(TMU) — The 2019-nCoV coronavirus has put life on hold for hundreds of millions of people in China over the past month, and regardless of how much the actual virus spreads outside of the mainland the economic impact will be felt across the world in the coming months.
China happens to be the manufacturing center of the world, and workers across the country are being told to stay home. Foxconn, the chipmaker that plays a key role in the production of Apple’s iPhone, has been temporarily shut down so the facility can instead be used to make surgical masks.
The change is necessary to help meet the demand for masks, but it is also causing obvious supply chain problems for Apple.
One executive with the company told Nikkei Asian Review under the condition of anonymity that “The [coronavirus] situation in China could affect the planned production schedule” of the next iPhone.
The vast majority of U.S. manufacturers have factories based in China, and many of them are facing similar supply chain problems.
Nintendo has recently announced that shipments of its Switch console to Japan are being delayed due to the coronavirus quarantine. There is even a possibility that the newest PlayStation and Xbox consoles won’t make their scheduled holiday release this year because of the nationwide shutdown caused by the coronavirus.
According to Business Insider, PlayStation 5 and the Xbox Series X could be delayed or perhaps have fewer systems available at launch as a result of the quarantine in China.
A recent post from the Jefferies Group explained:
“The video game sector is currently manufacturing, or beginning to, a once-in-several-years’ product generation change for the 2020 holiday season. If [company] shutdowns exceed a month or so, game schedules will be delayed. New consoles may likewise suffer supply issues from a prolonged disruption, ahead of their Fall 2020 planned launches.”
The post noted that “30-50% of art creation in western games is done in China,” and that nearly 100% of the hardware manufacturing also takes place in China.
Another Jefferies analysts wrote:
“If key supply chain participants in the PS5 or Xbox Series X were significantly disrupted, limited inventory for the launch window would be a bigger problem if it led to some games being delayed by a quarter. Given marketing, competition, and synchronized game release all scheduled for the next console generations, this bears watching.”
To prevent an economic downturn, the Chinese government delayed trading for a few days and then injected $22 billion into the stock market when it reopened.
Michael Kelly, head of the global multiasset firm PineBridge Investments, said that the world’s economy will likely see a downturn in the coming months as a result of the manufacturing shutdown alone.
“Damage will likely mount over the next several months, particularly in travel, oil, and the Chinese economy. And given China’s size and significance, weakness will spread elsewhere. Yet keep in mind that much stimulus had already been put in place to reverse 2019’s global slowdown,” Kelly said, according to Barrons.
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