This week, our source was Ran Caijing, where we came across an overview of the effects of the Covid-19 epidemic on Chinese tech companies—especially smartphones. Below, we summarize the key points of the article for TechNode members. TechNode has not independently verified the claims below.

The epidemic is raging around the world. Which Chinese technology companies are most affected?

Jin Yufan, Su Qi, and Tang Yahua (edited by Wei Jia)

Ran Caijing, March 13

Outline

While Chinese domestic epidemic peak has passed, Covid-19 has begun to erupt worldwide, forcing the World Health Organization to adjust the situation to a “global pandemic” level.

Affected by the epidemic and other factors, global financial markets have melted down. The US stock market has collapsed three times so far, twice this week. Affected by the broader market, star Chinese stocks fell across the board: Alibaba fell 6.94%, Jingdong fell 7.87%, Pinduoduo fell 6.42%, NetEase fell 7.88%, Baidu fell 8.55%, and Ctrip fell 5.95%.

The impact of the epidemic on the global economy has gradually spread from the demand side to the supply side. China, and the United States, Japan, South Korea, Germany, Italy, Spain, Iran, and other countries with severe outbreaks are mostly important exporting countries.

Business alarms and bets

The epidemic has sounded alarms for different industries:

  • The retail consumption expected by tourists has vanished, creating a global alarm for businesses in the industry. 
  • Manufacturers of smartphones have bet heavily on the 5G replacement wave this year, but the consequences of supply chains disruption are still difficult to predict. 
  • Cross-border e-commerce and logistics capacity have been disrupted. 

Tourism

According to the United Nations World Tourism Organization (UNWTO), the global outbound tourism market in 2018 was worth $1.45 trillion. Chinese tourists spent more than $277 billion abroad, close to one-fifth of global outbound tourism spending. However, right now the global tourism industry is practically stalled, while Chinese domestic travel service providers are also suffering unprecedented hits.

Bigger companies can live longer. Those who already struggle with capital may die, especially if the emergency carries on for two or more months. 

There is not much support for SMEs in terms of policies. The rent and labor costs cannot be reduced, with the only solution being layoffs

According to Ran Cai Finance, when Ctrip was at its worst situation, domestic orders losses were at around 80%. Now they are gradually recovering, but international orders present the most difficult recovery in the short term. 

That’s bad news for Ctrip since outbound travel, international flights, high-star hotels, and other businesses may not account for the largest number of people, but represent a larger proportion of revenue and profits.

Smartphones

Even though Chinese factories are resuming work and retail stores are reopening, the demand side continues to be suppressed.

The entire mobile phone industry is not driven by the supply chain, but by the market. As long as the consumer demand and consumption level in the market are still there, retail growth will occur after the epidemic.

Recently, the American market research company Strategy Analytics predicted that global smartphone shipments in 2020 will be 10% less than expected, and China’s smartphone shipments will be 15% lower than expected.

As the world’s second-largest smartphone manufacturer, Huawei has cut its 5G smartphone shipments by 20% this year. Apple also announced in February that it was unable to meet previously released revenue expectations in the first quarter.

Supply problems

The impact on the supply side is greater. A mobile phone requires at least 300 parts. Even though basic parts are produced domestically, key components are still subject to foreign companies in the United States, Japan, and South Korea. In addition to Huawei’s own Kirin chip, other mobile phone manufacturers commonly carry Qualcomm’s chips, whereas the memory comes mainly from Korean and Japanese companies. The current epidemic situation in these countries is no less serious than in China.

However, the crisis on the supply side of mobile phone manufacturers may be an opportunity for domestic suppliers. In fact, the lower-ranked supply companies that were originally used as backup solutions in China may have the opportunity to make their debut on the main chain. Ultimately, if the epidemic lasts for a long time, it may break the current mobile phone supply chain layout.

Cross border e-commerce

According to Chinese Ministry of Commerce data, as of February 20th, the number of masks imported was more than 12 million units. Cross-border e-commerce platforms and enterprises of 59 cross-border e-commerce test zones have imported nearly 1 million sets of protective clothing.

The categories that e-commerce platform users pay most attention to during the epidemic are masks, disinfection products, and health products. With the epidemic becoming stable in China, the demand for e-commerce platform users to purchase protective masks has stabilized.

The global epidemic is urgent, and the supply chain, logistics capacity, and pace of resumption of international business on the e-commerce platforms have been disrupted.

The spread of the global epidemic will inevitably affect the operation of global logistics, which will be a major challenge for foreign trade in the future, but what is really affected is the deep participation in overseas local procurement and warehousing.

Events

The interruption of global personnel flow, the lack of a large number of face-to-face exchanges, and the cancellation of exhibitions have led to low communication efficiency and limited global exchange of innovative ideas, which will adversely affect the development of technology products, software and hardware. However, the occasion may also force the introduction of more advanced communication methods with the use of 5G, AR, VR, holographic projection, and sensor fields.

Online services

The obvious winner in the epidemic is the gaming industry. The market share of Chinese games is already the biggest in the world and, thanks to the pace of globalization, the expansion of Chinese game companies has gone very fast. Companies such as Tencent and FunPlus have achieved very good results in global competition and in the event of the outbreak they will continue to grow in the global market.

Companies that focus on games going overseas are likely to replicate the game boom during the Chinese New Year. With the large-scale isolation in many places around the world and the decrease in offline entertainment, games will get a big explosion in players.

Besides gaming, recently the price of study packages of online education companies has increased, and the visit traffic has more than doubled compared with the same period last year.

Another bright side may lay in the fact that new advanced technologies such as artificial intelligence, Internet of Things, big data, 5G, and cloud computing have performed well in many aspects of the epidemic. Big data and cloud services are effective assistants for epidemic control; 5G cloud intelligent disinfection, temperature measurement and delivery robots have also quickly joined the fight against the epidemic; unmanned operations have greatly reduced the probability of contact infection and cross infection and improved the efficiency of medical staff.

Between the lines

From a Chinese perspective, PMI has fallen to a historic low, even lower than the 2008 financial crisis, with the pain much more severe than during the SARS period. Looking at the world, the global PMI is also declining sharply. Therefore, for the Chinese domestic market, in addition to the export of epidemic prevention-related supplies, the overall probability of overall trade exports in the second quarter will be greatly affected.

However, if the epidemic situation is effectively controlled within two months, China’s technological innovations such as e-commerce, especially the fresh food e-commerce industry, online education, games, etc., as well as enterprise (government) information-based tracking, will usher in fast growth.

Finally, even though the impact of the epidemic on the global Internet industry is minimal, the impact on the physical industries is long-lasting, even fatal to some companies. Because of the uneven climate and healthcare conditions in overseas countries, the epidemic development around the world is not easy to stop.