How will coronavirus impact the tech industry?

February 29, 2020

 

Today’s economy is one of globalization, where markets are interconnected and supply chains cross borders. The outbreak of the novel coronavirus (2019-nCoV) in China, an economic superpower, could very well threaten global growth.

 

The seriousness of the threat of the virus to communities should not be downplayed, and neither should its impact on the global economy.

 

According to the International Civil Aviation Organization, airlines worldwide could lose up to $5 billion from January to March, as 70 airlines have canceled all international flights to and from China. Guam’s tourism industry is taking a hit, as well. Local papers report that preliminary numbers compiled by the Guam Visitors Bureau on the week of Feb. 17 show more than 6,000 flight, hotel and optional tour cancellations from Japan and Korea tourists during a peak tourism month.

 

That’s just one industry. There are other industries that will be affected, though the full impact is uncertain. Specifically, there could be lasting effects on the worldwide tech industry.

 

China is the hub for much of the world’s tech manufacturing. Manufacturing plants were temporarily shut down to keep employees at home in order stop the spread of the virus. Some remain closed, while others are in operation, but not at full capacity.

 

The U.S. tech industry is dependent on China as a supplier, as well as a market. Smartphone producers could face loss of revenue and productivity, financial analysts at Goldman Sachs told The Hill.

 

In his report on first quarter financials for 2020, Apple CEO Tim Cook noted the risks to production lines and retail operations, though the impact is unclear. As of mid-February, Foxconn (Apple’s main manufacturer) though open, was not operating at full capacity.

Consumers can also expect production delays from Oppo, Xiaomi, Lenovo and Huawei.

 

Apple also joined several corporations in temporarily closing all its retail outlets and offices for a couple of weeks due to public health concerns. Apple has 42 shops across China. Apple, along with companies like Microsoft and Google, have restricted travel for its employees to and from China and have shut down offices.

 

Qualcomm, the world’s largest maker of smartphone chips, warned that the outbreak was causing “significant” uncertainty around the demand for smartphones, and the supplies needed to produce them, according to CNN.

 

In a report from Mobil World Live, data analytics and research firm Strategy Analytics warned on January 29 that the Coronavirus

outbreak could impact the growth of 5G smartphone shipments for the first half of 2020.

 

Experts in the mobile industry predict that launches of 5G devices would be the highlight in the global smartphone market in 2020, but the coronavirus could cause bumpy 5G sales in some markets.

 

Trade restrictions in the leading market China due to the Coronavirus may cause a “slowdown” in supply and demand for 5G devices across Asia, Strategy Analytics said. 

 

Of course, manufacturing could go elsewhere in Asia, such as Vietnam or Indonesia.

 

 However, these tech companies would have to invest a considerable amount in building the infrastructure needed to sustain manufacturing needs.

 

Then again, tech companies may still move toward diversifying manufacturing and supply chains, considering the recent friction with US-China trade relations, with the recent outbreak adding to the pros for such a move.

 

The outbreak has disrupted the normal flow of business in the tech industry. MWC Barcelona 2020 - one of the most anticipated and well-attended annual trade shows for the mobile communications industry – was canceled. Scheduled for Feb. 24 to 27, more than 100,000 were expected to attend.

 

Though GSMA, the host of the conference, initially reported that the conference would go on with strict measures in place, exhibitors backed out, citing concerns over spreading the virus, and the host eventual decided to cancel the conference.

 

Several smartphone makers announce new products at MWC, like Motorola, HMD Global (Nokia), Sony, LG, Huawei, Lenovo, Oppo, ZTE and others. Though these launches will most likely still go on, other B2B business that relied on making connections and deals at the conference are sorely disappointed at the cancellation.

 

A study by the World Bank states that a severe pandemic could cause economic losses of close to 5 percent of the global GDP, which is more than $3 trillion. Weaker pandemics could still lead to losses of about 0.5% of the global GDP.  

 

This is the worst-case scenario. The impact of the temporary closures has not yet been realized, but I’ll be keeping a close eye on the state of our global economy. 

— Jay R. Shedd is Senior Director of Sales, Marketing and Customer Service at IT&E, the largest wireless service and sales provider in Guam and the Marianas. He has more than 30 years of experience in the telecommunications industry.

 

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