- The tech industry’s supply chain has been disrupted by the coronavirus crisis.
- Starting in January, tech production in China slowed down — first because of the Lunar New Year celebrations, then because of efforts to contain the COVID-19 outbreak.
- Production has started to resume in recent weeks, although many factories are short-staffed and are weeks or months behind schedule, industry consultant Gregor Berkowitz told Business Insider.
- But now concern is shifting from US companies being worried about their manufacturing partners to those partners being alarmed about the potential for an economic downturn in the US and a sharp decline in demand, Berkowitz said.
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A week ago, the big question about the tech industry’s supply chain was how long it was going to take manufacturers in China to get back to full production after the coronavirus outbreak idled factories there.
Now, the big question is: When production does get back to normal, just how much demand is there going to be in the US from tech companies and consumers, said Gregor Berkowitz, a longtime tech industry consultant who works closely and talks nearly daily with companies involved in producing products there.
“In the past day or so, I’ve heard lots of concern about potential impacts in the US from partners in Asia,” Berkowitz told Business Insider on Wednesday. “So,” he continued, “the concerns have reversed now.”
Production in China was halted initially during the Lunar New Year celebrations in January. But factories stayed shut as the government there attempted to contain the COVID-19 outbreak.
Chinese factories are understaffed and behind schedule
Some factories, particularly those owned by the Taiwanese contract manufacturing giants, were starting to come back online earlier this month, Berkowitz told Business Insider last week. But few were at anything close to full production.
Part of the problem is that many of the factories were still short-staffed, he said. Even when factory workers were allowed to come back to work, they were being forced to stay in quarantine for two weeks as a precautionary measures to prevent spreading the disease.
“They’re understaffed still, but they have significantly more staff than they did a month ago,” he said.
Even as they do resume production, many are well behind schedule, Berkowitz said. Components and other products are significantly backlogged.
“The overall timelines and delivery of components is slipped on the order of a month to two months,” he said. “We’ve seen that pretty consistently across multiple suppliers.”
“Everybody is holding their breath” about US demand
Asian suppliers are continuing to work hard to ramp up production, Berkowitz said on Wednesday. But they’re growing increasingly worried about what’s happening in the US. Producers there are concerned about how the coronavirus pandemic is affecting the American economy and the impact it’s going to have on the cash flow of their US partners — and the demand for their partners’ products, he said. They’re also trying to figure out how a downturn might affect not just near-term demand, but also their sales even up to a year from now.
“I think everybody is holding their breath,” he said. “There’s definitely concerns across the board that US consumer demand is going to drop significantly.”
Right now, the Asian suppliers seem to be getting mixed signals from the US. Many venture capitalists are indicating that they still are flush with funds and are continuing to be willing to invest in tech startups. But some are also indicating that they’re being more cautious and are starting to focus on existing portfolio companies, rather than funding new projects.
So far, Berkowitz hasn’t heard of any US companies cancelling their orders. But he has seen some companies start to take a different approach to the coronavirus-related production delays. Instead of pressuring their manufacturing partners to get production back up to full capacity as soon as possible, they’re taking a more passive approach and letting those delays play out, he said.
“I think there’s a lot of different messaging” coming from the US, “and still to be sorted out what the actual truth is,” Berkowitz said.
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