As health officials worried about the global spread of a pneumonia-like virus begin advising against travel to much of China and surrounding areas, a Wi-Fi industry dependant on chips and components from the region may be facing a crisis.
If growing concern over Severe Acute Respiratory Syndrome (SARS) culminates in a quarantine of affected regions, it would mean “nuclear winter” to an electronics industry forced to find alternative production sources, according to a new report.
With more than 85 percent of Wi-Fi gear and low-end networking equipment manufactured in the Peoples Republic of China (PRC) and Taiwan, SARS may create a disruption in manufacturing and supplies of ever-increasingly popular Wi-Fi gear in homes and offices, according to a report by Aberdeen Group analysts.
“For the past 18 months, digital consumer technologies such as wireless networking gear have sold strongly and continue to be a bright spot. Unfortunately, most of this technology is produced in the Asia-Pacific region, and particularly the PRC,” said Russ Craig, Aberdeen analyst and co-author of the report, ‘SARS Virus Attacks Electronic Industry.’
The World Health Organization is advising travelers to avoid China’s Guangdong Province and nearby Hong Kong. Guangdong is both the center of China’s burgeoning electronics manufacturing and the origin point for the SARS virus. Craig says there have been 792 reported cases of the virus, along with 34 deaths in the province as of March 31.
As an example of the importance China, Taiwan and Singapore are to computer manufacturers, Craig points to the lowly power supply.
“The PRC is a major source of AC-to-DC power supplies — assemble a laptop elsewhere, but you cannot sell it without a power supply. SARS threatens the supply of key component building blocks, not just the assembly plants,” said Craig.
Along with components, new designs may not reach market as soon as planned, says the analyst.
Broadcom, for one, “maintains teams of application engineers in the region,” said Craig. The virus could prevent engineers from traveling to customers and providing support. “At a minimum, schedules will slip,” the report said.
Broadcom says it uses components from China and Taiwan in its Wi-Fi products and has restricted travel to Asia, but for “competitive reasons, we would prefer not to discuss specifics,” says company spokesman Jeremy Hyatt. Hyatt says Broadcom isn’t experiencing problems in the region.
Hong Kong has quarantined over a 1,000 of its residents and, along with Singapore, closed all schools. In Taiwan, with 48 SARS cases, hundreds of people are under home quarantine. As tourism and business flyers dwindle, air carriers in Asia are slashing the number of available flights.
Quarantines Begin
For companies, the reaction has been mixed. Motorola temporarily shuttered a Singapore cell phone manufacturing plant after 305 workers were quarantined because of exposure to SARS, according to Craig.
Compal, a Taiwan-based maker of Dell and HP laptops is cutting travel to Hong Kong and the PRC. Sunplus Technologies, a Taiwan chipmaker, is doing the same.
Networking company Cisco Systems uses Asian components and maintains offices in Hong Kong and China. The company says it is not been effected.
Intel, which recently introduced it Centrino line of Wi-Fi-enabled laptop components, says it is closely monitoring the situation.
Brian Grimm, spokesman for the wireless networking trade group, the Wi-Fi Alliance, said member companies have “significant production” in Taiwan. Grimm believes production not be impacted by SARS.
“If certain areas become off limits for travel or export, it will become a large opportunity for those who can still export,” says Jupiter Research analyst Julie Ask.
A result of any quarantine may mean “short supply may drive up prices near term, or the manufacturers will eat the cost to stay in the game,” says Ask.
“The fact of the matter is that in today’s competitive markets, companies must produce things cheaply to make money, and that generally spells one thing, Asia, especially Taiwan and China,” says In-Stat/MDR analyst Allen Nogee.
Nogee says companies take the chance there won’t be a disruption for the sake of lower prices.
“Should there not be a SARS, or an earthquake, or a flood, then all you are left with is more expensive products to sell,” he said.
