As the coronavirus outbreak (2019-nCOV) has rapidly moved from a small-scale threat to a global health emergency, according to the World Health Organization, it has disrupted economic markets, international travel, and another key sector: Global technology markets.
“A prolonged outbreak can drastically affect the manufacturing obligations,” Nishant Singh, head of technology and telecoms data at GlobalData, said in a press release. “This will impact the product release roadmap of these technology giants.”
China itself has nine of the top tech companies in the world — such as Alibaba, Tencent and Baidu — almost equal to the US, which is home to the other 11 among 20. The coronavirus will have dire impacts on technology giants that are China-based, such as Huawei, ZTE and device manufacturers like Xiaomi, Oppo and Vivo, and will test these companies’ ability to bounce back after a major setback.
And many other consumer devices, such as Apple’s iPhones, Amazon’s Echo smart speakers, Xbox, and Playstations are produced in China, as are PCs and related products, a staple of the enterprise.
According to Koray Kose, a senior director analyst on Gartner’s Supply Chain Sourcing and Procurement team, “the vast majority [of tech giants] have either direct or sub-tiers into China.” Other industries are affected, as well –– those that produce semiconductors, chips and automotive and medical devices, for instance.
The outbreak will likely have an economic impact at a loss of 1% in the first quarter for China’s GDP, according to Kose. “For now, the major focus is China but we see close neighbors developing fast, especially Southeast Asia,” Kose said. “It’s a wake-up call for companies to take these impacts seriously.”
How operations are affected in China
Travel limits are posing a real problem for tech giants like Amazon, Microsoft, and Apple. And so are office closures. Google has temporarily suspended its offices in China, Hong Kong, and Taiwan. And Tesla’s Shanghai plant is also being temporarily suspended and will result in a drop in production.
The coronavirus is posing a unique obstacle to Apple, which has suppliers in the Wuhan area. Apple is in the top five smartphone vendors in the country. The tech giant draws a significant portion of its revenue –– nearly 15% –– from sales in China, according to GlobalData. In a recent earnings call, Apple CEO Tim Cook said the company is “conducting temperature checks for [China-based] employees” and “frequently deep-cleaning our stores.”
Earlier this week, ZDNet reported that Apple would be suspending operations there –– and the reopening would be delayed to February 10. Apple also closed a retail store, and many of its partner stores have closed shop as well. Expecting a drop in sales, CEO Tim Cook said he was “working on mitigation plans to make up any expected production loss.”
Still, most manufacturing hubs are still conducting business as usual. Foxconn, which makes many products for Apple, Intel, Microsoft, and Sony, will not be making any adjustments due to the 2019-nCoV. Neither will Pegatron, a large-scale manufacturer of PC supplies.
Preventing further damage
Technology like social media, advanced analytics, and machine learning have helped locate instances of the virus and map its trajectory. For instance, the Center for Systems Science and Engineering created a live dashboard to display real-time geographic locations of the outbreak, using data from the WHO. But if the spread of the virus continues, the production and distribution of tech will face hurdles.
Companies are taking steps to off-set the losses. According to Kose, “it’s about containment and awareness –– meaning putting in measures to slow down or stop the virus from getting to your own supply chain through prolonging vacations, closing down locations temporarily, restricting travel.” Additionally, knowledge of the supply chain –– such as “what parts, sub-assemblies, and who are the second and third tiers” –– is critical, he says. “It’s important to buffer inventory now and stock locations within reach, and outside the areas with limitations at least for the next few months, if not the quarter,” he adds.
The key lesson, Kose said, is to predict when these kinds of systematic disruptions will occur. “It’s time to review the risk-appetite,” he said, which is “pivotal for the success of the business strategy.”