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PC makers scramble to capitalize on coronavirus-boosted demand

Disrupted production forces Asustek and others to rethink China supply chains

TAIPEI -- Demand for PCs is booming thanks to teleworking and remote learning measures introduced around the world to combat the coronavirus pandemic, but the industry is bracing for longer-term challenges including an eventual downturn in the market and the need to diversify production away from China.

PC makers may also struggle to make the most of the short-term spike in orders as they grapple with supply chain disruptions.

Asustek Computer, the world's No. 6 PC company by shipments, said it expects revenue for January-March to plunge as much as 30% on the year as disruption to its supply chain meant it had not been able to keep up with demand. HP, the world's second-largest PC company after Lenovo Group, also warned in late February that coronavirus will negatively impact the company's revenue and profitability this quarter.

"We do see apparent demand pick up for PC-related products, especially in the Chinese market, however, we don't know how long such demand will last," Samson Hu, co-CEO at Asustek, told an investors call on Wednesday. "Given that consumers' economic activities are restricted, it will have a major impact on market demand if the coronavirus threat continues."

Products such as monitors, commercial and educational notebook computers, and gaming devices are experiencing a rush in demand. Dell, the world's No. 3 PC maker, has seen demand rise by up to 30% for some of its notebook lineups thanks to the remote working demand, a source familiar with the company's situation told the Nikkei Asian Review. However, it has rescheduled the launch of its new laptops to sometime between the end of April and mid-May, up to two months later than previously planned, the person said.

Asustek said its research and development for new PC-related products has been affected by travel curbs, and that it has to reduced the number of new model launches to focus resources on more strategic products.

Meanwhile production in China -- the main manufacturing hub for all of these PC makers -- has not yet completely returned to normal levels due to shortages of labor and component supplies, making it harder for suppliers to meet rush orders. The fluctuation in foreign currencies amid the novel coronavirus outbreak is also weighing on PC vendors' operations.

"It's not just us. Everyone in the PC industry is facing the same problem, that the impact on sales and profitability [due to coronavirus] will be the major challenge for us this year," Asustek CFO Nick Wu said.

"We do see some rush orders coming in for personal computers and data center servers thanks to all the online learning and work-from-home boost," said a supply chain executive. "However the visibility for future demand is still quite low and uncertainties are very high as we don't know if the coronavirus will later dampen global macroeconomics and overall demand."

HP said it is monitoring the situation as production resumes.

"HP factories are steadily coming online and demand for our products is holding. We continue to keep a pulse on our customers and partners to ensure we support their needs and their delivery requirements during this dynamic situation,” an HP spokesperson told Nikkei.

Dell did not immediately respond to Nikkei's request for comment.

Research house IDC in February already trimmed its forecast for global shipments of traditional PCs for this year to 248 million units, an annual decline of 7.1%, due to the coronavirus threat in the Chinese market. Now it plans to cut its annual estimate again to factor in the pandemic impact, IDC Taiwan general manager Helen Chiang told Nikkei.

"The biggest challenge for PC vendors this year is planning. The uncertainties brought by the coronavirus outbreak is making it extremely difficult for the companies to plan their order forecast to suppliers and build inventories for retailers and online channels."

Many computer makers with manufacturing hubs in China see the coronavirus outbreak as an opportunity to review the sustainability of supply chains in the country, a move that could trigger the next wave of diversification following the one sparked by the escalating trade war last year.

Asustek, for one, has confirmed it has already kicked off some of its high-end computer production in Taiwan instead of China after the coronavirus threat hit the supply chain.

"We have already formulated a plan with our suppliers since last year when we faced trade war tariffs. ... Now following the coronavirus outbreak we really see the urgency to facilitate diversification of our production from China, starting from some premium models," said Asustek's Hu.

HP has dispatched teams to visit suppliers in Thailand following the shutdown of suppliers' factories in China in February, while Dell is considering shifting some of its new product sampling and testing from China to Taiwan, sources told Nikkei. Last year Nikkei first reported that HP and Dell both had plans to diversify production to Southeast Asia but slowed their progress as the U.S. and China inked the first phase of trade deal to ease the tension.

Delta Electronics, a key power supplier to all major PC makers, said the virus has made the company rethink its sourcing strategy. "After reviews, we found that even at our Thailand production site some 30% of parts needed to be shipped from China," Chairman Yancey Hai said at an investors conference. "But we will aggressively look for local sourcing and reduce the share of part from Chine to 10% in six months [at our Thailand site]. Previously such efforts would undoubtedly have taken one to two years, but the virus crisis has really pushed everything forward." 

Computex, the computer industry's biggest event, was scheduled to kick off at the start of June in Taipei, but it could become the latest show to be postponed, three industry sources said, following the cancellation of a number of other key expos, including the Mobile World Congress in Barcelona and the Game Developers Conference in Silicon Valley. Normally, all the world's leading PC makers -- HP, Dell, Acer, Asus -- as well as top ecosystem players -- Qualcomm, Intel, Nvidia, Advanced Micro Devices, and Microsoft -- send high-level executives to Computex deliver keynote speeches and introduce their latest products. The trade show normally draws 50,000 professional buyers from 170 countries, but organizers are now mulling whether to delay the opening, the people said, with one of them saying the event is likely to be postponed until September.

The Taipei Computer Association, a co-organizer of Computex, confirmed to Nikkei that it is discussing to delay the trade show and will make a decision by early April at the latest.

"We have a lot of exhibitors, keynote speakers, and trade buyers coming from abroad. ... The travel curbs around the world and the Taiwanese government's latest ban on foreigners coming into Taiwan could have a major impact on Computex," TCA overseas industry service director Sakura Yang told Nikkei.

Additional reporting by Coco Liu in Hong Kong

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