IT Supply Chain effect of coronavirus: spike in demand for Ebook readers and a glimmer of light for notebooks

Ian Nethercot, MCIPS, Supply Chain Director at IT services and marketplace Probrand, updates us on IT supply chain developments.

COVID-19 has continued to change the channel economy as we know it. It caused the largest unemployment spike in US history to a record 3.28m, and a fall below the 50-point PMI landmark in the US, signaling economic contraction. Apple, which is accelerating relocation of its production facilities outside China, closed its stores around the world, re-opening stores inside China soon afterwards, with sources suggesting retail stores elsewhere might reopen early this month.

The big message right now is uncertainty. We know the crisis is big, and that it will adversely affect channel fortunes in the long term, but it's difficult to predict the extent of the dip. Dell withdrew its guidance for FY 2021, citing the unpredictable environment. IDC tried to put an expiry date on the crisis, stating that it won't affect the markets past 2021 but both supply and demand numbers look grim.

To help navigate the ups and downs and maintain a clear view of what represents a fair price, here are some of the latest developments and major movements that are influencing key IT product categories.

Exchange rate

The Euro started low against the pound at 0.8680, dipping slightly to 0.8642 on March 7th. It then began a sharp rise to hit a monthly high of 0.9342 on March 19th, falling and rallying to a second high of 0.9257 on March 23rd before declining steadily to finish the month at 0.8888.

The Euro started higher against the USD. From 1.1103 on March 2nd, the euro rose to 1.1423 a week later before beginning a sharp decline to reach 1.0690 on March 22nd. This was broken by a brief half-hearted rally to 1.1152 on March 16th. The euro rose to 1.1137 on March 28th before falling to 1.1000 at the end of the month.

Europe became the focal point of the COVID-19 crisis in March as cases skyrocketed, with Italy especially badly affected. The crisis produced some shocking numbers. IHS Markit’s PMI showed an unprecedented collapse in business activity across the Eurozone, shrinking to 31.4 in March from 51.6 the previous month. This beat even February 2009's low of 36.2. It translates to a quarterly GDP contraction of 2%, and this is likely to be just the beginning.

The service sector (retail, food and other sectors that require people to gather together) took the brunt of the damage, but manufacturing figures are still dire. And whereas services will recover more quickly, longer-term effects on consumer demand could dampen factory orders for months. PMI could rebound in Q3, while employment declines could last longer, IHS Markit predicted.

Traditional PCs

Sources warned of a significant slowdown in the server market, as Taiwan IC designers see a slowdown in orders for sever components. Server market revenues are expected to decline 3.4% year over year to $88.6bn in 2020, suffering an 11% dip in Q1, an 8.9% decline in Q2, and a recovery in the second half.

TrendForce also decreased its projected 1Q20 notebook shipment by 20.3% from 35 million units pre-crisis to 27.9 million units. The revision is due to lockdowns that hit production capacity.

But not all is bleak. Original Design Manufacturers (ODMs) in Taiwan expect robust shipment growth in Q2 2020 on the back of worldwide lockdowns as people look for remote working options. Micron said it saw rising demand for notebooks to support people working from home. In addition, Wistron, the Chinese manufacturer of notebooks and servers, expects sales to rise this year. This seems largely due to increased revenues from its Taiwanese factories, which are picking up the slack as companies face limited capacity on the mainland. Even there, manufacturers are trying to recover capacity, with Lenovo restarting production at its Wuhan plant where it predicted it would reach full capacity by mid-April.

One big problem right now is getting PCs to their final destination. Space is limited on cargo planes, while Amazon is prioritising the delivery of essentials.

Premium Ultramobiles and Wearables

AR and VR headset shipments are expected to dip in the first half of 2020, warned IDC, with COVID-19’s disruption to the supply chain cited as the cause. This isn’t a demand-side problem (yet), because users at home are looking for distractions, said the analyst firm. Instead, with their small screens, these units share production facilities with smartphones, which are already facing supply-wide constraints.

The VR/AR market will see a 10.5% fall in Q1 and a 24.1% decline in Q2. A 2H rebound depends on restored manufacturing capacity, but the company is confident it will see total shipments of 7.1m units this year, up 23.6% from last year. After that, the happy days will continue with an 81.5% 2019-2024 CAGR to reach shipments of 76.7m.

The wearables market will grow 9.4% in 2020 to reach 368.2m shipments, IDC said. That's a significant slowdown from 2019's 89% growth, and it's down to the health crisis, of course. Watches and wristbands will see a 13% decline in Q1 and a 7.1% drop in Q2 before rebounding in 2H.

One bright spot in this whole COVID-19 mess? Ebook readers. E Ink Holdings said it has seen a spike in demand for these devices, along with other e-paper products. It's been struggling to meet demand but was back up to 90% manufacturing capacity by the end of March.

Monthly statistics

New products saw their two biggest spikes mid-month, reaching a high of 516 new products on March 13-15th and 586 new products on the 18th.

Price increases hit a high of 69,351 on March 2nd across a variety of product categories. Meanwhile, price decreases hit a high of 61,295 in the last week of the month.

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