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Wuhan Coronavirus Seriously Affecting Manufacturing Activities in China
Global IT Industry Hit by Coronavirus Outbreak
Wuhan Coronavirus Seriously Affecting Manufacturing Activities in China
  • By Jung Min-hee
  • January 30, 2020, 09:11
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The Wuhan coronavirus is affecting South Korean manufacturers’ production activities in China.

For example, the Jiangsu provincial government told employees to stay at home for at least one week after the Chinese New Year holidays and the Chongqing city government told manufacturers in the city to resume their manufacturing activities after Feb. 9. Jiangsu is home to Kia Motor’s Yancheng Plant with an annual production capacity of 700,000 vehicles and Hyundai Motor Co. has produced 300,000 vehicles a year in Chongqing.

Samsung Electronics’ consumer electronics plant located in Suzhou resumes its operation on Feb. 9. The company is considering producing more products in Southeast Asia and delivering more products from South Korea in view of the possibility that the resumption may be delayed. Although Samsung Electronics’ semiconductor packaging plant and Samsung Display’s LCD manufacturing plant in Suzhou are still in normal operation, the companies are paying close attention to the current situation in that any delay in production will lead to huge losses.

The coronavirus is adversely affecting the global IT industry as a whole and the ongoing recovery of the global semiconductor market is likely to be slowed down. This is because the epidemic is affecting the demand side although it is not directly affecting semiconductor production in China. Foxconn’s manufacturing activities in China are predicted to slow down and the smartphone NAND flash and DRAM demand is likely to fall. In the long term, Chinese IT companies may slide back into a slump after the recent trade agreement between the United States and China, which is the world’s largest semiconductor market and one of the most important markets for South Korean semiconductor companies. Specifically, China, which represents 53 percent of the global semiconductor market, accounted for 24 percent of Samsung Electronics’ sales and 48 percent of SK Hynix’s sales for the first three quarters of 2019.

According to media reports, some Chinese smartphone component manufacturers are predicted to fail to supply their products on time and the failure may lead to a production setback on the part of device manufacturers such as Apple. This will have a negative impact on global semiconductor market conditions in that Apple is a major client for memory chip makers such as Samsung Electronics and SK Hynix. Before the outbreak of the epidemic, the conditions were very favorable. For instance, the spot price of 8Gb DDR4 DRAM rose from US$3.03 to US$3.37 for the first three weeks of this year.

However, the impact is likely to be reflected in the DRAM contract price from next month and this year’s market conditions will deteriorate if the price starts falling again. The price per unit already dropped from US$8.19 to US$2.81 from September 2018 to December 2019. Although some companies adjusted their supply by production line modification, their profits will remain close to their break-even points if demand fails to increase.

Besides, the demand for semiconductors for servers is currently insufficient to raise semiconductor prices. Although Intel announced on Jan. 23 that it would invest US$17 billion this year, new server and PC CPU manufacturing based on the actual execution of the investment will take time. The date of release of Intel’s server CPU Ice Lake, which is expected to lead to more demand from cloud service providers such as Microsoft, Google and Amazon, is yet to be fixed.

If the semiconductor prices fall again, those service providers will delay their purchase, anticipating an additional decline in price. Although American companies such as Micron Technology and Western Digital are expected to benefit from the production setback in China, it is concerns over an overall decline in demand that are weighing down on the market.