Coronavirus outbreak: How the tech world might get impacted

Big tech companies like Facebook, Microsoft, Apple, LG and Razr have restricted their employees from travelling to China. Most of their big manufacturers are also based in the country

Foxconn, which is one of the biggest manufacturers of iPhones in the world. (REUTERS)

The Coronavirus outbreak in China has created a health emergency across the globe. Confirmed cases of the Coronavirus outbreak have been registered in various countries including the US,France, Germany, UAE and Australia. While the World Health Organisation has not classified the recent outbreak as a public health emergency yet, tech companies and even airlines, are taking precautionary measures to ensure that their employees and their customers don't get infected with the virus that has already killed over 100 people and infected thousands.

Companies like Facebook, Microsoft, Apple, LG and Razr have restricted their employees from travelling to China. Additionally, Apple has shut down one of its retail stores in the country and has reduced the operating hours at its stores across Mainland China. Apple is also frequently deep-cleaning its stores and conducting temperature checks for employees as added precautionary measures.

Foxconn, which is one of the biggest manufacturers of iPhones, has asked its employees, who were Taiwan for the Chinese new year, not to return to the Wuhan facility. Wuhan is home to one of Apple's biggest manufacturing hubs.

The scenario looks grim and one cannot help but wonder about the repercussions that lowered productions, shorter operating hours etc would have on the tech industry at large.

However, as expected, tech companies and their executives are being tight-lipped about the matter.

Foxconn, for instance, has said that it cannot comment on 'specific production practices'. "As a matter of policy and for reasons of commercial sensitivity, we do not comment on our specific production practices," the company said in a statement to The Verge. Even so, the possibility of the recent Coronavirus outbreak affecting the production timelines and sales margins cannot be discounted.

The situation poses a particular risk for Apple, which depends on Foxconn and another Taiwanese manufacturer, Pegatron, for manufacturing its iPhones. Almost all iPhone models are manufactured at Foxconn's Hon Hai Precision Industry Co subsidiary in Zhengzhou and by Pegatron, which has manufacturing units near Shanghai, Bloomberg reported. Though these cities are at least 500 kms away from the epicentre of the outbreak, even a small disruption is likely to have a ripple effect on Apple's supply chain.

Apart from Apple, Foxconn's China-based manufacturing plants also produce Echo smart speakers and Kindle e-readers for Amazon and personal computers for companies like HP among others. Given the present situation, a similar production delay is expected in case of other companies and gadgets as well.

Foxconn, however, has said that it's not expecting the Coronavirus outbreak to affect any of its manufacturing obligations and that the company has measures in place to ensure that it meets "all its global manufacturing obligations".

But even so, it wouldn't be far fetched to say that production delays and a crunch in the availability of devices in the market is expected.

Apart from production delays, revenue of these tech companies is also likely to be impacted by the virus outbreak. Apple, while announcing its quarterly revenue for Q1 2020, said that the company witnessed a double-digit growth in markets like China without revealing the exact numbers. That margin is likely to be reduced in Q2 2020. "While our sales within the Wuhan area itself are small, retail traffic has also been impacted outside of this area, across the country in the last few days," Apple CEO Tim Cook said in a statement while announcing that it was closing one of its retail stores in China.

All other tech companies are expected to be hit by a similar trend. While a few days of low production and sales should not immensely pull down yearly revenue predictions, at this point in time there is no knowing how long the viral outbreak is going to be a threat and also, how far will it spread.