Coronavirus is Hitting Tech Companies Hard And Could Soon Hurt Your Wallet Too

Street view of Wuhan, Hubei province, China. (Reuters)

Street view of Wuhan, Hubei province, China. (Reuters)

China accounts for 16% of global production output. Coronavirus has forced companies to shut stores and offices with factories and supply chains disrupted.

  • News18
  • Last Updated: February 10, 2020, 1:21 PM IST

By the time the deadly Coronavirus outbreak was finally declared as a global health emergency at the end of last month, the impact on the various sectors of the Chinese economy was already being felt. Tech remains hit badly, with production stalled, supply chains have come to a grinding halt and companies shutting offices in the country to keep employees safe. As time has passed, the impact of what is happening in China because of the Coronavirus is being felt globally too.

The World Health Organization (WHO) has said that a US$675 million global response plan is needed to fight Coronavirus, even as the global infections have surged past 30,000. The global death toll has also crossed 800 while Chinese authorities have confirmed 3062 new cases and 97 more deaths, which takes the toll to 908 deaths and 40,171 cases in the country. China’s economy accounts for more than 16% of the global production output, and that includes everything from iPhones to copper.

With that as the backdrop, tech companies have over the past few weeks taken the decision to shut down offices and stores in China. Apple, Samsung, Microsoft, Google, Facebook, Amazon and Tesla, to name a few, took the decision to not reopen offices post the Chinese Lunar New Year holidays last month, or extended the break with the policy to work-from-home. The same is also true for Chinese companies, including Xiaomi, Huawei, Vivo and Oppo. Most companies have also restricted employees from traveling to China. Starbucks has closed 2000 outlets in China, while KFC has also shuttered thousands of outlets in the country after one of their employees was diagnosed with the Coronavirus. Yum China, which operates Pizza Hut, Taco Bell and KFC outlets in more than 1,300 cities in China, has introduced what it calls “contactless food deliveries” to protect their employees. According to reports, videos on the Chinese social media site, Weibo show delivery drivers having their temperature recorded before wearing Hazmat suits and face masks and disinfecting all food packaging while leaving the restaurant.

Factories are also non-operational in China, which is grinding the supply chain to a halt. Electronics manufacturing is disrupted significantly. At the same time, materials and components that may be required by factories located outside China, are also not being shipped. The ripple effect, unprecedented in terms of something we have never seen before. Product shipments will be hit at least in the next couple of quarters. This will also hurt the next set of product launches, because the prototyping, build stages and advance production is not happening as we speak. Perhaps, TF Securities analyst Ming-Chi Kuo’s forecast should put things in perspective. “Our latest survey indicates that the iPhone supply is being affected by the coronavirus and, therefore, we cut the iPhone shipment forecasts by 10%,” he said. Foxcon and Pegatron, two of the biggest employeers in China, make almost all of the iPhones, but that’s just one thing they do. The Nikkei Asian Review reported that the Chinese authorities have not allowed Foxcon to reopen its Shenzhen plant over Coronavirus prevention concerns. Foxconn’s Zhengzhou plant has also not reopened. Apart from being the largest production base for Apple iPhones, the Foxcon factories also churn out electronics and gadgets for the likes of Google, Amazon, Dell, HP and Huawei, to name a few.

“The local governments do not want to risk the potential virus spreading in such a labor-intensive working environment. No one wants to bear the responsibility of restarting work at this critical moment,” the Nikke Asian Review reported.

Consumer prices in China have already recorded their biggest jump since 2011 as prices rose 5.4% in January as the effects of the Coronavirus disaster became clear, according to numbers by the National Bureau of Statistics, reported by the Financial Times.

Earlier this month, Asus had warned customers that there will be delays in the availability of their popular gaming phone, the ROG Phone II. They also cited the “disruption in supply chain” for the temporary shortage.

Chip maker Qualcomm has already said that the Coronavirus outbreak will cause significant uncertainty regarding supplies needed to produce smartphone processors. This will have a significant impact on the company’s ability to produce these critical components which phone makers will then use in the phones they make.

It is not just global brands who are facing delays and uncertainty. Chinese companies such as Xiaomi, Oppo, Huawei and Lenovo are facing operational delays because of the Coronavirus. “Companies which rely on components from Hubei will be the most impacted, such as Lenovo. For companies like Huawei, whose operations are in Guangdong, the situation is less severe, although no company right now will be able to resume factory operations at 100 percent capacity,” Nicole Peng, mobile analyst at Canalys, told the South China Morning Post. Oppo is relying heavily on production facilities in India and Indonesia to soften the blow.

Xiaomi is already looking at a situation where several of their products are already out of stock. “The planned release of new products has been disrupted and we are making adjustments,” said Lu Weibing, vice-president of Xiaomi in a Weibo post last month. “The smartphone industry will face difficulties this year,” Lu Weibing added.

In the short term globally, there will a gradual reduced availability of a lot of tech products that emerge out of Chinese factories, or rely heavily on components from the region. This will lead to lesser availability of products in the near future, but a lot of that will depend on how long the factories remain shut in China. Eventually, prices of tech products will also see an upward correction, which will directly hit the consumers’ wallets and budget.


Coronavirus Outbreak Causing Unexpected Growth in Games, Video App Downloads in China

Illustrative image of Plague Inc, a strategy simulation game that lets players infect the world . (Photo: Reuters)

Illustrative image of Plague Inc, a strategy simulation game that lets players infect the world . (Photo: Reuters)

The prospect of being stuck in quarantine is leading to games and video streaming apps being one of the very few to benefit from Coronavirus, as per Reuters.

  • Reuters
  • Last Updated: February 4, 2020, 4:07 PM IST

Online games and short video apps have been among the few beneficiaries of China’s virus outbreak, raking in millions of views and downloads as people stuck in self-quarantine at home seek entertainment and ways to beguile their time. The shift has even drawn companies more used to doing business in showrooms, such as carmakers Tesla and Mercedes-Benz, to promote products heavily online during the week.

Chinese travel and gather with family and friends during the traditional Lunar New Year holiday, but many postponed or cancelled their plans over concerns sparked in mid-January about the spread of a new virus that has killed 420. “I only use my mobile phone for three hours a day at work, but at least eight hours every day during the Spring Festival, because it’s so boring,” Lu Zhang, a junior high school teacher in eastern Shandong province, said of the enforced holiday.

Investors have seized on the trend, with shares of Chinese game publishers, such as Tencent, rising 2% in Hong Kong on Tuesday, outstripping a rise of 1% in the benchmark, while in New York, NetEase rose nearly 3%. U.S.-listed shares in Chinese video platform Bilibili rose almost 7%, while shares of search engine Baidu and e-commerce giant Alibaba also rose. Five mobile game developers, including Ourpalm, surged by the maximum allowed 10% on Tuesday.

Weekly downloads jumped 77% on ByteDance’s Xigua video app from Jan. 20 to Jan. 26, after it announced plans to stream the premiere of a movie, “Lost in Russia” for free, data from performance tracker App Annie showed. “My screen time yesterday exceeded 10 hours,” one Shanghai resident, identified only as Wang, said in a social media post, adding, “What do you all suggest I do other than look at my cellphone?” Also popular are health and fitness apps, such as Keep, which livestreams fitness classes. Its revenue surged 15% for the week, while healthcare app Pingan Good Doctor saw downloads jump 1,186%.

“We believe that China internet and logistics companies are somewhat sheltered,” from the impact of the virus outbreak, analysts from Bernstein Research wrote in a Monday note, amid a growing trend for all products and services to move online. Tencent’s blockbuster mobile game, “Honour of Kings” made up to 2 billion yuan ($286 million) on the Jan. 24 eve of the holiday, estimated Pei Pei, an analyst with Sinolink Securities Co, exceeding all the Chinese mobile games on Apple’s app store during the entire week-long break in 2018. Tencent declined to comment.

Strategy simulation app “Plague Inc.”, which jumped to the top of the charts in Apple’s app store, retained its popularity. The game, which allows users to create and evolve a pathogen to destroy the world, generated 78,000 downloads in January, up from 16,000 in December, according to Sensor Tower. “Many students play games during the Spring Festival,” said the junior high teacher, Lu, adding that she spent more than five hours each day playing poker, among other games. “Sometimes they invite me to join when they see me online.” U.S. electric vehicle maker Tesla Inc, which started delivery in December of cars built at its $2-billion Shanghai plant, stepped up daily livestreamed sales events on video app Douyin to highlight features of its vehicles.

Several sales dealers for Mercedes Benz also took to the WeChat app with a link to a 360-degree interior view of its GLB compact SUV, simulating the passenger experience and offering close-ups of the seats’ leather stitching details and dashboard. “Not leaving home, so use virtual reality to look at cars!” one of the representatives exhorted viewers.


Coronavirus Affects Tech Supply Chains as Korea Feels the Heat

The new coronavirus-triggered angst appears to be spilling over to the Korean corporate realm as the global supply chain is feared to face some disruptions, industry watchers said Sunday. With the new coronavirus killing more than 300 people in China so far, Beijing recently decided to extend its Lunar New Year’s holiday in some areas of the country in what could be a move that can disturb the normal operations of South Korean firms with manufacturing bases there, Yonhap news agency reported.

The extension of the holiday that originally started January 25 was earlier announced only in Hubei province in central China, where Wuhan, the epicentre of the new virus, is located but was later expanded to other areas as the number of patients skyrocketed at an alarming pace. South Korea’s exports are poised to face a setback should the spread of the virus not be contained soon, industry watchers said, as local firms with production facilities in China have been suspending or scaling back their operations in the world’s No. 2 economy.

South Korea’s top tech giant Samsung Electronics Co. decided to shut down the operations of its home appliances production line in Suzhou, eastern China, until next week in tune with the extended holiday. LG Electronics Inc. and SK Innovation Co. also plan to put off the reopening of their Chinese production line until the end of next week. LG Chem Ltd. said it has sharply lowered the operational level of its battery line in China as well. Korean chipmakers and display makers, on the other hand, have been maintaining the routine operation over the holiday, although LG Display Co. said it is considering closing down its facilities depending on the development of the issue.

“We already secured enough inventory in preparation for the Chinese New Year’s holiday, but it is inevitable for us to face troubles if the situation is drawn out over a long period,” a SK Innovation official said. Chipmaker SK hynix Inc. said South Korean firms will eventually face some disruptions in their operations and production if the issue is protracted. Industry watchers said the rapid spread of the new coronavirus has already prodded South Korean carmakers to scale down their production as the supply of some auto parts has been disrupted by the spread of the new virus.

SsangYong Motor Co. earlier said it will suspend the production of its plant in South Korea through February 12 amid a delay in the supply of wiring harnesses, a part used to supply power in an automobile. South Korean carmakers depend heavily on China for the supply of parts. “As many auto parts makers have relocated to China to cut costs, it will not be easy for them to return home,” said Lee Hang-koo, a researcher at the Korea Institute for Industrial Economics & Trade.

Numerous South Korean firms, including Samsung Electronics, have kicked off task force teams, but the companies are likely to continue to face uncertainties as the new coronavirus situation is changing every minute, industry watchers added.

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