I spent the early part of my week talking to ODM’s, and PC makers to gauge how they see their market demands changing over this year. As you can imagine, all say that because of the closing or slowdown of manufacturing facilities due to the COVID-19 Virus during the first half of this year, it will have a ripple effect during Q1 and Q2 on sales and earnings. Both groups are pretty much writing off the first two quarters as ODM’s can’t make enough products to meet current PC demand.
All PC makers have millions of dollars of PC orders they can’t fill, and many of the new smartphones that would come out in the first half of 2019 will be supply constrained through the summer. The PC makers also have a double whammy in that Intel, starting last fall, was unable to meet their demands for specific processors. Even though many turned to AMD to help fill some demand, PC orders in Q 4 of 2019 could not be filled in many cases.
While ODMs have struggled to get their manufacturing lines fully staffed now, the two ODMs I spoke with are optimistic that they can have all lines fully operational by late May or early June. They admit that they have stacks of orders to fill but, if needed, could run their factories 24×7 for some time to try and catch up and fill the pipeline to have as many products ready to ship by the end of Q3 and ready for the holiday season.
As for the PC makers, Intel has assured them that they will be able to meet most processor orders by Q3 and also make it possible for their PC customers to fill most, but not all of the demand for PCs this fall.
Of course, the caveat is that if the Covid-19 Virus is contained by no later than late May, and most workers in Asia can get back to work, then ODM’s can run factories at full-staff by then. Although health officials are not sure when the Virus can be contained, the tech companies I talked to are using the scenario that all manufacturing lines will be fully staffed by June, and we could see the pipelines filled by the middle of Q3. At least that is what they are counting on as we sit here today.
This development is causing them to believe that we could end up with so much pent up demand that the 4th quarter could be a monstrous one with many unit sales and earnings records broken for a single quarter. Whether this would make up for the losses recorded in Q1 and Q2 is hard to tell, but the consensus I hear from these companies seems to point in this direction.
I, too, am optimistic but admit that we in tech are in unknown territory. The SARS epidemic did impact the supply chain, but we did not have the same type of broader quarantines we see with the Covid-9 Virus. One ODM told me that if even one person got symptoms of this Virus, the whole factory would have to shut down under the new Chinese government rules.
There is no question that this is a challenging year for us in tech. Although things could get worse when it comes to this Virus spreading, tech leaders believe they can weather this storm and are now thinking about longer-term planning issues should this type of thing happen again. The changes include less reliance on most manufacturing done in a single country such as China and diversifying their supply chain. The shift to production in other countries started during the jump in tariffs. However, it is accelerating because of the potential of future pandemics.
It also includes rethinking how people work. There is a reason Zoom’s stock moved higher in the past few weeks. More and more are turning to video conferencing to handle essential business meetings and using it to help customers. Video meetings may be one of the longer-lasting impacts of this Virus.
I do believe that our tech industry is going to learn a lot about itself in the next few months, but is up to the task of making the kind of adjustments needed to survive and thrive again. However, I believe we will remember 2020 as one of our most challenging years in tech, and let’s hope the lessons we learn helps us make positive changes for the best.
