China paralysis seen affecting PHL tech sector — S&P Global

face masks coronavirus China 021420 - China paralysis seen affecting PHL tech sector — S&P GlobalREUTERS

THE RECOVERY of the technology sector after the US-China trade war “hangs in the balance” as the coronavirus outbreak threatens manufacturing hubs in China, S&P Global said in a report.

In its “Coronavirus: A Wide-Ranging Ill For Tech Supply Chain” report, S&P Global said that the effect of the outbreak on the sector could be extensive as factories shut down and underutilization lowers global output of tech components, sub-assemblies, and finished goods.

Notebook manufacturers were considering moving their manufacturing and assembly capacities from China to Southeast Asia following US-China tensions.

“However, we do not believe this has taken place quick enough for notebook OEMs (original-equipment manufacturers) such as Dell Technologies, Inc. and HP, Inc. to absolve them from potential supply chain disruptions from the outbreak,” according to the report.

S&P expects a slowdown in notebook sales, but characterizes the situation as representing delayed rather than lost sales.

The report said that the impact of the epidemic on hardware companies in Asia depends on their exposure to the hardware supply chain, as electronics component companies face labor and logistics challenges.

The semiconductor sector is seeing less disruption, the report said, adding that the Chinese government is expected to assist the tech sector to normalize operations.

“However, bottlenecks throughout the supply chain will inevitably affect near-term shipments and revenue.”

The S&P report said the virus could trim 30 basis points (bps) from global GDP (gross domestic product) this year, along with a decline of 70 bps in China’s GDP growth.

Under the assumption that the effects of the virus stabilizes by March 2020, S&P expects the peak effect on China’s economy to take place in the first quarter, with a rebound in the third quarter before lost output is largely recovered by the end of 2021.

Philippine exporters recently said factory closures in China will heavily impact trade, with Semiconductor and Electronics Industries in the Philippines, Inc. (SEIPI) president Danilo C. Lachica saying that the outbreak lowered the industry’s 2020 export growth projection to 3% from 5%.

Trade Secretary Ramon M. Lopez has said the effects on exporters can be minimized by finding alternative sources of supply.

He said exports to Hubei province, where Wuhan is located, represent 0.5% of Philippine exports to China. Imports from the province make up around 1.2% of the total. Total trade with Hubei comprises 0.9% of trade with China. — Jenina P. Ibañez

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