Despite odds, APAC still rules

MUMBAI: The Asia Pacific electronics industry continues to flourish despite the SARS outbreak, according to Gartner, the leading research and analysis firm. To date the disease has not impacted the semiconductor and electronics industries with most saying it"s business as usual.

Gartner says the slowdown caused by the war in Iraq has probably had a greater impact on the industry than SARS, with companies like Acer experiencing a sharp decline in orders of between 10 and 20 per cent from EMEA and the US since hostilities began.

"The one possible disruption to the industry could be from mass infections on the vendor side, which has not been seen yet," said Dorothy Lai, Gartner"s principal semiconductor analyst in Hong Kong. "Because this outbreak mostly affects people"s personal interaction, electronics trade shows or company meetings will be deferred, potentially hurting some local buyers and sellers in the short term. Semiconductor shipments have not been delayed because of the disease so the long-term impact to the industry will probably be minimal."

A Gartner survey of 20 major semiconductor companies in Hong Kong and China shows that the majority of the vendors have not seen any major negative effect to their businesses here yet. However, about 40 per cent of the respondents think that SARS will hurt their businesses starting in the second quarter. Some forecasting that SARS might hurt them by as much as 15 per cent to 20 per cent.

"A number are also concerned that the slowdown in vendor and client communication will hurt their business in both the mid and long term," said Lai. "As the retail businesses are getting hit, domestic consumer PC and mobile phone demand may also slow down in Hong Kong and China."

According to Lai about 90 per cent of the respondents located in Hong Kong plan to lower their sales forecast if the outbreak continues to last another few months. Four respondents in Hong Kong even think the slowdown caused by the SARS epidemic will have more of an impact on the industry than the war in Iraq.

In Taiwan electronics contract manufacturer (ECM) vendors have seen orders remain as figures show that SARS is well contained in Taiwan, which may have relieved customer concerns of a supply-chain halt.

"Until now, manufacturers appear to be more concerned and worried on the direct impact that the war in Iraq will have on the global supply chain than the SARS epidemic spread in Asia," said Jamie Wang, analyst at Gartner Taiwan.

Some leading Taiwanese ECMs have even boosted their March revenue earnings with increased orders amid the present crises in both EMEA and Asia Pacific. Quanta Computer, the leading notebook PC maker, said recently that its revenue exceeded NT$20 billion (US$576 million) for the first time, hitting NT$22.55 billion in the difficult month of March alone.

"This outbreak probably will not completely go away within the next few months," said Lai. "Therefore, vendors should continue with their business as usual. Orders will need to be pushed. If face-to-face interactions are not allowed, vendors and customers must communicate more through other means such as teleconferencing or videoconferencing."

Lai warned that during this unstable time, original equipment manufacturers (OEMs) may purchase more than needed and keep excess inventories.

"Semiconductor vendors will need to keep constant communication with their customers to avoid another inventory overload. Furthermore, vendors must exchange their contingency plans with their customers in case their offices or factories close. Keeping staffs, customers and suppliers informed and clean will probably be the best way to avoid a major industrial shutdown," said Lai.

On a positive note Lai said many semiconductor vendors and OEMs will be forced to introduce greater streamlining and automation into their business processes as a result of SARS leaving organisations in a stronger position at the end of the current difficulties.