Coronavirus: the consequences of the epidemic on the tech industry

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Tens of thousands of infections and hundreds of deaths, the epidemic of coronavirus is the main concern of the WHO. Its impact on the global tech industry could be very strong given the central role played by China.

Contagiousness, lethality … medical studies on the new coronavirus (2019-nCoV) are in progress and the preliminary results remain uncertain. Its reproduction rate and mortality would be lower than that of its cousin, the Sras, which was at the origin of an epidemic at the end of 2002. Nevertheless, the coronavirus is transmitted more easily and is more dangerous than the seasonal flu, which explains that he is the source of many fears. Responsible for several hundred deaths, it is a human catastrophe which also has strong economic repercussions, China – which one often presents as the factory of the world – idling for a few weeks. Of course, the high-tech sector is not spared, on the contrary.

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First, on the spot, preventive measures force many factories to remain closed. Workers are asked to stay at health home and teleworking is becoming the norm for those who can. As for the factories which remain open, some of them are faced with problems of supplying components. Across the country, the impact of coronavirus is being felt.

If some suppliers of electronic components are installed in the Hubei region (flash memory, in particular), the lungs of the industry are the cities of Shenzhen and GuangZhou, as well as the essential Beijing. However, in these cities, the coronavirus forced the government to stop almost everything: orders were given not to restart the activity, at least until February 10. Some, like Apple, follow the instructions to the letter: the brand has closed its 42 stores in the country.

"What will be interesting is to see if the manufacturers have followed the recommendations of Donald Trump who, for 2 years, has invited everyone to leave China, via new taxes or new customs duties. Many should have started to set up alternative circuits. There may be some who have not worked in this direction, and they could be more affected than others. The world is tinged with uncertainty and today any good supply chain manager should anticipate this kind of crisis, which should limit the effects of coronavirus ", explains David Baverez, entrepreneur and investor based in Hong Kong.

In full festivities

There is also the question of local trade, many shopping centers remaining closed. It is therefore the brands that sell a lot of products in China that are the most affected, during the Chinese New Year holidays. This is also a factor to take into account when it comes to addressing the coronavirus crisis in China: the New Year is the time of the year when families come together, resulting in huge movements of populations that favor the proliferation of the virus. So many people who, potentially, are kept away from their work, which also complicates the smooth running of economic activity.

But as David Baverez explains, it's actually an unexpected windfall: "China was a stroke of luck, if you can put it that way. This crisis happened around New Year's Eve, a period when the country is still shutdown for one to two weeks. And often when they come back after seeing their families, the employees take on a new job, about a week of training and taking up a job. So in China, we know that for three weeks, productivity is very slow. something that is widely anticipated and there is always between 15 days and 1 month of inventory in the supply chain stocks. This explains the gap between the situation and the fact that Hon Hai (Foxconn factories, editor's note) announces that the coronavirus will only impact its turnover by 1 to 3%. Which has nothing to do with the scale of the crisis ".

Fear of over-reaction

On the side of the players most concerned, we must first mention Huawei and its subsidiary Honor, which alone account for almost 50% of sales on the largest smartphone market in the world. Huawei, not spared by a strong campaign to denigrate its products orchestrated by Washington, therefore suffered another blow. Apple is also strongly affected, the Californian brand having a market share of between 15 and 18% in China. Follow other Chinese brands such as Oppo or Xiaomi, knowing that Chinese smartphone manufacturers represent almost 80% of sales.

But as Emmanuel Peype tells us (co-founder of FastLane, an agency that helps Chinese companies to internationalize and with around sixty employees in China), large Chinese companies will not necessarily be the most impacted: "Paradoxically, foreign companies will undoubtedly be the most affected, due to delays, logistics, deliveries. Especially if there is an over-reaction abroad, there will be more controls, therefore Smaller sellers and small brands will also be the most affected, because large brands have mature logistics, know how to anticipate these risks and have priority in supplies given the volumes they order ".

We must not summarize the high-tech sectors dependent on Chinese economic activity to the smartphone industry alone. As we know, the vast majority of products in the sector are made in China. Televisions, speakers, headphones, computers, smart health connected objects … all these products are massively "made in China"And if it is still too early to get an idea of ​​the extent of the impact that the coronavirus will produce on all these markets, it now seems clear that this cut in the Chinese productive apparatus will not be without consequence , despite the overtime and the double work that will follow.

Towards postponed launches and rising prices?

As for the logistics activity, which is essential in a global economy that turns just in time, it is also strongly impacted. Staff are lacking to operate warehouse rotations, rail and road transport are idling, ports are mostly closed and exports are closely scrutinized anyway, when they are not simply blocked.

Should we therefore expect future stock-outs, launches of rejected products? It is possible, but not necessarily in very serious proportions, says Emmanuel Peype: "When we announce a big product in February and launch it in March, we generally already started production in January or February, even if the bulk of the production is done in March. A priori, if the production lines resume on the 10th, the impact will be measured because we know the Chinese and they will work very hard ". Some effects are nevertheless already being felt: Nintendo has for example announced that the deliveries of the Switch model in the colors ofAnimal Crossing and the restocking of the accessorized game Ring Fit Adventure are going to pay for the coronavirus.

Regarding product prices, they should not be upset according to this market specialist: "I don't think that the prices of the products will increase for the end consumer. We are in such a competitive tech market, the brands will cut corners to be at the right price. Maybe if there are breaks in components major, then that will have an impact. But we are not at all saying that we are going towards a price increase ".

Mobile World Congress under close surveillance

For the moment, elsewhere in the world and in particular at health home, the consequences of the coronavirus are much less significant. Perhaps the most affected event will be the Mobile World Congress in Barcelona, ​​where most of the major Asian brands will significantly reduce their presence. LG and ZTE have for example canceled their conferences, while Huawei will restrict its usually gigantic delegation (around 4,000 people). Precautionary measures are taken, certain manufacturers having sent their representatives in advance. In quarantine for a fortnight, virus incubation period, they will be controlled so as not to be vectors of the spread of the disease.

"The big uncertainty for tech in the immediate future is the Mobile World Congress. This is a major event for Asian manufacturers and it is clear that it will be very disturbed. If most of the brands will be present, there are announcements that have been canceled, and that suggests a delay in the marketing of new products because there is going to be a fluctuation and everyone is wondering about the time that we will really lose on logistics ", concedes Emmanuel Peype. It is this uncertainty that has already prompted large groups to be cautious in their financial forecasts, the coronavirus factor having for example forced Apple and Google to broaden their forecasts for the next quarter.

Still a lot of uncertainty

"We do not know what the situation will be in 15 days, but at this stage of development, the problem seems quite manageable from an economic point of view. The stock market started to go up. But what is strong in China is the symbolism. It is said here that great disasters, such as floods, are a sign that the emperor must change. After 10 years of unbalanced growth, with the appropriation of American technologies, sometimes illegally, and the explosion of trade by the smartphone, China will turn to the growth of the next 10 years, which will be done with Chinese technologies and a new Internet revolution for B2B. This crisis will undoubtedly start a new era in the minds of the Chinese ”, concludes David Baverez.

As for the effective resumption of work, it will not occur on February 10 "only if companies have the equipment necessary to manage health risks, such as masks, thermometers, antiseptic gels", warns Emmanuel Peype. "Now there are shortages on these products, so maybe it will take a little longer. There are rumors of a report, on which the government would work with large companies. But for all activities can use telework, I can tell you that it’s getting organized and that it’s working a lot right now ", he adds.

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