COMMENT SUPPLY CHAIN
WORRIES
Demand and supply shock
WITH SIGNS THAT THE CHINESE ECONOMY IS COMING UNDER
INCREASED STRAIN AS A RESULT OF THE CORONAVIRUS, CAN WE
EXPECT A SERIOUS DEMAND AND SUPPLY SHOCK?
The impact of the coronavirus appears to be growing and concerns are
mounting that component shortages will start to have a serious impact in a
matter of weeks.
The analyst group, Oxford Economics, has warned that should the virus
spread beyond China there will be serious consequences for the global economy while
the virus is already having a “chilling effect” on China, with extensive factory closures.
Should the virus spill over into neighbouring countries then it’s likely that companies
will struggle to source components and nished goods.
Apple has warned investors that it’s not going to meet its quarterly revenue target,
because of the “temporarily constrained” supply of iPhones and a dramatic drop in
Chinese spending during the crisis. In the UK, Jaguar Land Rover has said that it will
run out of car parts at its British factories if the coronavirus continues to prevent parts
arriving from China.
Apple is a prime example of the type of demand and a supply shock that electronic
suppliers and customers may be facing, and while the company says that production
will return to normal that process is taking far longer than expected.
Interestingly, according to market analysts Omdia, the semiconductor industry
appears to have escaped the impact of the coronavirus crisis - so far – but should the
virus spread then it’s possible we could see production reduced or even suspended, as
factories are closed.
For the moment, despite logistical, packaging and test challenges, fabs in China
appear to be functioning normally, but any disruption could have profound global
repercussions.
The semiconductor market represents a huge component of the global economy,
generating an estimated $424.8 billion last year alone, so the danger lies with any
possible disruption to manufacturers – many of whom operate in China and are already
functioning at below 20 per cent capacity.
Problems with import and export logistics are growing but are being mitigated by
the fact that the rst quarter tends to be the slowest period of the year for the global
electronics business.
The worry has to be that if the coronavirus continues to spread and spur signi cant
public-health problems beyond China, it will raise serious long term problems for
electronics suppliers and manufacturers who may be forced to slow manufacturing
further or even shut down their operations.
Rather than the green shoots of a recovery, we may just be seeing brown weeds
instead.
Neil Tyler, Editor (neil.tyler@markallengroup.com)
“Apple has
warned
investors that
it’s not going
to meet its
quarterly
reveune target,
because of the
constrained
supply of
iPhones.”
www.newelectronics.co.uk 25 February 2020 5
/www.newelectronics.co.uk