China’s Hubei province has been hardest hit by the coronavirus outbreak. This is having a significant impact on the technology industry supply chain. Factories and offices in the region have been shut down and movement of cargo restricted. All tech companies with production facilities in Hubei are seeking alternative channels to mitigate the impact.
The consumer electronics industry is facing a shortage of displays
Wuhan, the capital of Hubei, supplies nearly half of the world’s organic light-emitting diodes (OLEDs) and liquid crystal displays (LCDs). With production now halted, many TV, PC, and smartphone makers will encounter delays in acquiring display components. Facebook and Nintendo have already said that the outbreak will impact the production of Oculus Quest VR headsets and Switch consoles. Similarly, Asus has warned customers that its ROG II smartphones will be unavailable until further notice.
Batteries will also be affected
China is the global leader in lithium cell manufacturing, posing another problem for consumer electronics companies. The rapid spread of the contagion across the country has led to stringent domestic travel restrictions. This has caused labor shortages in Fujian province, China’s battery manufacturing hub. Industry experts are predicting a 10% drop in China’s total battery output in 2020. This could shrink global battery production by 7%, impacting the manufacture of popular devices like smartphones and tablets, which use lithium-ion cells. Leading battery manufacturer LG Chem has already announced that orders will be affected by the coronavirus outbreak.
Apple likely to be impacted as Foxconn cuts revenue forecast for 2020
Apple is another major company that will be adversely affected by the outbreak. Foxconn assembles iPhones at a large factory complex in Zhengzhou. However, the plant has struggled to return to full production after the new year holiday because of restrictions on worker movement caused by coronavirus. Apple remains confident that it can avoid significant long-term damage thanks to strong inventory. However, it has already warned of global “iPhone supply shortages” and told investors that it will not be able to meet its quarterly revenue targets due to the “temporarily constrained” supply of iPhones and a sharp drop in Chinese consumer spending.
Chip makers could face supply chain disruption in the coming months
Chipmakers have so far avoided the worst of the impact, but many are taking measures to prepare themselves for further uncertainty. Qualcomm, for example, has lowered its Q2 2020 earnings forecast, expecting a drop in demand for new devices in China. Samsung, Huawei, and Yangtze Memory are operating factories at normal capacity but, with provincial bans on travel in place, they could soon face shortages of both labor and raw materials.
Consumer electronics to become more expensive
Several companies, like Panasonic, are now looking to shift production in other countries to reduce reliance on Chinese facilities. Reports suggest that Foxconn has already moved some iPhone assembly to India and Taiwan to combat the outbreak. With locally-sourced raw materials in short supply, and limitations on Chinese imports, supply chain expenses will continue to grow as long the crisis persists.
Chinese vendors are already charging an additional 2% to 3% on components to companies in India. This is a market where over 70% of TV and smartphone components are procured from China. This could make devices like smartphones more expensive in the coming months. Indeed, this is already happening. Xiaomi has raised the price of its Redmi Note 8 smartphone by about $7 in India, citing supply chain disruption due to the outbreak. Over the next two months, if major Chinese cities like Wuhan remain closed, prices of consumer electronics will be subject to significant increases, which could potentially impact sales.
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