The Wuhan Coronavirus outbreak has lately been a major threat looming over the well being of citizens of China and the rest of the world. The effect of the virus has not been limited to undesired health consequences though, as several industries are being burdened by the consequent factory closures in China. Smartphone industry is a major one of them.
With China directly responsible for producing up to 85% of components of smartphones, several factory shutdowns due to Coronavirus in the country has hit the supply chain of these smartphones in a major way. Consumers are feeling this effect in a serious case of inflation within China. Going forward, the same might be experienced in various international markets -- like the Mobile World Congress event being cancelled in Barcelona.
A prime example of this can be seen with the closed manufacturing sites of the likes of LG, Samsung and Foxconn. Citing this, a report by The Guardian mentions analysts predicting a 10% drop in global smartphone production this quarter.
A more direct impact is predicted to be seen in smartphone launch cycles as well as their availability going forward. Since there is no word on when the production of the shut assembly lines will resume, a dearth of devices in the market is being predicted in the coming months, subsequently resulting in a possible inflation in prices of smartphones.
Examples of this can be seen already. Redmi has raised the price of the Note 8 in India directly blaming the Coronavirus outbreak in China for it in an NDTV report. Another report by IANS mentions the supply chain of Galaxy A20 accessories being hit due to Coronavirus resulted factory closures. The threat can be as real for Apple too, which is supposed to come out with its biggest iPhone display so far at its September launch event.
Apple is expected to debut four 5G iPhone models this year as its biggest unveiling lineup to date, just like Samsung came up with its Galaxy S20 5G lineup. Reports are now linking the Coronavirus shutdown to the event and the availability of the upcoming iPhones post their debut.
A Digitimes report notes that iPhone engineers are no longer visiting China for engineering validation on test prototypes of the iPhone 12. This would in turn result in a delay in the various stages of iPhone production, including engineering validation, design validation and subsequently production validation. While iPhones enter mass production in late June/July, it is unlikely that the timeline will be followed this year.
This, however, is expected to have a standalone impact on the mass production of the upcoming iPhones. The launch of the iPhone 12 is still anticipated to take place on the due date in September. That means that the availability of the newly launched iPhones can be a bit iffy in the first few months and can be offered only for select models launched.
The worst case scenario can turn out to be quite different. The assembly lines for iPhones at Foxconn plants in Zhengzhou and Shenzen are still barely operational and as per a Reuters report, only 10% of the employees at these plants had returned to work as of Monday.
Citing health concerns as well as the the lack of supply, Apple has kept its retail outlets in Mainland China shut since February 1, with no word of them being reopened anytime soon. Apple could also observe a delay in the launch of the cheaper iPhone SE2 which was earlier expected to be launched in March.
Since factory shutdowns in China can continue for long, companies are finding alternatives to sourcing their components from China. Apple CEO Tim Cook, for instance, in the latest earnings call mentioned that the company is working on a mitigation plan to compensate for any production loss in China and is tapping alternative suppliers.
While this seems to be the only logical way out for the smartphone manufacturers for now, it is definitely not easy. Setting up a source for components at this scale cannot be done in a short time and the fact that the average raw material inventory is meant for the next 20 to 30 business days, it is likely that the firms are already running out of their own stock. Hence, any further delay in supply chain is a call card for an impending loss in production.