Coronavirus Crisis: The IT Industry Prepares For The Worst
While the spread of COVID-19, a.k.a. the coronavirus disease 2019, appears to be slowing, the IT industry is hoping to mitigate risks to their employees and their businesses, with many canceling conference participation or warning of financial risks.
COVID-19 Keeping IT In Uncertainty
The coronavirus epidemic that hit Wuhan in central China has become a worldwide tragedy, with over 75,000 cases of infection and 2,000 deaths reported so far. The vast majority of cases have been near the epicenter in Wuhan, and the Chinese government responded with travel restrictions and an extended Chinese Lunar New Year holiday period to attempt to contain it.
For IT manufacturers that feed the world's insatiable demand for PCs, displays, mobile phones, semiconductors, and more, the coronavirus, also known by its formal name COVID-19, has meant disruption of manufacturing and supply chains. However, the extent of that disruption has yet to be felt, and may not be felt. Because the epidemic hit around the Lunar New Year holiday, most companies had already planned to shut down for a week or more, and purchasers had prepared component orders early. That has kept the IT industry impact to a minimum so far. But businesses are warning that, if restrictions on travel are not lifted soon, manufacturers will not be able to get enough workers and the transport system will disrupt supplies.
For the IT industry, travel restrictions have meant the cancellation of a major conference, the pulling out of other events by vendors wary of travel, reduced financial guidance from key vendors like Apple, and more.
For a look at the impacts so far, turn the page.
Michael Novinson, Gina Narcisi, Kyle Alspach, and Dylan Martin contributed to this article.
Channel Keeping An Eye Open
When Insight Enterprises last week reported its fiscal fourth quarter 2019 financials, Ken Lamneck (pictured), president and CEO of the Tempe, Ariz.-based global integrator, responded to an analyst's question about the potential impact on its business from the coronavirus by saying the company is keeping an eye on possible impacts not only on its China and Hong Kong operations but also on its worldwide supply chain.
When asked by another analyst about any impact Insight Enterprises saw during the fiscal quarter from the ongoing coronavirus situation, Lamneck said that his company has three locations in China and one in Hong Kong where employees are currently working from home.
"[Government orders to work from home were] extended another week, as you know, so [it's] certainly impacting business in the region," he said. "No question about that. For us, of course, it's a small portion of our business, so we're not going to see any material effect there."
Insight Enterprises is also closely monitoring supply chains for impact from the coronavirus, Lamneck said.
"I think [the virus impact] overlapped a little bit with the Chinese New Year, so many of the OEMs of course account for that already," he said. "So this is sort of now an extension of maybe ... Chinese New Year, which everybody accounts for, looking more like a three-week Chinese New Year situation. So if that goes beyond that, I think it definitely starts to impact the supply chain. But at this stage, we're monitoring closely but haven't seen any impact or sort of hoarding of product or anything. But again, it's a pretty dynamic situation. If that continues beyond that, then I think we might see some impact there. But today I’d say nothing at this stage."
IBM Pulls Out Of RSA
IBM Friday was the first high-profile vendor to cite the coronavirus outbreak as the reason to publicly cancel its participation in the RSA Conference scheduled to run from Feb. 24-28 in San Francisco.
IBM, which was originally one of nine platinum-level sponsors at the annual security-focused RSA Conference, said the company decided to cancel its appearance out of an abundance of caution.
“The health of IBMers continues to be our primary concern as we monitor upcoming events and travel relative to Novel Coronavirus (COVID-19),” IBM said in a emailed statement to CRN. “As a result, we are cancelling our participation in this year’s RSA conference taking place February 24-28 in San Francisco.”
For now, RSA is still scheduled to be held.
Mobile World Congress 2020 Cancelled
Mobile World Congress 2020 in Barcelona late last week was officially cancelled because of concerns about the coronavirus.
Prior to the conference organizers cancelling the world's largest annual telecom conference, scheduled to begin February 24 in Barcelona, Spain, many of the world's largest telecom vendors had already proactively pulled out of the conference. These included Cisco Systems, Ericsson, Facebook, Intel, LG, and Sprint.
With the tech world's heavy hitters out of the lineup, the world's biggest telecom show would have been "impossible" to hold, according to GSMA Association CEO John Hoffman.
"With due regard to the safe and healthy environment in Barcelona and the host country today, the GSMA has cancelled MWC Barcelona 2020 because the global concern regarding the coronavirus outbreak, travel concern and other circumstances, make it impossible for the GSMA to hold the event," said the GSM Association, the organization that runs MWC Barcelona, said in a statement.
Embedded World 2020 Uncertainty
As of Tuesday, Embedded World 2020 is expected to be held as planned from February 25 to 27 in Nurnberg, Germany, despite a large number of high-profile companies which have cancelled their planned visits due to concerns about the coronavirus crisis.
Roland Fleck, one of the co-CEOs of NurnbergMesse, which is holding the conference, said Tuesday in a statement that the venue has this year so far held three successful exhibitions attended by over 150,000 exhibitors and visitors.
"Thus, our visitors can expect highly professional conditions and valuable experience at embedded world (sic)," Fleck said in his statement.
Peter Ottman, the other co-CEO, said in a statement that the organization regrets the fact that some customers cancelled on short notice because of the coronavirus problem.
"Precisely because we place the highest priority on the health of our customers and employees alike, we carefully weighed the various aspects involved and arrived at the following conclusion, after consultation with our health authorities: embedded world will open its doors on Tuesday of next week, as planned," Ottman said in his statement.
For many companies, however, the risks from the coronavirus outbreak outweigh the benefits of attending. Among those cancelling their trip to the exhibition, according to Electronics Weekly, are Digi-Key Electronics, the Thief river Falls, Minn.-based electronics components distributor; Cambridge, U.K.-based processor developer Arm; Kyoto, Japan-based Rohm Semiconductor; and Glasgow, U.K.-based USB developer FTDI. Israel-based developer of edge computing products Solidrun also cancelled its appearance.
Nvidia Expects $100M Revenue Hit From Coronavirus
Nvidia Thursday said it expects its revenue to take a $100-million hit in revenue in its first fiscal quarter 2021 quarter due to the impact of the coronavirus outbreak. The company gave the guidance as it reported its fourth fiscal quarter 2020 financials.
"While the ultimate effect of the coronavirus is difficult to estimate, the company has reduced its revenue outlook for the first quarter of fiscal 2021 by $100 million to account for its potential impact," the company said in a statement.
Apple Says It Will Not Meet Revenue Plans
Apple on Monday said it no longer expects to achieve its latest revenue guidance given the impact of the coronavirus epidemic on iPhone production and sales in China. Apple's guidance warning comes a week after its contract manufacturer Foxconn got permission to re-open two of its China-based factories after work was disrupted because of the coronavirus. However, Apple said in an investor update that it is experiencing a slower return to normal conditions than anticipated.
The company cited constrained iPhone production--presumably from factories lacking full staffing--as well as lowered demand in China for its expected guidance miss.
Last week, market research firm TrendForce said it was slashing its forecast on iPhone production in the quarter by 10 percent, or 4.5 million units.
The coronavirus crisis is creating temporary constraints in iPhone supplies worldwide, Apple said in its statement.
"While our iPhone manufacturing partner sites are located outside the Hubei province — and while all of these facilities have reopened — they are ramping up more slowly than we had anticipated," the company said. "The health and well-being of every person who helps make these products possible is our paramount priority, and we are working in close consultation with our suppliers and public health experts as this ramp continues.
Meanwhile, demand for Apple products in China has taken a hit with many stores closed, reduced hours at other stores and "very low" customer traffic, Apple said.
Help Is Coming
Ergotron, a St. Paul, Minn.-based builder of custom equipment and systems for healthcare and other industries, last week teamed with Ingram Micro China to build and donate 24 medical carts to two hospitals in Wuhan, China, which is the center of the coronavirus outbreak.
The 24 Ergotron StyleView mobile medical carts were assembled in the company's Dongguan, China-based facilities and transported 600 miles to Wuhan for use in that city's Huoshenshan and Leishenshan hospitals. Those hospitals became famous for being built in a matter of days to help counter the lack of medical facilities to help residents in the area deal with the coronavirus emergency.
The carts, funded in part by Ingram Micro China, are slated for use in telemedicine applications and to help process electronic medical records, Ergotron said.
Semiconductor Manufacturing Slowdown
TrendForce, a Taiwan-based provider of technology industry market intelligence, reported on Monday that while China's semiconductor fabrication facilities have a high degree of automation, full fab utilization will take time because of labor shortages and traffic restrictions. That could lead to a drop in component shipments for at least the first quarter of 2020.
Memory supplies are less likely to be impacted, TrendForce said, because of existing shortages of supply starting well before the coronavirus crisis started and because the DRAM manufacturers have special licenses from China's government to ship products throughout the country, including to areas under quarantine.
Wafer production for display panels are not impacted by the coronavirus, but the module makers and display panel makers are impacted by personnel shortages and domestic traffic issues caused by the crisis.
About 25 percent of the world's fiber optics supply chain is in and around Wuhan, the center of the crisis, a situation which will likely indirectly impact China's 5G development. IoT development is not likely to be impacted by the coronavirus unless the outbreak persists, TrendForce said.
Display Panel Production Disrupted
IHS Markit, a London, U.K.-based technology analyst firm, reported January 31 that the coronavirus crisis was impacting display panel production at five factories in Wuhan, China, the epicenter of the outbreak The five factories produce LCD and OLED panels, and were experiencing near-term slowdowns in production.
China is expected to account for about 55 percent of worldwide display manufacturing capacity in 2020, and the disruption in display panel could result in a 10 percent to 20 percent drop in capacity utilization.
The production of televisions, computer displays, and notebook PCs could all see impacts, IHS Markit said.
The coronavirus crisis could also result in delayed ramping-up of manufacturing at new display fabs in the first half of 2020, the analyst firm said.
Lack Of Components Could Impact Notebook PC Output
Taiwan-based analyst firm Digitimes Research reported Monday that, while notebook PC manufacturers have resumed production in China, a shortfall in component production resulting from the coronavirus outbreak could short-circuit notebook PC production if workers are not able to return to work at the factories.
Several China-based component suppliers are still waiting for local government approval to re-open their plants, Digitimes reported.
Because over 90 percent of global notebook PC production is centered in China, the coronavirus outbreak and the subsequent labor and component shortages could cause first quarter 2020 global notebook PC sales to fall sequentially by 29 percent to 36 percent, as opposed to early projections of a 17-percent sequential fall, Digitimes reported.
In response, Taiwan-based notebook PC vendors including Quanta are working to move part of their China-based production to Taiwan, Digitimes said.