Wall Street Worries About SARS Effect On High-Tech Firms
By Mark Boslet
Of Dow Jones Newswires Thursday April 3, 8:55 AM
PALO ALTO, Calif. (Dow Jones)--With more than 50% of silicon chips made in Southeast Asia and 85% of personal computers assembled there, Wall Street is growing increasingly worried about a disruption to high-tech manufacturing from the spread of severe acute respiratory syndrome.
So far, technology producers say operations in Asia haven't been hampered by the illness that has spread from the Guangdong province in southern China to four other provinces and six other countries in the region.
Around the world, the illness has appeared in 18 countries and killed 78 people.
Many analysts and investors say they fear a greater outbreak of the disease could lead to plant shutdowns as companies send home workers. Already, some U.S. corporations report spotty office closures in places such as Hong Kong after employees displayed the coughing and feverish symptoms that may indicate the disease.
"It's definitely a concern," says Eric Ross, an analyst at the Wall Street firm Investec. If the spread of the disease increases and factories in China and nearby countries experience two to three weeks of work stoppages, "then your going to start to see an impact on the electronics industry," Ross said.
Such a dire scenario might also disrupt the flow of products such as textiles and toys, which along with printed circuit boards, are widely made in China.
Observers aren't ready to sound such worrisome alarms yet. However, companies are paying close attention. "We're monitoring the situation," says Monica Sartar, a spokeswoman at Hewlett-Pacakrd Co. (HPQ). When a worker had SARS-like symptoms last Friday, HP had 300 Hong Kong employees work from home so their office could be disinfected and reopened on Monday. The employees continue to be encouraged to work from home.
"Not enough is known about the disease for us to make judgments on what the appropriate action is, so we are trying to be extra cautious," Sartar said. So far, manufacturing in the region has not been interrupted, she said.
Chip-maker Intel Corp. (INTC) also says production has not been affected. The company has chip assembly and test plants in China, Malaysia, the Phillipines and India, along with research and development facilities in China and Malaysia.
"We haven't seen any impact at this date," says spokesman Chuck Malloy. Intel also has contingency plans so that manufacturing "does not rely on a single point of failure." For instance, the company has an assembly and test plant in Costa Rica.
Intel has been cautious with employees. The company closed one of three floors it occupies in a Hong Kong office building for the remainder of the week after a worker showed SARS-like symptoms. It also restricted travel to Asia, canceled Chief Executive Craig Barrett's April trip to China and decided against holding April developers forums in Taipei and Beijing.
One company that has had a manufacturing disruption is Motorola Inc. (MOT). The Singapore government ordered 305 workers to be quarantined at home after one was infected with SARS, halting work at a plant for a Thursday night shift. The plant was back in business on Friday.
Motorola did not return a call seeking comment.
Peter Kastner, an analyst at Aberdeen Group, says China's decision to withhold information on the disease has made gauging its effect difficult.
"At a minimum, the SARS epidemic will cause schedule slippages and disrupt the aggressive growth plans that global electronics companies have for the affected geographies," Kastner writes in a report on SARS. "Worse case, it could result in major supply chain disruptions and another downdraft for an already challenged industry."
"The enigma is what is going on in mainland China," Kastner said in an interview.
The possible downdraft is what producers want to avoid. "We are keeping an eye on it," said a spokesman at Broadcom Corp. (BRCM), which uses chip foundries in Taiwan, Singapore, Japan and Malaysia. So far, it is business as usual, the spokesman said.
Even if the disease doesn't disrupt semiconductor and computer production, "fear-driven" concerns might lead companies to react, just as they did during the 1998 earthquake in foundry-rich Taiwan, said Dan Hutcheson, president of VLSI Research. Back then, companies worried so much about shortages that they hoarded chips and drove up demand, he said.
The same thing could happen this time, he said. "It's hard to say." |
