people go?
South Korea’s LG Electronics (066570.Korea) has already said it won’t be attending. “This decision removes the risk of exposing hundreds of LG employees to international travel which has already become more restrictive as the virus continues to spread across borders,” the company said in a statement this past week.
On Friday,
Ericsson
(ERIC) also pulled out. “As one of the largest exhibitors, Ericsson has thousands of visitors in its hall each day and even if the risk is low, the company cannot guarantee the health and safety of its employees and visitors,” Ericsson said.
So far, two major Chinese firms are still planning to attend. Huawei Technologies says it is “monitoring the situation closely but…currently moving forward with our activities as scheduled.” ZTE canceled a planned press conference, and intends to staff its booth with non-Chinese, but it’s still going as of now. “ZTE will ensure that all the senior executives of our company participating in the high-level meetings will self-isolate themselves in Europe for at least two weeks prior to MWC,” the company said.
Self-isolation doesn’t sound all that reassuring for anyone, including the ZTE execs. I have a ticket for Barcelona, and I’m getting unnerved. On Thursday, a senior executive at a company that’s supposed to have several hundred people at the show told me they were also thinking about withdrawing for safety reasons.
It’s going to be a tough winter.
Write to Eric J. Savitz at [email protected]
