How the recent coronavirus outbreak shut down the tech industry

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Android Central
Android Central
The novel coronavirus presents long-term ramifications for the tech industry.

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COVID-19 is wreaking havoc across the globe, infecting over 75,000 people and killing more than 2,000. An overwhelming majority of the cases are isolated to mainland China, and the country temporarily shut down all offices to contain further spread of the virus.

The shutdown has impacted daily life in China in a significant way. Beijing — a teeming metropolis of over 21 million people — has
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as people stay indoors to risk exposure to the virus. Trade shows are being cancelled or postponed in the wake of the virus, including Mobile World Congress, the largest phone-related event in the world.

Then there's the human cost: although most cases have been contained within China, the disruption to travel and day-to-day services has affected hundreds of millions in the country. Nearly half of China's populace — over 760 million people — are
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as the country tries to contain the outbreak.

China shuts down all factories to contain the coronavirus epidemic


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China is the second-largest economy in the world and the top producer of consumer goods, and the shutdown has affected the global tech industry. All manufacturers — regardless of where they're based out of — rely on China for wholesale production or sourcing components, and the shutdown is having long-term effects for the tech industry.

The coronavirus outbreak has also led to supply shortages as factories remain closed, affecting everyone from accessory makers, phone and auto manufacturers, and retail giants like Walmart. Even Apple announced that it would be missing its Q1 2020 forecasts because of the virus. China's gargantuan industrial machine relies heavily on its workforce, and with workers effectively quarantined to their quarters, the coronavirus will have long-term effects on the country's manufacturing industry.

China is starting to reopen a few factories, but it will take a few months before the country's manufacturing industry is back to full capacity. The country's harsh measures seem to have at least managed to contain the spread of the virus, with most cases limited to the Hubei region.

If you're interested in learning more about global infection rates and see how many are affected by the coronavirus, there's a
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that gives you all the information you need.

How has the coronavirus affected China's supply chain?


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To get a better sense of how the coronavirus is disrupting manufacturing in China, we talked to Sravan Kundojjala, Associate Director at Strategy Analytics. Sravan has been covering China's manufacturing industry for over a decade and is ideally placed to provide insights on chip vendors like Qualcomm, MediaTek, and HiSilicon. Here's his take on the extended shutdown:

  • In general, calendar year (CY) Q1 is seasonally a weak quarter for smartphone device and chip companies. Any disruption, triggered by Coronavirus, is likely to result in even weaker quarterly earnings for smartphone device and chip companies.
  • Qualcomm: Qualcomm is heavily exposed to the Chinese smartphone vendors (Xiaomi, Oppo, Vivo, Lenovo etc.) and Chinese manufacturers accounted for over 40 percent of Qualcomm's semiconductor revenue in 2019. Qualcomm is likely to perform well in Q1 2020 despite the weak seasonality and Coronavirus concerns. Qualcomm's CY Q1 2020 guidance suggests its modem shipments will be down 7-21% year-on-year but revenue will be up 5-21%, driven by high average selling prices of 5G chips and RF front-end chips. Qualcomm is also set to register a strong sequential growth of 8-24% in its semiconductor revenue in Q1 2020, driven by 5G launches.
  • MediaTek: MediaTek's revenue is set to decline 7-15% on a sequential basis but to increase 4-14% on a year-over-year basis in Q1 2020. Not all of this sequential decline can be attributed to Coronavirus as Q1 in general is a weak quarter. MediaTek's Chinese customers accounted for over 50 percent of its total mobile chip revenue in 2019.
  • HiSilicon: HiSilicon, in-house supplier of Huawei, is likely to take a hit as Huawei is heavily exposed to China.
  • Samsung: Samsung's modem business unlikely to be affected as its primary customer Samsung Mobile has low share in China. Samsung's memory business is exposed to Chinese OEMs and is likely to see some turbulence.

There are a lot of things to unpack here. Let's start with Qualcomm: it's interesting to see that Qualcomm is projecting increased revenue to the tune of 8 - 24% in spite of fewer sales, and this is directly attributable to its shift to 5G. Qualcomm's 2020 flagship is a 5G-only chipset, and it looks like the decision to go this route is paying off for the chip vendor.

MediaTek and HiSilicon will be affected to a greater degree as both brands are more reliant on the Chinese market. Of the four major chipset manufacturers, Samsung is the only one that's relatively unscathed as it doesn't have manufacturing facilities in China. Samsung LSI's main customer is Samsung Electronics, and with production largely focused on South Korea and Vietnam, Samsung isn't immediately affected by the virus.

What does it mean for phone manufacturers?


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TrendForce has
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documenting how the coronavirus will affect production in the tech industry. Its predictions state that smartphone production will be down 12% this quarter, the lowest in five years. Smartwatch and wearable segment is set to take a hit to the tune of 16%, and the notebook production is set to go down by 12.3%.

Chinese phone brands dominate sales in most parts of the world, and we talked to Huawei, Xiaomi, Realme, and OPPO to find out how the coronavirus and the ensuing shutdowns have affected their short-term plans.

Xiaomi


Xiaomi was set to unveil the Mi 10 series to a global audience on February 23, but that event has been pushed back. Xiaomi is planning to launch the phone sometime later this quarter, but the Chinese launch was relatively unaffected. Xiaomi pushed its launch event back by two days, but it managed to launch the Mi 10 series in China on February 13, with both the Mi 10 and Mi 10 Pro set to go on sale in the country shortly.

Xiaomi estimates that the extended shutdown will likely impact its supply chain, with the manufacturing evaluating the situation on a daily basis. Xiaomi had to hike the price of the 4GB/64GB variant of the Redmi Note 8 temporarily because of the impact. Finally, the company says it is exploring alternative supply channels to meet demand locally. From a Xiaomi spokesperson:

Business is critical but the value of human life is the biggest priority for the company. We are continuing to adopt all measures to ensure the safety of our employees and partners and continue to evaluate the situation real time. The extended shutdown in China is likely to have an impact on our Supply chain and, there is a risk of impact on overall quantum of component supplies.

While we are working to explore alternative supply channels for components and raw materials, the immediate impact is that the short supply might cause some negative pressure on prices of these components. This has led to the increase in the price of the product temporarily. We apologise for the inconvenience.
Huawei


Huawei is China's largest phone manufacturer, and the one that seems to be weathering the storm the best. It is the only brand that hasn't postponed its MWC launch, with the manufacturer still set to showcase new devices on February 23. It will livestream the event, and it is likely we'll see the P40 series make its debut next week.

Huawei's tribulations with the U.S. government have begun nearly a year ago, and the manufacturer has been stockpiling hardware in an event where it is cut out from sourcing components. That has paid off for the brand, as it seems to have adequate parts at least for the short-term.

Realme


Realme made huge gains in India over the course of 2019, and the BBK-owned brand was all set to showcase its products on a global stage for the first time at MWC 2020. That wasn't to be, and Realme has announced that it will roll out its latest devices next month, including its first TV.

With Realme's sales limited primarily to India, the brand has mentioned that the extended shutdown isn't causing significant delays to its rollout plans. From Realme:

There has been no significant effect in stocks/production for realme in India during the epidemic period. All realme smartphones sold in India are manufactured in India, with more than 7500 local workforce and more than 50% local supplies, Our supply chain has not been affected for the time being. We are all set to bring many exciting tech and products first in India.

Due to objective reasons such as logistics obstruction and delay in the resumption of work caused by the epidemic, some supplies from China might face slight delays but no major impact as of now is there for our future product plans. We are closely monitoring the impact caused to the whole smartphone industry and will take all necessary measures and will ensure production and sales can satisfy the needs of Indian consumers.
OPPO


OPPO is set to roll out the Reno 3 series shortly, and while its launch plans don't seem affected to a large extent, the company's spokesperson wouldn't comment on any issues with the supply chain.

It is possible that BBK is just as affected as other manufacturers; only not saying it publicly. We'll have to wait and see how this situation plays out, and will update as we get more information.

Samsung


In characteristic fashion, Samsung declined to provide a statement when asked for a comment. The South Korean manufacturer doesn't have any phone manufacturing facilities in China anymore — having
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— but it still sources components from the country.

Samsung is the one phone manufacturer that isn't directly affected by the coronavirus shutdown, as the brand now makes most of its phones in Vietnam and India. But the brand isn't fully immune, as it still relies on China for its DRAM business.

We still don't know how long it will take for things to settle down


Researchers are working on a vaccine for COVID-19, but that's still 12 to 18 months away. For real-time updates on the outbreak and preventive measures, you should follow
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. The latest data suggests the spread of the contagion is starting to slow down, but with tens of thousands of people affected, this is far from over.

We'll be tracking the virus's impact on the tech industry closely, so check back every few days for the latest updates.

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