Coronavirus Causes Crisis For Chinese Tech Companies, Huawei Sales To Tank in Q1

The Coronavirus is not just a health scare for China as it may, soon, become an economic issue too if a credible cure is not found soon. Supply chain reports indicated that the virus outbreak has put pressure on manufacturers.

Since as many as 128 cities in China have been put under quarantine, production has been severely hit.

According to Patently Apple, the outbreak has caused rising inventory levels in China’s production channels. This specifically hits smartphone production –- many companies were betting on domestic sales because of the U.S.-China trade war. The biggest company among them is Chinese tech giant Huawei, which is expected to suffer the most.

Despite being cut off from Google services, due to President Donald Trump administration's blacklist of the company, Huawei had recorded rising sales -- thanks to domestic demand. It had recorded 30 percent year-on-year growth in Q3 2019 because of its sales in China. The reason behind this is that Chinese consumers don't have access to most Google apps such as Gmail and its search engine. So, the blacklist did not make much of a dent on Huawei's domestic sales.

However, since the Coronavirus quarantine and pubic health measures are now starting to affect both the supply chain and demand throughout China, it is expected to affect companies such as Huawei most adversely since it depended on domestic demand.

A source told the publication, “ Sales of Huawei's smartphones in China are expected to experience steep drops as the outbreak has faltered business activities and crippled sales channels in the country.”

This double whammy of the blacklist along with slowing sales due to the virus outbreak may affect sales, especially in the first quarter of 2020.

There are currently transport curbs and tough public health measures that have been enforced throughout the country. They are expected to cut shipments by around 5-8 million units in Q1 along with access inventories.

The curbs are also expected to affect companies such as Apple, which rely on production bases in China. It will make companies, which have shifted production outside China, such as Samsung, which is set up a production base in Vietnam, less at risk.

It remains to be seen how Chinese companies such as Xiaomi, OnePlus, Vivo and Oppo, which have set up some part of the production process outside China, react to the issue.

Will they bolster production facilities set out of China or keep relying on Chinese production lines?