How COVID-19 Threatens to Disrupt Overseas Tech ManufacturingFebruary 27, 2020 by Tyler Charboneau
While coronavirus has already made an undeniable mark on 2020’s conferences, the growing outbreak has also hindered manufacturing in southeast Asia.
Companies are weighing profit-and-yield losses against employee safety concerns. Thankfully, many have placed operations on hold and withdrew their attendance from global electronics conferences.
Tech Corporations Take Precautions
Technology giants like Foxconn and Apple temporarily halted operations of Chinese factories and stores. Countries have ceased air travel to and from China in recent weeks. Experts expect this labor slowdown to impact device production. Foxconn also contracts with other leading consumer-electronics companies to fulfill orders.
Retail stores across China have since been closed, though Apple is progressively lifting these precautionary measures. Apple has announced the reopening of multiple stores nationwide. These locations lie outside of China’s COVID epicenters—though they claim multiple cases themselves. Companies like these do rely on semiconductor manufacturers like TSMC for vital internal components.
A graphical depiction of the COVID-19 virus. Image used courtesy of the Centers for Disease Control and Prevention
Semiconductors and Foundries
National Instruments, leading producer of automated test equipment, has acknowledged the unpredictability of the Chinese outbreak. Companies are working closely with supply chain partners to avoid delays and materials shortages. Response plans are crucial risk management tools—for both National Instruments and others. Manufacturers with Chinese connections are taking cues from the Centers for Disease Control, World Health Organization, and government entities.
Prioritizing Safety Over Production Disruptions
Memory manufacturer Micron is expected to experience a noticeable decrease in orders. Their stock has also taken up to a 4.6% hit due to lowered demand. The company has a facility in Xi’an, China, but virus impacts have been unclear. Samsung Semiconductor’s Xi’an facility has reportedly been unphased by comparison.
The number is staggering and reflects anticipated demand worldwide. Companies like these maintain some of the most complex supply chains in the world. Any disturbances to major manufacturing facilities can disrupt production. According to regional news outlets, Apple is moving the production of key devices out of China to neighboring Taiwan.
The viral outbreak is not only limiting production; it’s forcing tech companies to divert resources in favor of increased safety. Doom and gloom don’t rule the day entirely, however—sources report that TSMC’s foundry output is largely unaffected by coronavirus. Orders from key customers like Huawei have remained strong.
Micron's first manufacturing facility in China. Image used courtesy of Micron Semiconductor (Xi'an)
Assessing Overall Industry Trends
A report earlier this week suggested that the virus could “halve China’s smartphone sales in the first quarter.” Delays and public dispersion are preventing new products from hitting the market. Resumption of work across all industries will determine if manufacturing lags or accelerates.
We may expect to see manufacturing constraints in the PC realm. Lenovo, HP, Dell, and Apple ship the highest number of units worldwide. The components for these are largely created in China. Many of these notebooks are also assembled in Chinese facilities. Analysts have downgraded shipment estimates by roughly 12.3%. If the outbreak worsens, these shipments will almost certainly decline further.
A map detailing the coronavirus impact on the electronic supply chain. Image used courtesy of Z2Data
Impacts Felt Both in and Outside of Wuhan
Materials shortages in the Chinese supply chain may also threaten automotive manufacturing. Not all car companies can rely on outside factories or suppliers—leaving them at the mercy of work stoppages and outbreak containment. In fact, it's forecasted that the global automotive market will suffer a year-over-year decline of 14%.
While these industries are distributed across China, those in Wuhan face the most adversity. Let’s consider the optical communications realm. Twenty-five percent of the global fiber optic market is concentrated in Wuhan. Local companies face extended shutdowns and uncertain within the epicenter of this outbreak. The situation may certainly improve, but it could grow more dire and such shortages could impact multiple industries simultaneously.
There are an estimated 5,057 Chinese manufacturing sites impacted by the virus. Forty-three of these facilities were shut down completely. There are 3,855 Chinese component suppliers affected, hampering production across a wide swath of industries. There are as many as 41 commodities at risk as a result. These numbers suggest that widespread effects will continue to be felt as the outbreak progresses.
Time Will Tell
The tenacity of the virus will influence companies to act accordingly. There are many things we’ve yet to learn about COVID. Companies will be able to act more decisively as more data emerges; for now, caution has won the day.
Experts predict that China could lose 2% of GDP growth in the first quarter of 2020. China has become much more crucial a supply chain partner in recent years. Global manufacturing impacts will be magnified should the outbreak worsen. As some companies reopen and others close down indefinitely, we’ll get a much clearer look at COVID’s long-term influence.