As the spread of the infectious Wuhan coronavirus continues to make headline news, less is made of the knock-on global effect of shutting down the biggest manufacturing city in China.
The central Chinese city of Wuhan is five times the size of London and is an industrial powerhouse in the country, housing tech companies such as Lenovo, Schneider Electric, Siemens and Xioami. Wuhan is also the origin city for the infectious virus that has infected thousands globally and killed hundreds in China.
Two weeks ago the Chinese government effectively quarantined the city, shutting down all factories and preventing all travel in and out of it until 10 February, as well as implementing similar regulations across the rest of the country.
And it's not just the government taking such precautions.
Last week Apple announced it would temporarily be closing down its operations in China to counter the spread of the infection.
Apple CEO Tim Cook warned analysts during a quarterly earnings call that the "uncertainty" of the outbreak could impact its Q2 revenue.
Other tech firms such as Google and Microsoft have also scaled back their operations in China to prevent the spread of the virus among employees and this week South Korean giant LG pulled out of global telecoms flagship event Mobile World Congress, citing fears over the spread of coronavirus.
This shutdown has caused concern among those in the IT industry that there will be a disruption in their supply chains as vendors grapple with product output. This has been compounded by recent forecast revision from Canalys.
The analyst house previously forecast a seven per cent decline in smartphone shipments and an eight per cent decrease in PC shipments between Q4 2019 and Q1 2020. It has now updated those figures to take into account the impact of China's industrial shutdown and has forecast year-on-year growth declines of up to 15 per cent for 2020.
"Given currently available information, we have dramatically revised our forecasts to a 40 per cent to 50 per cent drop for smartphones and 20 per cent for PCs, with the proviso that the situation recovers to pre-outbreak levels by the end of February, giving the market a full month to recover in March," the analyst house said in its report, cautioning that this is likely to change depending on further information becoming available.
"The first quarter is usually a slow time for the Chinese market, but the current situation will likely lead to some of the worst ever shipment numbers."
‘Weak communication' from vendors
Ian Nethercot, supply chain director at Birmingham-based reseller Probrand, said that most of the information he has received about potential supply shortages has come through word-of-mouth from his contacts at vendors and distributors.
He added that vendors have been "pretty weak" at sending out official communication about the situation.
"I've actually only received one official piece of communication which came from Lenovo about two days ago about what they're doing in terms of the problems in their supply chain at the moment," he explained.
"The rest of the vendors haven't actually published anything officially, because I think the reality is that, at the moment, they don't actually know how significant the impact is.
"There's so much uncertainty until factories are reopened and back up and running to full production, and they've got an idea in terms of what the backlogs are like. It's difficult for them to publish anything in terms of expected times around delays of stock."
Ales Tatham, MD of distributor Westcoast, said that he has been contacted by a number of "concerned" resellers about the potential shortage and that he hasn't been told of any delays.
"Whilst there has been much public speculation, we have not been notified formally of any delays by our vendors as yet - although most are advising us to keep a close eye on their delivery schedules that may be altered in the coming weeks on specific orders," he said.
Limiting available stock
Canalys expects that due to any potential supply shortages, consumers will focus on "necessities" rather than lower-prices products such as smart speakers and wearables, while shipments are expected to be buoyed by demand from the commercial sector.
The analyst firm also warned about expected more widespread supply disruptions soon due to a fall behind in production of key components, the unavailability of raw materials and the restricted transportation services.
"There is also a risk of more key component manufacturers and ODMs being forced to close if the coronavirus spreads further in…China's key production bases," it said.
"If large supply chain manufacturers, ODMs and EMS, such as Foxconn and Compal, find their operations affected, there will be a serious impact on the global market and vendors, such as Apple, which rely on Chinese production."
Taiwanese firm Foxconn, which makes smartphones for vendors such as Apple, has already submitted an application to Chinese authorities to resume its operations by the end of the month.
Probrand's Nethercot said that products that rely on flash technology will be affected by the Wuhan shutdown, as a large amount of the world's NAND flash technologies are manufactured in the city and he anticipates a supply chain disruption in this regard.
"Any supply chain that has that technology as part of it, there's a very good chance that there's going to be a problem," he said, adding that a knock-on effect of the outbreak could be increased prices due to the limited supply of items.
He added that some manufacturers are now limiting the number of products they are allowing resellers to buy.
"We're already seeing some problems starting to creep in where manufacturers are putting lockdown on volumes of products that they're allowing people to buy so somebody can't just go in and buy all the stock," he explained.
Westcoast's Tatham said he had "considerable" levels of stock available but conceded that the longer the factory shutdowns last, the higher the chance of a supply shortage.
"We currently have considerable volumes of stock available for sale in our UK warehouses and there will be stock in our vendors' supply chains - however, prolonged production outages in China will inevitably damage supply of many IT products," he stated.
"We are keeping a careful watch on the situation and will coalesce vendor responses in the coming days as we get them to give our customers a clearer view."
Nethercot said that the awareness about a potential disruption in their IT services is still very low among end users and resellers should do their best to inform them of the possibility.
"We in the IT industry are used to the factories shutting down for Chinese New Year and plan for it," he said.
"The fact that this virus outbreak has hit at exactly the same time, the end user community is just not really aware of the severity of the problem.
"Our message to our customers has been to consider bringing project-based purchases forward because if they leave it another couple of months, then the likelihood is they're going to pay more of a premium for the products."
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The ongoing shutdown of operations in the Chinese city of Wuhan, a major tech manufacturing centre, could have a massive knock-on effect on project fulfilment in the UK. CRN investigates the likelihood of this occurring