Along with the massive implications for health and safety, the COVID-19 novel coronavirus has come down on the global manufacturing and supply chain like a comet. We’ve already seen some of the implications with hardware and even physical releases, with resellers swooping up copies of Ring Fit Adventure, delays to Switch deliveries and supply shocks to DRAM and NAND memory, making consoles like the PS5 more expensive to produce.
For you, the consumer, the message is pretty straightforward. Unless you were absolutely waiting on a next-generation part, like the next series of AMD or Nvidia GPUs, anyone considering buying a PC should seriously think about doing so sooner, rather than later.
The reasoning is pretty straightforward. Apart from the obvious risk to health, the biggest impacts of the coronavirus has been the effect on global consumer electronics. The nature of globalisation and free trade means that countries, Australia included, have been more than happy to see manufacturing move offshore. Countries that had a competitive advantage in things like wages and overall capacity (India and China having a greater population density than, say, New Zealand) were better placed to manufacture the shoes, silicon and other bits and pieces that are a part of daily life, and global trade has functioned with that as the norm for the last few decades.
Until the coronavirus, that was all well and good. But the natural effect of that transition has meant that supply chains are unreasonably exposed to natural disasters or any significant shock affecting those countries that are now the main source of production for global goods. That’s especially true for PC parts. AMD, for example, might be designing the CPU out of America, but their silicon wafers are increasingly coming from TSMC in Taiwan. You might think you’re buying a motherboard from one of the big Taiwanese brands (ASUS, GIGABYTE etc.), but their motherboards don’t get off the ground without PCBs manufactured from specialist factories in China.
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It’s a problem that will run on for months simply because of how basic manufacturing works. Any issues that hit the supply of a particular part – let’s say SSDs – won’t affect prices and consumer availability right that second. Why? It’s because the parts have already been manufactured, QA tested, shipped to another factory for final assembly or pre-assembly, QA tested again, and when all is in the clear, shipped again worldwide to sit on warehouse or retail shelves.
And the retailers themselves factor in a buffer too. That’s the basic principle of inventory. You want customers to be able to buy something as soon as they want it. You don’t want too much inventory, because that’s money spent that is sitting there idle on a shelf until a customer makes a purchase. But every company has a small buffer built into their business. That applies to factories as well, although the components industry has tried to minimise that as much as possible with just-in-time manufacturing and pull-to-order production models.
How that pans out for the consumer depends on the individual company and where they collect their parts from. Some manufacturers in Taiwan, as reported by Gamers Nexus from a factory tour of the country, are doing OK. EVGA, makers of overclocked graphics cards and other enthusiast PC parts, have banned all visitors including delivery drivers. But companies that are able to source their parts entirely outside of China are having a much better time, owing to Taiwan’s better handling of the coronavirus.
For those relying on parts or some parts that come out of China or South Korea, it’s a totally different story. Some products that were due to launch in Australia have been postponed indefinitely or had their launch dates pushed back. I’m currently reviewing a curved MSI 27-inch gaming monitor, and you’ll read more about that later this week hopefully. The monitor was supposed to have launched in Australia a full month ago, but supply hasn’t reached Australia because the simple act of getting stuff manufactured and shipped is so problematic right now. Another gaming monitor I reviewed recently, LG’s 27-inch gaming monitor, had its arrival date pushed back by a couple of months. It was supposed to be available in Australia already, but some places are now reporting that stock won’t arrive until mid-May. (Update 25/03: LG has advised that local stock of their monitor has arrived in four local retailers by the end of the week.)
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It’s the warehouses and couriers that have the biggest moral dilemma. Even though most of the larger factories are starting up again, capacity isn’t anywhere near back to full speed. On top of that, even if factories can get stock out of the door, they can’t necessarily get it to customers because of self-isolation, quarantine and blockades in the shipping process.
Put another way: A company like Apple might be able to use their weight with Foxconn to get more dockhands and drivers to ensure their parts can start moving again, but those proprietary NVMe SSDs that Microsoft (and probably Sony) need?
Well, they might take a little while longer to arrive.
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Samsung has started shifting more of their production out of South Korea and into Vietnam to make sure their flagship phones can continue assembly, but they’re likely to face the same problem Nintendo had. The assembly might be happening in Vietnam, but the actual assembly is still reliant on parts coming from China, slowing down overall production. Nintendo already had to apologise for a delay in hardware and accessory shipments worldwide because of the effect of the coronavirus, and the natural impact of that throughout the course of the year will be felt on available supply – and cost – as manufacturing slowly trickles back up to full speed.
But even once that happens, consumers are going to eat a higher cost at the end. The first reason is simple: companies won’t want to be as exposed to global shocks like this ever again. It’s not just the effect of the global pandemic, but the impact of the trade wars between the United States and China, which put a massive dent into Apple and Samsung’s revenue projections last year.
“The pandemic results in higher logistics and human resource costs within the consumer electronics supply chain while lowering revenues, potentially triggering an industry-wide reorganisation and reshuffle,” industry analysts TrendForce said in a report into the memory industry.
On top of that, you’ve got a massive spike in demand. Two major Australian PC retailers told me over the last few days how sales and marketing activity is at a high right now, with companies looking to take advantage in the rise of workers needing more tech equipment as they find themselves in various states of quarantine. Retailers are able to service orders now, thanks to that inventory reserve. But once that stock is sold, prices are likely to rise if the manufacturing delays continue.
“We are expecting to potentially see some price increases if supply is effected by manufacturing delays, over the past couple of months,” one retailer told Kotaku Australia. It’s also highly possible that prices will soar anyway, as companies absorb the cost of guaranteeing casual, warehouse and part-time staff wages when they’re unable to work, not to mention the downturn in expected revenue and profits over the last two quarters. Some companies have worked out solutions, like staggering the rostering of staff, but not all firms involved in the shipping and warehouse management have worked out the best solution yet. And once we get through the other side of the coronavirus and companies diversify their supply chain to manage risk, that will add cost to the bottom line – all of which, eventually, will be passed onto the consumer.
As one local manager explained, parts simply aren’t going to be cheap as they are today. The cost for storage – that’s your SSDs and NVMe drives, in practical terms – have already been hit. TrendForce are projecting prices for DRAM and 3D NAND memory – which is what goes into every laptop, PC and gaming console – to rise by anywhere from 15 percent to 30 percent. Shipments of laptops and production of smartphones is likely to take a hit, and that’s after supply DRAM and NAND storage was hit by a dispute between Japan and South Korea. The fact that more sectors are moving away from older storage tech – old platter drives are basically dead as far as modern consumer tech is confirmed.
“Regarding market demand, the pandemic’s rapid proliferation will severely impede economic and social activities and subsequently hinder consumer purchasing power,” TrendForce argued.
We’ve seen this before. Floods in Thailand back in 2011 resulted in worldwide shortages of hard drives, with around 14,000 factories being shut down and over 600,000 workers out of employment. Western Digital copped a 60 percent hit to their quarterly revenue. Firms started moving their production out of Thailand to other countries to minimise their exposure – China being one of them.
Now, all of this comes with a caveat. If countries double down and limit the spread of the virus faster than anticipated – although that’s reliant on leadership being ahead of the curve and not behind – then production could restart just fine in three months, shipping will resume as per normal, and everyone’s games, tech and components will all be fine.
But that’s the best possible case scenario, and we’re a long way away from that. The mortality rate might not be as high as some feared, but most countries are still struggling to test and identify how many people are infected, Australia included. The longer that carries on, the more disruption there will be to global business. And that’s not even factoring the impact of countries shutting down their borders or completely isolating.
It also helps that, honestly, PCs are in a pretty good place. SSDs have been at a decent price for a long time. The competition between Intel and AMD has left CPU prices in a great spot – especially gamers looking at hexa or octa-core rigs – and the cost of DDR4-3200 and DDR4-3600 RAM has halved over the last two years. That said, I don’t have great news if you were hoping for an RTX 2080 Ti to be affordable any time soon.
I don’t mention all of this to cause panic or concern. It’s just an acknowledgement of a simple reality. The supply of components on store shelves is going to run out shortly, and it’s not going to be refilled to the same volume any time soon – and when it comes back, it’s likely to be more expensive. And the longer the coronavirus pandemic continues, the more that situation will evolve from a temporary shock into a permanent impact on consumer electronics.
Retailers themselves are already bracing for the impact. Most of the interest, fortunately, hasn’t been around the kind of gear that most gamers want to buy. But if you were looking at building a rig, and you were thinking of holding off until a big release came around – like, say, Cyberpunk 2077 – then you might want to seriously reconsider.