Coronavirus Feedback From Consumer/Tech

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Coronavirus Feedback From Consumer/Tech
Important disclosures can be found in the Appendix

Highlighted below are key themes and top quotes on the impact of the coronavirus from our channel research with the date added to give context to a dynamic market.  The balance of the quotes are on subsequent pages.

Industry/company-specific commentary; AMZN more proactive, Furniture/Footwear exposed; Back-to-school risk building.

  • Amazon appears to be proactively ordering additional inventory or safety-stock in key categories to protect against potential shortages.
  • Furniture industry exposure is high (high percentage China-sourced goods); Wayfair risk appears more-elevated with drop-ship model.
  • Footwear industry appears to be another high-risk industry; Lingering factory delays/issues creates risk for summer/BTS. 
  • WMT/TGT risk appears more elevated given higher penetration of China-sourced goods and more structured modular reset timing.    
  • Growing risk of semi suppliers increasing pricing into 2Q as channel inventory drains, Yageo already starting in MLCCs.

1.  (2/11/20) Amazon ordered 3x their normal quantity from last week from top vendors with heavy China exposure.  It was odd for us because it was an off-cycle replenishment.  They more-or-less told us it was a ‘Corona-Order’. (home goods)

2.  (2/14/20) Our company opened up our factories but we are under 10% capacity.  We will not be 100% until week three of March – so we are talking a 4-5 week delay vs normal, this is way longer and is an issue.  4-5 weeks is the start of it but the government has to approve and then if there is a case you have to close.  BBY can benefit in that they are more flexible with reset dates.  Walmart/Target will get hit more since they have a specific modular reset dates – they will have empty shelves. (CE)

3.  (2/17/20) Yageo has officially released that they are raising MLCC prices by 30%.  They’re the only one talking increases now, but we think it’s likely other suppliers follow. (semi channel)

Visibility on factory utilization remains low as shutdowns linger; Timing & rules for restarting aren’t entirely clear.

  • Utilization levels at factories are as low as 10% in some key categories. 
  • Workers trickling back in with changing regulatory and travel conditions making it difficult to forecast when full utilization.

4.  (2/12/20) All of our factories had to get certificates to reopen – a ‘clean bill of health’ if you will.  Three of the four factories are capable of reopening on 2/17 in a reduced capacity, but we are still waiting on those permits.  One factory tested positive for the Coronavirus so that factory is quarantined and closed until further notice.  One factory actually has 50% of their workers back already which was much higher than expected and close to a normal year even.  The others are quite a bit lighter to date.  The best-case scenario last week was a two-week delay – now it’s a 4-week delay.  (footwear) 

5.  (2/14/20) China/Coronavirus - yeah, it’s a problem – most of our factories are around Shenzhen – workers leave and usually 70-80% come back – so usually takes some time to get capacity ramped up anyhow.  We are getting some staff back but no labor right now and it’s not a company-specific problem, it’s an everywhere problem.  Lost at least one week, going to lose next week too.  Probably something after that.  Right now it’s closer to 0% than 70-80%.  Technically it’s like 30% but there’s no labor – it’s all management. (home goods)

6.  (2/17/20) We work with VSH, and we’ve heard all five of their factories in China are running but only at 20-30% utilization.  Most of their workers we think come from cities still on lockdown…with the number of infections increasing on a weekly basis we think it’s unlikely it gets a lot better near-term. (semi channel)

Product/component shortage concerns growing as factory delays persist; Inventory on-hand likely pushes impact to C2Q/3Q.

  • Production delays to mid/late Feb. appear mostly manageable; Anything beyond this likely starts impacting retail & tech builds. 
  • In consumer, we are seeing some growing concern on availability of supply in seasonal goods ahead of spring/summer.
  • There is building concern that Coronavirus delays carry on longer than people expect and lead to potential port congestions.

7.  (2/13/20) Coronavirus – anything not on the water is in jeopardy.  We are covered through March – we are JIT but our goods through March are on the water already.  The vast majority of our supplier factories in China are still closed (~80%).  Seasonal goods (spring/summer) are more at risk right now, if factory shutdowns extend for a prolonged time (two months of missed deliveries would kill the season).  Some of our retailers have been asking for extended forecasts over the next six months.  It could potentially help suppliers clear excess/old inventory if retailers need product. (sporting goods/outdoor)

8.  (2/1/20) CNY is always tighter than normal – we are at 30% capacity this week, some transportation hubs opening.  If things continue, there is not going to be any impact.  We have tons of the stuff on the water already.  A 7-15 day delay is nothing, if it extends beyond 3 weeks, then we would start to get more worried.  Best Buy carries 8-10 weeks of inventory in many categories and most suppliers carry ~60 days of stock in their warehouses. (CE)

Factory delays/travel bans could create collateral damage with potential for component shortages & quality control issues.

  • Factory closures/delays could create potential headwinds in other areas including raw materials, components, and transportation.
  • Sporadic road closures, lockdowns, air/freight travel challenges are extending delivery lead times & increasing costs.
  • Lack of travel/interaction with factories could result in quality-control issues and less product development/R&D.  

9.  (2/14/20) Yes, the coronavirus is having a big impact. Even if factories are not in the worst hit areas there can be issues with raw material, components, worker travel disruption, and so forth.  Buyers canceling travel not just to China but to Asia as they don’t want to be at airports.  Fairs postponed.  Factories have stocks of material so it could be manageable if not too long-term.  Even in SE Asia, there is some impact due to materials from China.  Though so far, not nearly as bad as China.  We are seeing big placement of orders in factories here now.  (furniture) 

10.  (2/17/20) Suppliers aren’t quoting real lead times right now.  With issues the workforce impacted and air travel/shipments the lead times are really unknown…To ship via truck product there are up to 5 customs stops between Shanghai and Hong Kong and it will take at least an additional week beyond the normal travel time from the 1-3 days via air. (semi channel)

11.  (2/3/20) We banned travel and had people working from home.  Some factories are going to have big problems and delivery issues.  The bigger issue is if people are not able to travel, will things fall through the cracks with quality, product development/R&D.  China is the biggest issue but other countries have cases now too.  If factory stoppages go beyond the expected 1-2 weeks, it causes problems.  Footwear will be hardest hit.  Many apparel retailers have shifted a lot of production out of China.  (apparel)

China end-demand appearing weaker than expected thus far in C1Q in select categories.

  • Demand in China for smartphone, notebook, graphics, server anything consumer trending 30%+ below targeted levels.

12.  (2/13/20) (The virus) is certainly pulling down our 1H20 shipments and revenues into China hyperscale (BAT).  We really hope to catch up later in 2Q and 3Q, but it’s not real clear at this point. (server channel)

13.  (2/13/20) Foresee potential supply constraints – we have a feeling the coronavirus number is severely underestimated.  The last two weeks are seeing a 60-70% decline in the region (China).  (CE)

14.  (2/13/20) Coronavirus could have a major impact on the OSS – sourcing is 100% in China – you can’t move furniture.  Demand in China is completely dead.  (office furniture)

15.  (2/7/20) YMTC was supposed to take delivery of some equipment from KLAC this month, but delivery was pushed back to April as no one from the company wanted to go to China to set up the equipment.  The YMTC factory is right in the heart of the virus outbreak.  Hynix also has a travel ban on for China right now. (semi channel)

16.  (2/7/20) I’m hearing Vivo and Oppo are C1Q online phone orders are lagging their plans by as much as 30%, and instore sales are missing targets by as much as 70% this quarter. (semi channel)

17.  (2/6/20) When looking at the China market, you can’t say graphics demand is dead, but we’re expecting the next two months to be really weak.  There has been a massive slowdown in spending and a complete shutdown of logistics.  (IT hardware)

18.  (2/6/20) US hyperscale orders remain quite strong and haven’t changed.  China hyperscale orders have slowed more than expected which is being tied to the labor shortages and extended shut-downs from coronavirus. (IT hardware)

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