China is the hub of the global smartphone manufacturing supply chain. In fact, it accounts for almost 85% of the mobile phone components imported into India. The dependency of the world, as well as of India, on China for electronics components, cannot be emphasized.
Last month, the outbreak of the coronavirus in Wuhan, China, led to 100 deaths in China, and more than 4500 reported cases worldwide. This begs the question: Can coronavirus disrupt the Indian smartphone industry?
Before we delve further, we should take a step back, and look at what coronavirus is.
Coronavirus is a family of viruses that include the common cold, and viruses such as SARS (Severe Acute Respiratory Syndrome in 2003) and MERS (Middle East Respiratory Syndrome in 2012). This new coronavirus emanating from Wuhan has been named “2019-nCoV.” Coronavirus spreads through both direct and indirect contact and can survive or stay suspended in the air for hours or travel more than a few feet. Just like SARS, this coronavirus can mutate along the way, and become potentially more virulent. Just like the SARS and MERS, the 2019-nCoV causes pneumonia, leading to the infection of one or both lungs.
While the coronavirus infection starts off mildly with symptoms such as fever and fatigue, accompanied by cough or diarrhea, it could take almost a week for the infected person to seek medical help. In the subsequent week, almost 30% of cases are admitted to the intensive care unit (ICU) for mechanical ventilation. Further complications include septic shock and cardiac injury.
How will the coronavirus impact the Indian smartphone supply chain?
For mobile phone players in India, China remains the key source for sourcing all critical components of a smartphone, including smartphone displays and printed circuit boards (PCBs). In 2019, for instance, the mobile phone components imported from China accounted for roughly USD 10 billion to USD 12 billion in terms of value.
While Indian players traditionally do account for a slowdown in component shipments from China owing to Chinese New Year festivities, they would now need to prepare themselves, and factor-in the extended shutdown arising from coronavirus. If employees at major smartphone component manufacturing hubs in China are restricted, these could further acerbate the shutdown.
For smartphone brands, such as Apple, the year ahead is potentially slated to be a blockbuster year in India, with good headroom for market growth through its strong product line-up or its offline-online retail play through Apple-owned flagship stores and through its online store. Given the high stakes, Apple would have to carefully watch how the coronavirus outbreak plays out. Similarly, Chinese brands in India would need to keep a close tab on the coronavirus-related developments.
Ultimately, the extent and the spread of the coronavirus-inflicted production shutdown in China will determine its impact on the Indian smartphone industry, including delays in new smartphone launches, ongoing smartphone production, as well as increase, if any, in product prices. If the situation persists, this could potentially contribute to an increase in component prices by 3% to 4%, and even higher. All said, the first half of 2020 would need to be closely watched for the coronavirus impact.
Prabhu Ram is Head – Industry Intelligence Group at CyberMedia Research (CMR). This post first appeared on his blog and has been reproduced here with his permission.
