The coronavirus disease (COVID-19) pandemic (caused by the virus SARS-CoV-2) has inconvenienced the world. Not only is it a threat to humans world-wide, it also has threatened the global economy to grind to a halt.
Industries most hit are retail, travel and transportation, and the worst affected are those who work on hourly and daily basis. People are forced to start working in isolation and those in white collar jobs are probably finding it easier to work from home.
The tech industry is no different either. With top brands such as Samsung, Google, Microsoft, Facebook, Apple, Xiaomi, OnePlus and many others having most employees working from their homes, many tech companies are suffering losses due to delayed announcements of new products and additionally facing issues to serve their customers on a daily basis.
Let’s drill down to how some of these companies are managing to keep their businesses active while striving to serve their customers and keep them happy.
With the Covid-19 pandemic leading to restriction on travel, many tech events around the globe are either postponed, rescheduled or simply cancelled. Ground events are either rescheduled or have taken to online streaming options to continue business.
Thanks to the pandemic, the major MWC 2020 event was cancelled, and major tech giants such as LG, Samsung, Sony, Nokia, and many more gave it a skip citing health concerns for both their employees and the general visiting media and public. The event was scheduled as usual for the later half of February in Barcelona, Spain (Feb 24 to Feb 27).
The Game Developer Conference that usually happens around mid March (Mar 16 to Mar 20) has also been impacted. The event was called off for similar reasons. Companies that were affected were big names such as Sony, Nvidia, Microsoft, EA, and many more.
Smartphones are one of the fastest moving consumer products, and things look a bit dull as most smartphone makers have either cancelled launches or postponed them.
Xiaomi also took to their events online rather than having events on ground. The Chinese tech giant announced their recent Redmi Note smartphone via online streaming and took to media briefings using a video conferencing platform.
The same was with Realme, which took to online and announced their new 6 series smartphones.
A few like Huawei braved the pandemic and took advantage of the online medium and announced a few new products that included their flagship P40 series, the next Generation smartwatch and a new AI smart speaker.
OnePlus too has planned on announcing its newest range of smartphones in mid-April.
Google’s I/O (the Developer’s Conference) has also been called off. The event usually happens around Mid May (May 12 to May 14) and is one of the biggest events that were lined up this year. Google usually announces new products and their next Android operating system platform during this event.
Earlier in April, Intel also announced their 10th Generation Core i H-Series mobile processors for laptops. And taking advantage of that, ASUS also announced a refreshed ROG series with the new processors.
May also marks Facebook’s annual F8 event in California (May 5 to May 6), which now stands cancelled too.
Apple’s WWDC ground event is also cancelled and the Cupertino Giant will take things online with a completely new format. The WWDC 2020 will now be streamed and developers from all over the world will join in to hear Apple announce the future of iOS, iPadOS, macOS, watchOS and tvOS.
To know how things are actually moving around in the market, we got in touch with Navkendar Singh, Research Director – Devices and Ecosystem, India & South Asia, IDC, for more insights.
Stuff: How badly are smartphone companies affected due to the coronavirus pandemic?
Navkendar Singh: COVID-19 will have a substantial impact on the Indian mobile phone market in 2020, with potential supply chain disruptions and slower than expected consumer demand for the next few quarters. The slowdown will be more prominent in the first half of the year; however, IDC estimates a rebound in the second half of 2020. The overall mobile phone market is expected to decline by 20-25%, smartphone category to decline by 3%-5%, and feature phone segment by 35-40%.
Stuff: How are smartphone companies currently managing their operations?
Navkendar Singh: In the current lockdown, there is really no management required, since all operations are shut. Retail shops are closed, online platforms are not allowed to sell non-essential items and event venues are closed, so no new launches possible. Basically, the whole industry is in a state of complete stand still, till such time that the lockdown is lifted.
Stuff: Since most on-ground events are cancelled, they have gone ahead with online events. How does it affect their revenue? Will they benefit or lose out?
Navkendar Singh: In the initial days of March, we saw a few online events. But then with the lockdown imposed throughout the country, one cannot move new launches to the channel or do any marketing around it, so really there is no real benefit of doing even a virtual launch event. Of course, in the long run this should be normalised, but in the near term (read 2-3 months), every brand will see a major revenue hit.
Stuff: World-wide, what do you think is the overall revenue damage they tend to suffer... an average?
Navkendar Singh: I cannot comment on the world-wide impact; however, we should expect a significant impact for almost all major brands across the globe, starting with supply issues from China, and then demand shock, which will last for next few quarters and possibly even entering 2021 in some parts.
Stuff: How long do you think this will continue? Will brands launch new products online ahead or put everything on pause?
Navkendar Singh: As said earlier, everything is at a pause right now. Even if the industry is able to get the mobile phones in the essential list, enabling the distribution and opening up of the channel, the demand slowdown will hit them for the next few quarters, till the end of 2020. IDC expects the India mobile phone market to follow a U-shaped curve, from Q3 2020 onwards. The pent-up demand from the first half of the year will gradually shift to the second half, rolling over to H1 2021 as well.
Stuff: What about manufacturing? Since transport and deliveries are affected, will they continue sales and service?
Navkendar Singh: IDC estimates a significant impact due to the component supply issues in Q2 2020. Most of the factories in China are resuming operations as we write this, and will gradually ramp up the capacity into end April/early May. Additionally, restrictions and cautiousness around transportation within the country and prioritising medical equipment, essentials etc. over parts of phone components will add to this shortage of components coming into India and reaching manufacturing plants. This will result in a severe supply shortage of key components required to manufacture the mobile phones in India and should be expected to revive not before the end of Q2 2020 or early Q3 2020.
Stuff: Larger tech companies have budgets and profits that can help them sustain ahead. What about smaller brands who are striving? Will they be wiped out?
Navkendar Singh: Absolutely. All the small brands will be unable to handle such revenue impacts. However, India market is consolidating rapidly around top 5 brands, with around 85%+ of the market within these 5. Brands like Apple, One Plus should be able to tide over this crisis, while other smaller ones will be severely challenged.
Stuff: Lastly, what is your take on the future of tech industries if this pandemic is supposed to last a few months ahead? Will there be a slowdown?
Navkendar Singh: Slowdown is a real possibility now. The few things will impact almost every tech industry in next few quarters:
Supply Constraints - A significant impact is estimated due to the component supply issues in Q2 2020. Though factories in China are resuming operations, and are expected to gradually ramp up the capacity by early May, restrictions and cautiousness around transportation within the country will add to this shortage of components coming into India and reaching manufacturing plants owing to prioritization of medical equipment, essentials etc. over parts of phone components. This in turn will affect the supply of those components in India. This situation should be expected to improve by the end of Q2 2020 or early Q3 2020.
Demand Shock - The consumer demand for the devices has seen drastic decline starting mid-March and will continue beyond the mandatory lockdown periods, if, as and when enforced. It is natural for the consumers to spend and stock up on essential daily needs in anticipation of complete lockdown situations in the coming weeks. A drastic drop in the walk-ins has been seen across retail channel. E-tailers attempted to revive the demand with a few sales festivals offering attractive discounts but no significant upside was seen. Postponement of device purchase has been witnessed across all channels, price segments and city tiers.
New Launches - There were several new launches by the brands in the first few weeks of 2020, across price segments and many new launches were planned for late Q1 2020 or early Q2 2020. With the increasing footprint of COVID-19 across the country, travel restrictions and ultimately the lockdown, vendors were forced to either postpone these launches or launch them online. This has taken a severe toll on the marketing plans and planned retail investments around these launches.
Marketing Investments - By end of March, brands generally start to invest heavily in promotional activities linked with IPL season in Q2 around all major products in the portfolio. All these activities are now taking a massive hit, dampening the overall demand generation in these months. Large portions of brand investments in the retail and offline marketing will slow down till mid Q2 2020, as footfall on retail counters remains low. Instead, an increase in TV and Digital Media spends by the brands is expected, to leverage the rising TV viewing trends during the lockdown period.
Economic Conditions As a fall out of the COVID-19 impact on the economy, job losses, lost income during lockdowns and decreased earnings will force consumers to reprioritise the spending during the year. Discretionary spending will take a backseat, resulting in decreased retail walk-ins, spends and overall revenues for the brands during the year. This can lead to prolonged replacement cycles, price increase by the brands and a weaker than expected consumer demand throughout 2020.
IDC expects the India mobile phone market to follow a U-shaped curve, from Q3 2020 onwards. The pent-up demand from the first half of the year will gradually shift to the second half, rolling over to 2021 as well. Brands will be forced to relook at the marketing investments, focus on initiatives like extended device warranties to earn the goodwill of the existing consumers and engaging through social impact messaging and campaigns which can help in building positive brand association. The channel ecosystem, especially the e-tailers, should focus on contactless and sanitised product delivery, which can have long term impact on consumers opting for online purchases as against offline.
Stuff: And finally, your opinion on online events v/s on-ground events… is it a better model to continue ahead?
Navkendar Singh: I think it is a model worth exploring more widely by other brands as well. Only limitation being on ground real time demonstration of the new product and fans/community engagement initiatives. Barring these, it is a much more economical, efficient model for product launches.
While Navkendar’s analysis shows us how the market condition is currently in a bad shape, it will revive soon but not without its said losses and slowdowns. The smartphone market should make its way back to normalcy by the Q3 this year. Post the lockdown, we are sure to see a lot of changes in new launches, operations, delivery and after sales and service models.