[OEM-ODM-EMS] My vision of the coronavirus for the electronics manufacturing industry

Most concerns are today about shortages. But in reality, the supply overweighs demand.

I’ve been in the electronics industry a bit more than 10 years. I created a startup called Precogs and our speciality is to forecast what will happen in the period immediately ahead: Shortages. Oversupply… Here is what will happen in the next 6 months for our industry and the global economy. This is a personal forecast. I’m not a black swan. Nor am I a conspirator. I’m very unlikely to be afraid of something. Unlikely to panic. These are just my rational deductions from data gathered by governments, suppliers and customers. You cannot imagine how I would love to be wrong.

Corona dangerousness

The corona disease (COVID-19) is not a bad flu. It’s a serious respiratory illness which is extremely contagious. The virus fatality rate is high for individuals aged 70 years and older (8% rate for individuals in their 70s; 15% in their 80s) and individuals with co-morbidities (11% for cardiovascular disease; 7% for diabetes; 6% with chronic respiratory disease; 6% with hypertension; 6% with cancer). The virus has already mutated many times. It’s more and more contagious and could became dangerous for young people also. Contagiousness is high. Some studies say up to 4 meters in air conditioned indoor places. The incubation period is about 10 days. The first symptoms are similar to the flu. 6 days later, respiratory issues begin. And then everything changes quickly. There is not much to be done but respiratory assistance. Anti malaria and HIV medicines could help. After 4–5 days, the fever should decrease. Mostly for young people and women. If not, patients go to intensive care.

As a summary: it’s dangerous and contagious and could mutate to something stronger.

Governmental measures

Since incubation is only about 10 days, prohibiting people movement is efficient.

Governments have to begin with school closures since infected kids have no symptoms and cannot respect the barrier gestures (wash your hands, stay far from other people, sneeze into sleeves, don’t touch others). They carefully define who should be tested. Who should stay home. Who should have respirators. Who cannot go to hospital because of limited intensive therapy structure. They try to increase respirators and corona test supply. They try to favor remote work. They invite the population to limit their movements.

Then they prohibit any movements and businesses have to close.

Then Soldiers are in the streets.

Then they close borders.

Closing borders before schools and businesses is stupid. Trump is stupid.

Step 1: supply shortages

With China as the world’s number one supplier, the first economical issues outside of China are supply shortages. Most - if not all - supply chains have been impacted. For semiconductors, wafers are mainly manufactured in Taiwan, South Korea or Japan. But encapsulation of the wafer dyes is mostly done in China. As always, carmakers have been the first to try to secure their supply with inefficient increase of their demand forecast (2x ahead of a global economic slowdown). Demand artificially increases and shortages escalate.

Step 2: over supply

For the time being only China and Italy have closed their businesses. Many countries will follow in the next days/weeks. With so many businesses closed, the economy will drop. Like never before most likely. Crude oil demand will drop again. As well as electronic component demand. Oil prices will drop. Component lead times will drop.

Step 3: the worst economic crisis

This is where things goes bad: it will last. Dictatorial countries will manage to prohibit population movements. They can contain the propagatio of the virus in about 6 to 8 weeks. Democratic countries will take a few weeks more to decide to have the army in the street. 8–10 weeks. Liberal countries will take a few additional weeks since people have no choice but to work without health and unemployment insurance. 10–12 weeks. The economical cost will be huge. Countries will do anything to save their businesses. Free money. The worst situations will probably be in countries with high oil dependency: Iran, Iraq, Venezuela, Algeria, Nigeria.

Then?

Then things are not forecastable. Many scenarios are possible. Some countries may go back to work with the virus and live with it. Borders would remain closed. Countries would try to reduce their global dependency. There may be conflict with Russia if Putin refuses to decrease oil production. Scientists could create a vaccine earlier than expected. But not earlier than a few months.

My advices

Don’t overreact. It’s not good to go in crowded malls without mask. Not good to increase stock levels before a major recession. Keep your cash. You will need it. Stay home once governments decide you have to. Stay safe. We will do whatever we can at Precogs to help our customers save more money and get through this crisis.

About Precogs: we offer solutions for OEM-ODM-EMS to save costs by optimizing their procurement and purchasing through real-time data analytics.

Sources: it would be too long to disclose all sources but main one is this JAMA network study by Zunyou Wu, MD, PhD, Chinese Center for Disease Control and Prevention. All stats are confirmed by Italy first numbers.