How COVID-19 is delivering a major blow to Asia’s technology sector

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As part of our special coverage on the ongoing situation related to the outbreak of deadly COVID-19 – Canalys is presenting an assessment on what impact will the COVID-19 outbreak have on technology vendors and the channel?

The COVID-19 outbreak will hurt Q1 sales in APAC, especially of smartphones, PCs and component products. But customer adoption of cloud-based services will increase as more people use video-conferencing and collaborative and online tools to execute business continuity plans and reduce travel.

Vendors are focusing on partner training and maintaining close communication with customers and partners. Technology vendors and channel partners in the Asia Pacific region face the unexpected challenge of coping with the sudden outbreak of COVID-19 (coronavirus).

The crisis was largely unforeseen, even in mid-January. Most leaders this year were anticipating disruption from political instability and natural disasters, not an epidemic. Major technology and partner events around the world were cancelled soon after the World Health Organization (WHO) declared a global health emergency.

China has taken the brunt of the social and business impact so far, but the restof Asia Pacific and other regions around the world will face similar problems if the virus continues to spread.

As of 20 February 2020, the WHO has said that new cases in China are falling but also warned that any apparent trend must be interpreted very cautiously. Worldwide, there are now over 75,000 confirmed cases, with over 56,000 yet to recover. Over 98% of cases are in China.

The immediate effects on supply chains, workflow disruption and lower spending will result in an economic downturn if restrictions on travel and factories remain. The extent of the downturn will depend on how widespread and protracted the virus becomes.

The smartphone, PC and component sectors have been greatly affected as prolonged closures and labor shortages have brought Chinese manufacturing plants to a halt (see Canalys report, “Global PC market to fall by 3.4% in 2020in best-case scenario”, published 20 February 2020).

Aviation, insurance, manufacturing, retail, transport, tourism and trade are among the hardest hit sectors, in addition to import and export industries, in which China plays a key role in production and consumption. Partners in Australia are pessimistic, having already faced several big problems recently, including the Australian bushfires and fallout from the US-China trade war.

Lower technology sales in Q1 are expected across Asia, including China, Hong Kong, Australia, Japan, Singapore and likely the rest of the Southeast Asian countries. Indonesia has yet to report any infected cases. India remains a bright spot in Asia Pacific at this time, with channel partners expecting healthy growth in Q1 2020.

Disruption and reinvention of business operations Decline in domestic spending: The virus outbreak forced an extension to the Lunar New Year holidays (until 9February) in China and placed more than a dozen Chinese cities on lock-down – an unprecedented move by the Chinese government that prevented the movement of people and goods.

This led to a sharp sales drop at one of the busiest times of the year. Citizens were told to stay indoors and factories were shut down. Apple, Samsung, Microsoft, Tesla and Google closed their retail shops, contact centers, and corporate and contract offices in China, though ecommerce operations remained available. Google also closed offices in nearby Hong Kong and Taiwan.

The outbreak drove up prices of household items, such as food and even toilet paper, in areas where prices or supplies are not controlled. Consumers have cut down on non-essential spending and companies will shift spending to vital expenditure.

Though the holidays have ended, many companies and factories in China, including Apple and Tesla, are operating below 100% capacity as they need permits to ensure that they provide workers with enough protection to resume operations. They are also facing labor shortage issues.

Global supply chain disruption:

Vendors and distributors have warned customers of shortages and shipment delays due to affected operations in China and Hong Kong.

Likewise, channel partners have received notifications from key PC vendors over the last two weeks that their PC and parts shipments can be expected to take up to 14weeks – over three times the usual delivery time, depending on where partners are located.

Those currently holding inventory are expecting low stock challenges once existing stock runs out. In some rare cases, partners were unable to get estimated arrival times, highlighting the uncertainty that exists in supply chains. Components and parts underwarranty have been given priority.

Customers and partners will be forced to get their supplies from elsewhere to sustain business, with grey and black markets benefiting. Beyond shipment challenges, getting products’ technical validations and certifications was difficult when offices in China were closed.

In hindsight, the shift of supply chains to outside China last year may have helped some vendors to mitigate stock supply issues, if they are not reliant on rare metals and plastics from China.

Huawei has been one of the few large vendors that continued operations in China. Rise in remote workspace collaboration and online cloud tools: Workspace collaborative solutions, such as Microsoft Office 365 and Teams, as well as Slack and Cisco WebEx, became essential for office workers as companies executed business continuity plans.

One of the interesting outcomes of this outbreak could be that Chinese companies come to embrace remote working (in-office working remains the cultural norm today).

VPN issues were one of the top IT problems received in these two months, with some having trouble accessing VPNs and other companies not having VPNs to begin with. Social media has been an important means by which the citizens of Wuhan have shed light on their situation.

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