SARS outbreak disrupts tech links

NEW YORK/CHICAGO: Manufacturing disruptions, travel bans, and transportation delays threaten to impede the supply of semiconductors and components from China and nearby countries, a research report by Aberdeen Group of Boston said this week.

Such interruptions could derail hopes for renewed growth in the $2 trillion global electronics industry, which increasingly depends on China as its manufacturing base, the report said.

Severe Acute Respiratory Syndrome (SARS), first detected last November outside Guangzhou, a high-tech production center inland from Hong Kong, has killed nearly 80 people around Asia and Canada, and infected at least 2,300 worldwide.

Beyond the human toll, the disease is attacking the lines that allow computer makers to order parts and assemble a machine in Asia and ship it in just weeks. "This may result in the computer industry pushing the reset button in terms of perceptions about the advantages of depending on China to manufacture high-tech goods," Aberdeen electronics analyst Russell Craig said.

Everything from notebook computers to wireless network gear to basic items like power supplies are produced in China and Taiwan. "The industry is saying to itself, 'Hey, wait a minute. How is this going to work?'" said Craig, a 25-year industry veteran who frequently travels to Asian production centers. "There's no real consensus on how to deal with the disease."

EARLY WARNING SYSTEM

Alarm bells for the industry sounded early this week after employees at the Hong Kong sales headquarters of chipmaker Intel Corp. and Singapore offices of mobile equipment supplier Motorola Inc. showed symptoms of SARS, leading both companies to ask employees to work from home.

On Tuesday, a jetliner from Asia was quarantined at Silicon Valley's local airport because of a SARS alarm, which proved false but dramatized the state of alert caused by the illness.

Later on Tuesday, Intel, whose headquarters adjoin the San Jose International Airport where the incident took place, canceled two industry agenda-setting events in Beijing and Taipei that were scheduled for mid-April. Chief Executive Craig Barrett has canceled his China travel plans as a result.

With face masks becoming standard in cities around greater China, Intel said it was responding to customer fears about large meetings. As an alternative, Intel is gearing up for smaller meetings and one-on-one briefings.

The cancellations are sure to disrupt decision-making for Asian computer designers and assemblers who depend on these Intel events to devise product plans, an Intel spokesman said.

"It's going to take a lot more legwork to get the word out about our product plans," Intel spokesman Chuck Mulloy said. "But given the environment it seemed the prudent thing to do." Hewlett-Packard CEO Carly Fiorina told shareholders at its annual meeting in Atlanta on Wednesday that the company had been forced to close its Hong Kong office after one employee was suspected of having SARS. The office has since reopened.

NOT-SO-VIRTUAL INDUSTRY

Many Taiwanese companies are also suspending employee travel to mainland China and Hong Kong due to health risks. Compal Electronics, a manufacturer of laptops for Hewlett-Packard and Dell, the No. 1 and No. 2 personal computer makers, has barred employees from those areas, according to electronics analyst Craig.

Taiwanese electronics makers rely on low-cost Chinese assembly houses. "You can assemble a laptop elsewhere, but you cannot sell it without a power supply," Craig said of laptop producers dependence on local Chinese suppliers of power supplies. Intel's Mulloy said the company has adopted restrictions on travel to Greater China, including Taiwan, as well as Southeast Asian countries such as Singapore and Vietnam.

"It must be business critical travel to Intel offices in eastern and southeastern Asia," Mulloy said. But other U.S. companies with significant operations in China -- including Qualcomm and IBM -- said this week they were "watching closely" before they implement travel restrictions to China and the surrounding region.