Marek’s Take: Coronavirus’ impact will be bigger than a cancelled trade show

Marek's take

Like many of you, I was saddened by last week’s decision by the GSMA to cancel the 2020 Mobile World Congress conference in Barcelona because of concerns about the coronavirus outbreak, which the World Health Organization has now named COVID-19. MWC always generates a lot of interesting news and excitement for the wireless industry. Nevertheless, as the COVID-19 news became more dire, it made sense for the GSMA to cancel the event.

But I think the wireless industry is facing a much bigger dilemma than a cancelled trade show—even one as large and as important as Mobile World Congress. From component factories that have halted manufacturing, to research and development plants that are temporarily shuttered, the whole wireless value chain will likely face substantial delays and possibly financial losses from this outbreak.

5G standards delay?

At the highest level, it is possible that the 5G Release 16 standard could be delayed because of COVID-19. According to Strategy Analytics Director Susan Welsh De Grimaldo, some vendors are wondering if the finalization of the 3GPP Release 16 standard will be impacted because the 3GPP has cancelled all face-to-face meetings in the first quarter and is trying to move any meetings in the second quarter that were scheduled to happen in China to other locations.

On its website, the 3GPP said that when possible these face-to-face meetings will be replaced with electronic meetings. Release 16 is currently scheduled to be completed in June, and it’s considered a major upgrade to 5G because it incorporates vehicle-to-everything (V2X) application layer services, as well as 5G satellite access.

Smartphone shipments downgraded

Beyond 5G standards, there will likely be major disruptions to the smartphone supply chain.

Apple issued an earnings warning yesterday. The company said that it expects slower revenue because of two things—slower iPhone production in China and lower demand for Apple products in China. “Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated. As a result, we do not expect to meet the revenue guidance we provided for the March quarter.”

Qualcomm executives also highlighted the uncertainty of the company’s chipset and modem business due to COVID-19 in the company's fiscal first quarter earnings call on Feb. 5. During that call, CFO Akash Palkhiwala noted that there is significant uncertainty around the company’s business because of coronavirus, and reduced the company’s guidance for its fiscal second quarter.

Strategy Analytics predicted that Apple would be hurt by COVID-19, and said that other manufacturers such as Samsung, LG, Lenovo-Motorola and TCL-Alcatel will also be impacted because they all rely on components that are manufactured by Chinese companies. And even if smartphone manufacturers are already trying to find suppliers in other regions of the world, it will take some time because those suppliers aren’t easily replicated.

Linda Sui, director of wireless smartphone strategies at Strategy Analytics, predicts U.S. smartphone shipment volumes will have double-digit declines in the first quarter. To put that in perspective, in fourth quarter 2019 the industry shipped 375 million units globally, and total smartphone shipments for 2019 were 1.4 billion, according to the analyst firm.

As for 5G smartphones specifically, Ken Hyers, director of emerging device strategies at Strategy Analytics, said that every major U.S. operator plans to offer between 10 to 15 5G smartphones this year. And while it’s tough to predict exactly how the COVID-19 outbreak will progress, Hyers said he expects 5G phone sales in the U.S. to peak later this year once 5G networks have broader coverage and the new 5G Apple iPhone is introduced. He also noted that the company believes Apple will be the top 5G smartphone vendor in the U.S. in the second half of 2020. 

But Hyers also said that the impact of COVID-19 on Apple will be dependent upon how quickly the company is able to shift more production to Taiwan (where coronavirus is less of a problem). 

Sui added that if the COVID-19 can be contained after March and factories reopen, they might be able to rebound later in the year.

Is this another SARS?

Hyers compares COVID-19 to the SARS epidemic in 2003, noting that when SARS hit manufacturing in China it was severely impacted in the first half of the year, but then rebounded in the second half. “We expect a similar response in 2020 with China’s manufacturing engine revving up in the middle of the year and largely erasing the slowdown it experiences in the first half of 2020,” Hyers said.

Of course, it’s hard to predict whether COVID-19 will have the same progression as SARS did in 2003. I remember attending Mobile World Congress that year—because it was held at the beginning of the SARS outbreak. I don’t recall any changes in people’s habits. We still shook hands, we still rode crowded subway trains, and we endured long plane rides back home from Barcelona.

Vaccines for viruses like this typically take a year or two to develop, but I’m already reading reports that a COVID-19 vaccine is in the works. I certainly hope COVID-19 will go the way of SARS and become just a footnote to remember when we look back at 2020.