Coronavirus: Curse, or Blessing in Disguise?

I’m not one to make light of health epidemics, especially given that my college major was initially epidemiology. But the global slowdown in electronics demand — underscored by the earnings reports over the past couple months — is poised to worsen in the grip of the coronavirus outbreak, which started in China and has now reached more than a dozen more countries.

In response, businesses in Wuhan, the epicenter for the disease, have closed and Chinese government has effectively quarantined the entire city of 11 million. Wuhan is the capital of Hubei province, and between the two entities there are roughly 1,500 factories and related facilities.

Among the electronics manufacturers affected at ground zero are Avnet, Siemens, and Foxconn. After Hubei issued a mandatory shutdown notice, Foxconn furloughed more than 13,000 workers at its campus there. (The plant generates an estimated $300 million in revenue per year.)

As the disease spreads, so too have the shutdowns. IMI announced last night it is suspending operations at plants in Shenzhen, Jiaxing, Chengdu and Suzhou. The furloughs will last up to several days.

While electronics assembly plants can be brought back up to speed fairly quickly, the impact missing even a few days of revenues will be felt in the quarterly results. And here’s the possible silver lining.

Many companies have been reporting weaker results in the most recent quarter. For instance, Celestica’s revenues were down 14%, Amphenol’s dropped 3.3%, and Sanmina’s were off 16%. TTM went so far as to sell its entire mobility unit. Plexus saw sales rise, but is cutting an entire design unit. (UPDATE: Flex reported sales down 7%, adding to our picture of how widespread the weakness is.) Often the US-based firms see a slowdown in presidential election years as OEMs take conservative approaches to ordering ahead of potential administration changes. The outbreak, deadly and unwished for as it is, gives cover to management for any recurring revenue drops, at least for a quarter or two, and perhaps longer if the coronavirus gains a wider foothold. A cynical view, to be sure, but hardly an unrealistic one.

We need only look back to 2003, when the SARS outbreak came on the heels of a worldwide business slowdown and according to one analyst “accelerated that downturn and spread it to many other countries in Asia.”

Already, airlines are bracing for lower capacity utilization and Asian firms are fearing the worst as businesses enact travel restrictions. Again as with SARS, the timing comes as Asia (and most of the world’s major economies) is experiencing tepid growth, and the best way to stop a recovery in its tracks is to sever the flow of goods and services.

For everyone’s sake, let’s hope this virus burns out fast.

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About Mike

Mike Buetow is editor-in-chief of Circuits Assembly magazine, the leading publication for electronics manufacturing, and PCD&F, the leading publication for printed circuit design and fabrication. He is also vice president and editorial director of UP Media Group, for which he oversees all editorial and production aspects. He has more than 20 years' experience in the electronics industry, including six years at IPC, an electronics trade association, at which he was a technical projects manager and communications director. He has also held editorial positions at SMT Magazine, community newspapers and in book publishing. He is a graduate of the University of Illinois. Follow Mike on Twitter: @mikebuetow

1 thought on “Coronavirus: Curse, or Blessing in Disguise?

  1. my college major was initially epidemiology

    Really? I didn’t know that!

    All companies have been told to stay closed post the V=Lunar New Year celebration until at least February 9.

    The March 16-18 CPCA/HKPCA event has been postponed.

    I expect the March SEMICON CHINA (Shanghai event to also announce a “delay”.

    This will be a boon for the Taiwan, Vietnam, Thai, Mexican and AMERICAN members in our business that have managed to scramble and cover their near term supply chains.

    Loner viewpoint is cloudy but should be good for the U.S. if investors take a longer viewpoint, especially if Washington takes a strong suppoiortive role (a pipedream?)!

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