Coronavirus affects hardware: impact on the industry and the world economy
The coronavirus situation threatens the lives of dozens of thousands of people, as well as the world economy. Since January 22, China's cities are closing for quarantine. That means all factories stopped working for more than a month. The supply chain of components has been disrupted all over the world. Wuhan, the most important production and logistics center, has been hit hardest.
Taking into account that China provides about 17% of the world GDP, the situation has become worldwide. Last week was fatal for the markets –– panic sales of risky assets began, and the vast majority of companies fell by 15-20%. Such kind of a large-scale collapse was last seen in 2008, during the global economic crisis. Purchasing Managers' Index (PMI) in China has reached a record minimum for the last 20 years – 35,7.
Facilities of publicly-traded companies engaged in prominent supply-chain production by industries. Data source: Bloomberg
Technological companies have become the main victims. China accounts for about 35% of chip sales. That's why the smartphone, PC, automotive, and other electronics markets are now so vulnerable. For example, Apple and HP have been experiencing a drop in the last week.
Bernstein analyst Stacy Rasgon believes that the weakness of business in this field will not last long. However, Promwad is considering a possible transfer of manufacturing facilities closer to European customers:
"I think this trend will be massive, and most companies will somehow diversify their production capacity in favor of production closer to the client, on the EU and US markets. Thus, the European hardware companies will have an opportunity in additional contracts moved from China. But this is a weak consolation. Of course, we wish that the story with the coronavirus would end soon, and everybody would switch to the normal routine," says Marketing Director of Promwad Yuri Rosolko.
Meanwhile, the increase in the number of cases in China is declining. A new problem is a speed with which coronavirus is spreading around the world. South Korea, Italy, and Iran are now in the center of attention. If the tendency doesn't change, the epidemic will turn into a pandemic. In this case, production around the world will stop due to quarantine.
Technological companies feel problems not only with supplies but also with doing business in general. A recent shock for all was the cancellation of the largest media event in the Mobile World Congress, which was to bring together more than 100,000 participants in Barcelona.
Market leaders, one after another, began to refuse participation in another significant event –– Embedded World. The exhibition took place, but the economic effect for all parties was much lower than expected. Companies lost the possible contracts, the organizers –– huge sums of money, and the host parties did not receive anything from visitors of the exhibition. In such a way, the sales departments of many companies noted a decrease in profits in the first quarter of 2020.
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