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We published our PC, tablet, and smartphone forecasts over the course of the last two days. Here's a thread about our current understanding of how COVID-19 will impact the device markets in 2020…
First, this is obviously a human crisis. I have a 12yo sister in Shanghai who runs out of face masks by the end of the month, so this one hits close to home for me. I don't know what else to say except #武漢加油 #中國加油 #全球加油.
February manufacturing has been decimated. No pretty way to say it. We had a two week extension of Lunar New Year break with transportation, logistics, and factories gradually starting to reopen this week.
Due to an unusual year-end rush on system components, component stock levels at factories have remained healthy throughout this shutdown. The current bottle neck is logistics. Goods can be finished, but moving them ex-factory will remain difficult.
The next major hurdle is the gradual return of labor. We estimate there are about 110M to 150M migrant workers at this level of the supply chain. Until weather improves in May, we expect general cautiousness and impacted transportation to keep many workers at bay.
So, where are we today? Current component stock levels should be depleted through March. Recovery requires the component routes to fully open again, and timing is uncertain. Here is our view of critical component production sites overlaid onto JHU's COVID-19 map.
Many key production sites are still operating at a third capacity with workers slowly starting to trickle back in. As for demand, China will experience a sizable demand shock in 20H1 but will be on solid footing by the end of the year. Some spillage into other SE Asian countries.
As for what recovery looks like, the truth is no one knows. We can project how the supply chain and demand systems will respond, but we cannot currently control for the ongoing vector of COVID-19. Below is a scenario assessment we ran.
Green light: this draws upon the SARS response playbook, where the peak of SARS epidemic was a momentary hiatus in China's incredible growth run. We take a bath in H1 but gain significant ground in H2, in no small part to Chinese stimuli and subsidies propping up the market.
Yellow light: Supply chain recovery is a multi-quarter affair and doesn't kick into high gear until springtime. Market is balanced as we enter 2021. Unlike the green light, presumes worst is still ahead of us. This is our current forecast.
Red light: Recovery is a multi-year affair. When the dust settles, supply routes are permanently rerouted, companies permanently close or adapt to new realities, significant industry shakeup, etc. This increases in likelihood if the vector is still accelerating 2 months from now.
Last point. I frequently hear the SARS compare. This is not SARS. For starters, the trajectory of COVID-19 blows SARS off the scale in everything except mortality rate. Just the size of the shutdowns in China should be evidence the two are not the same.
Secondly, China plays a vastly different role in the global economy today than in 2003. Disruptions to China's manufacturing and consumption have far greater consequences in 2020.
Lastly, China is in a vastly different place now than then. Then? Growing from 8% to 10% GDP growth up until the peak quarter. Now? Declining a few BPs at around 6%. The turnaround likely will not be as swift this go around.
Summarily, COVID-19 has already shaped 2020 substantially. How fast we recover will depend on supply chain adaptability and how fast labor and logistics ramp back up. Mostly though it well be determined by the vector itself. Here's hoping for a swift recovery for all. 加油!!!
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