After 100 days, companies count SARS costs

Today marks the 100th day since the World Health Organization (WHO) first alerted the world to the threat of severe acute respiratory syndrome (SARS) and companies that do business in China are beginning to count the cost of the disease.

When SARS was first observed spreading rapidly in China, the news for IT companies was supposed to be universally grim. Analysts warned about a severe disruption of hardware supply chains and falling sales in China. But the real impact on IT companies from the outbreak of the disease has turned out to be slightly more complex – and not all bad.

With the spread of SARS now contained in most parts of Asia, except for Beijing where a WHO travel advisory remains in place, companies and analysts are assessing the impact of the disease. While financial results for the second quarter won’t be made public for many companies until next month, anecdotal evidence suggests that while some companies doing business in China suffered because of SARS, other companies, including some fixed-line telecommunication providers, saw the disease give a boost to their business as demand grew for broadband Internet connections.

“In general, the impact (from SARS) is limited,” said an official in the investor relations department at mobile operator China Unicom Ltd. who requested that his name not be used. “However, in some areas, especially in Beijing, the impact is substantial.”

The impact from SARS was greater on Unicom in Beijing relative to other areas of China, such as Shanghai, because the SARS outbreak was more serious in Beijing, he said, noting that Unicom’s business in Beijing was beginning to return to normal.

“Our business and revenue were hit by SARS but it is a short-term impact,” the Unicom official said. “There’s some kind of positive impact, such as people talk more, but I would say it is mostly done through the fixed-line network not the mobile networks.”

The effect of SARS on mobile operators like Unicom has come in two main areas, said Ted Dean, managing director at telecommunication research firm BDA China Ltd.

On the one hand, subscriber growth was affected as consumers avoided going into stores to sign up for mobile services, Dean said. However, there was some increase in usage as people turned more to their phones and Short Message Service (SMS) to keep in contact with friends and business associates, he said.

“On the fixed-line side it’s been positive in terms of both new subscribers and usage,” Dean said, noting strong growth in demand for broadband Internet connections during April and May.

Overall, the telecommunication market in China is returning to its traditional patterns of growth but the effect of SARS will continue to be felt, particularly in terms of demand for broadband services, he said.

“On the broadband side it will be interesting to watch the numbers over the next few months,” Dean said. “People on broadband aren’t going to switch back to dial-up.”

“There was already a lot going on in the broadband market this year and this was in some respects an added push to the efforts that were already under way,” he said.

Not all of the news is good, however. In the earliest days of the SARS outbreak, analysts at market research firm Aberdeen Group Inc. warned in a research note that, “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.”

While some disruption to travel and the cancellation of important trade shows in China and Taiwan did occur, business in the region has largely managed to weather the storm created by SARS. But there have been pockets in the industry where SARS has had a significant negative impact.

Foreign handset makers have been among those to see their business squeezed by SARS. Earlier this month, both Motorola Inc. and Nokia Corp. warned that the spread of SARS would affect their handset sales in China during the second quarter, with Motorola warning that the lingering effects of SARS could affect sales through the third and fourth quarters of the year.

While some pent-up demand for handsets could result in an increase in sales during the third quarter, not all of the loss in sales can be recovered, Dean said.

“Clearly, some of the sales are lost for good so simply by a strong Q3 handset makers will not make up for this,” he said.

PC sales in China have also been hurt by the outbreak of SARS, with second-quarter PC shipments expected to show a six per cent decline in terms of both units shipped and revenue compared to the same period last year, said Kitty Fok, director of personal systems research at IDC Asia-Pacific. This is the first time that China’s PC market has shown negative annual growth, she added.

“May was actually really bad. The consumer market and the commercial market were really bad,” Fok said.

But there is good news for PC vendors. While PC shipments fell during the second quarter, underlying demand for PCs has not changed in China, Fok said, noting that buyers are believed to have postponed buying new PCs because of SARS. The result will be a pick up in PC sales during the third quarter, she said.

“We are expecting the Q3 market will really catch up and make up for the loss during Q2,” Fok said.



Related Download
Understanding How IBM Spectrum Protect Enables Hybrid Data Protection Sponsor: IBM
Understanding How IBM Spectrum Protect Enables Hybrid Data Protection
Download this whitepaper by Enterprise Strategy Group to learn how to choose a backup technology that is capable of supporting a hybrid protection approach capable of covering both on-premises technology and offsite cloud capabilities.
Register Now