WCA May/July 2020

From the Americas

during the first quarter of 2020, making it the lowest quarter in five years. Smartphone manufacture is labour-intensive, so will be badly hit by the postponement of work resumption and the ensuing shortages in the upstream supply chain, such as passive components and camera modules. Several fibre optics producers are based in Wuhan, accounting for 25 per cent of global production. China’s 5G rollout could be affected, due to the greater need for optical fibre cables in next-generation base stations, and most Chinese telecommunications bids, including 5G infrastructure construction and application demonstration purchasing agreements, have been postponed. The DRAM and NAND flash markets were unlikely to be immediately affected due to material stockpiling and a high level of automation by semiconductor fabricators, and there was better news, too, for the video game console sector, despite a heavy reliance on domestic materials and workforce. With most console sales occurring through the fourth quarter of the year, and sales plummeting through the first quarter, peak season console manufacturing happens in the second half of the year. The report states: “Reduced demand means less likelihood for the outbreak to result in inventory shortages. At the same time, manufacturing of next-generation consoles will not start until 2Q20. Therefore, new consoles will release on schedule unless the outbreak persists.” It concludes: “Ultimately, COVID-19’s impact on the 2020 video game industry is, at most, mild.” Smartwatches are set to drop 16 per cent from expectations, though the report stressed that sales of wearables are generally far higher in the second half of the year when devices are, typically, updated. In general, TrendForce expects production of laptop computers and smart speakers to see the greatest decline against the previous forecasts. And in the USA, some supply chains are suffering US businesses in all sectors are feeling pain from the coronavirus outbreak. Wells Fargo Securities analyst Edward J Kelly warned in February that American consumers could be seeing shortages “as early as mid-April”, with retailers such as Walmart and Target the first to be hit. Lynn Reaser, chief economist of the Fermanian Business and Economic Institute at Point Loma Nazarene University, speaking specifically of California, predicted a short-term effect “with minimal job losses. Most of the damage will be toward the bottom lines of these companies.” Ms Reaser continued, “There’s therefore no need to implement long-term layoffs of the types of employees involved in California.” However, she anticipates California’s technology firms could see a drop in sales and profits, especially those dependent on parts manufactured in China and those producers who rely on the sale of goods and services to China.

Following the signing of the Phase 1 deal between the two countries, China said it would halve its additional tariffs, introduced last year against 1,717 US-made goods. The announcement reciprocated a US commitment, but was also viewed by analysts as a move to maintain confidence amid China’s coronavirus outbreak. China’s finance ministry said that additional tariffs levied on some goods will be cut to 5 per cent from 10 per cent and others – including the duties imposed on crude oil – lowered to 2.5 per cent from 5 per cent. The products set to benefit from the new rule are part of the $75bn worth of goods that China announced would attract 5 to 10 per cent tariffs from 1 September last year. In a separate statement, the finance ministry said the tariffs reduction corresponds with those announced by the USA on Chinese goods. However, Beijing has a disaster-related clause in the trade agreement, allowing it to avoid repercussions if it cannot meet its targeted level of purchases of US goods and services in 2020. US agriculture secretary Sonny Perdue said the United States would need to be tolerant if the fast-spreading coronavirus impaired China’s ability to increase its purchases of US farm products. Tomoo Kinoshita, global market strategist at Invesco Asset Management, commented, “Under the Phase 1 deal, China has to meet a tough target to increase US imports by $100bn this year, so a measure like this was necessary and expected.” Market analysts welcomed the move: “Any move to de-escalate is always good. Especially when the market is overwhelmed by the news about virus, good news about tariff is refreshing,” said Tommy Xie, head of greater China research at OCBC Bank in Singapore, adding, “The announcement shows China’s commitment to implement the Phase 1 trade deal despite the disruptions from the recent virus outbreak.” The news was positive for financial markets, and timely, as Beijing sought to build investor and business confidence while the virus outbreak cast uncertainty over China’s economic outlook. Chinese technology sector stands to catch cold over virus spread In mid-February, the Taiwan-based analytics provider TrendForce released its assessment of the likely impact of the coronavirus (termed COVID-19) outbreak on the global high-tech industry, in the wake of major trade show cancellations. The report examined single components and product categories individually, as each is impacted differently depending on its degree of automation and/or cloud-based environments. As an example, electronic design automation (EDA) companies “have been expanding their cloud-based design and verification environments; … IC designers may be able to compensate for operational and output deficiencies involved in having their employees work from home.” And many semiconductor manufacturers are highly automated, with low demand for a manual workforce. Other noteworthy conclusions include smartphone production, projected to decline 12 per cent, year-on-year,

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Wire & Cable ASIA – May/July 2020