Coronavirus Week of 2/17-2/23

Published February 25, 2020

While the numbers of cases and fatalities from the coronavirus in China were lower than last week, there were several reports of outbreaks in new regions that raised concerns that the virus would spread globally. As of Saturday, February 23rd, there were more than 76,000 confirmed cases of the coronavirus worldwide, and more than 2,300 fatalities.

  • The largest outbreak outside of China remains the Diamond Princess cruise ship. Passengers were released from the ship on February 19th after a 14-day waiting period, but many await a second waiting period in their home country. At least 634 of the 3,700 passengers and crew on board the ship have tested positive for the virus, and two of the passengers have died.
  • South Korea reported a surge in new confirmed cases related to a church in Daegu; 100 new virus cases were reported on Friday, and the total cases in that country increased to 340.
  • Iran reported four fatalities from the virus and given the estimated death rate of the virus of 2%, there very likely are hundreds of cases in Iran. Officials have no idea how the virus came into the country.
  • China reported that clusters of infections had taken place in prisons, with more than 500 cases among prisoners and guards.
  • The Wuhan government postponed the resumption of work until March 11th.

Governments around the world took additional steps to stem the spread of the virus:

  • Tokyo and Osaka have stopped all large public events such as school graduations and entrance exams.
  • South Korea’s government banned major rallies in Seoul and declared a health emergency in Daegu, its fourth largest city.
  • Iran closed schools and imposed emergency measures in a central province near the country’s capital.
  • China postponed its annual political conclave in Beijing, originally scheduled for March, which would have drawn some 5,000 delegates from around the country.

Meanwhile, a new paper published by the Chinese Center for Disease Control and Prevention found that most confirmed cases were mild ones, with severe or critical cases accounting for <20%. The mortality rate is 2.3%, according to the paper, by Zhang Yanping, an epidemiologist at the Chinese CDC, analyzing data from the nearly 45,000 cases up to February 11. The paper found that while most of the infected patients were in their 50s and 60s, the age of coronavirus patients skewed older in Wuhan when compared with Hubei province more generally or the entirety of China. The mortality rate for patients under the age of 40 was 0.2%, rising to 8% and above for patients 70 years old or older.

With respect to the impact on the electronics industry and markets:

  • IDC reported that they expect the Information and Communications Technology market to fall approximately 10% in Q1 2020, with at least a 30% drop Q/Q in PC and smartphone sales.
  • Digitimes reported that at least 30-40% of small to medium enterprises in China have yet to restart operations, and that could lead to disruptions in components such as connectors, optical materials, plastics components and packaging materials, for which panel makers normally do not carry much inventory.
  • Trendforce projected that Q1 2020 smartphone production would decline by 12% Y/Y, and TV and monitor production would be 2 million and 1.5 million lower, respectively, while notebook production could drop by more than 4 million units.
  • Mizuho estimated that electronics-related factories are currently, at best, only operating at 50%–60% capacity, and could in fact very likely be operating at much less than half capacity.

Finally, with respect to reports from specific companies:

  • Notebook ODM Quanta Computer moved to accelerate production at a new assembly line in northern Taiwan to fulfill rush shipments to US brands.
  • CSOT in Wuhan is maintaining production on the 6.2” Motorola Razr foldable panel. CSOT’s Wuhan fabs remain in operation with a skeleton crew, with T3 at ~30% and T4 at ~35%.
  • Tianma faces a risk of material shortages in its Wuhan fab at the end of February, and at its Shanghai fab in early March. Wuhan and Shanghai are running at ~45% and ~65%, respectively.
  • Visionox may face a risk of material shortage in early March, and its V1 and V2 fabs are running at ~55% and ~65%, respectively.
  • LED epitaxial wafer and chip maker Sanan Optoelectronics has managed a 60-70% utilization rate for its overall production capacity but expects it to gradually rise, according to Digitimes. Fellow maker HC SemiTek has resumed production but expects some materials to be in short supply for the time being. LED packaging service provider Foshan Nationstar Optoelectronics estimates that resumption of production will be delayed by up to one month.
  • Apple warned investors that it would not meet revenue guidance for the quarter. Apple reported that while all manufacturing partner sites have reopened, “they are ramping up more slowly than we had anticipated.” On the plus side, they stated that “outside of China, customer demand across our product and service categories has been strong to date and in line with our expectations.”
  • Mass production of Apple’s SE2 iPhone model was expected to start by the end of February, but it could now be delayed until sometime in March, Nikkei reported, citing sources. Mizuho indicated that the product launch may be pushed back from April to May or June. LCD module shipments to Apple in February are expected to be 70-80% of normal.
  • Among CE, IT and smartphone brands, Samsung seems to be much less affected than others. Samsung has extensive assembly operations in Vietnam and has reduced its footprint in China in recent years.
  • Huawei’s labor return rate is 70%, but due to high finished goods inventory they have lowered their production forecast by 20%
  • Xiaomi’s labor return rate is 65%, and Xiaomi’s estimated shipments are reduced by 17% because of the virus.
  • Oppo and Vivo’s labor return rate is 60%, and the two brands have seen a negative impact on online sales in Tier 2/3/4 cities.
  • Foxconn on Thursday said a coronavirus outbreak will lead to lower full-year revenue and the company will “cautiously” resume output at its main factories in China that were shut because of the outbreak. Foxconn’s labor shortage in Guangdong and Zhejiang provinces is about 30% for all of February.
  • Touch panel maker TPK expects a 30% Q/Q sales drop. TPK reported that production output would be reduced by 20-30% in February and ~20% in March before production returns to normal in April. The main constraint is raw material supply due to transport restrictions. TPK operations in Xiamen had sufficient employees as of Feb 17th.
  • Lenovo said that the majority of its factories are open but on a limited basis as logistics and supplies are impacted and also most employees have not returned. Lenovo expects a rebound in demand in China post the virus.
  • Supporting Lenovo’s expectation, Digitimesreported that tablet demand in China has increased due to need for remote work and learning, leading to some shortages. Assembly fabs for Huawei tablets are running at 50-60%, and for iPads at only 30%.

Due to the coronavirus concerns, most stock indexes fell last week on fears that the coronavirus will hurt company results in Q1’20/Q2’20 and for 2020 as a whole. Most notably, Apple announced it would not meet its Q1’20 guidance on constraints in both supply and demand. We are seeing annual forecasts for smartphones come down as a result of the weaker China smartphone demand and rising inventories, not expected to be made up in Q2’20 – Q4’20. We are hearing of annual smartphone demand down 5% - 20% vs. prior forecasts as depending on the company for the leading smartphone players. These concerns dragged down a lot of stocks, but not the ones in China on hopes for a larger economic stimulus. New government stimulus programs were not officially announced in China last week, but the People’s Bank of China hinted at fresh stimulus to fend off the impact of the virus. In addition, China’s Ministry of Industry and Information Technology vowed to help businesses that were impacted and there were discussions of mergers for failing airlines. Lower rates are expected in China and this approach may also be adopted in the US as there are signs that the economy is slowing.

In the US, the IHS Markit Manufacturing and Services PMI, which are surveys of purchasing managers, both fell more than expected for February. The Manufacturing PMI dropped to 50.8 in February from 51.9 in January with expectations of 51.5. Furthermore, the Services PMI fell below 50 indicating a contraction in the services sector to 49.4, its lowest reading in more than 6 years. The IHS Composite PMI fell to 49.6 from 53.3 in January, also indicating a contraction for the overall economy. This was the first contraction since the government shutdown of 2013. According to IHS economists, the deterioration in the economy is a result of the coronavirus’ negative impact on a number of service sectors including travel and tourism as well as exports and supply chains. Amazingly, new orders received by companies in the private sector fell for the first time since data collection began in October of 2009. Companies in the private sector are struggling to attract foreign client demand as new export orders fell for the 2nd straight month. In addition to the weakness in manufacturing and services, existing home sales fell 1.3% in January and housing starts fell 3.6%% in January.

In terms of display stock performance:

  • Our Panel Supplier Stock Index (PSSI) rose 7% W/W as Chinese display stocks surged while companies in Taiwan, Japan and Korea declined. The PSSI in now up 8.0% YTD.
  • Our Equipment Supplier Stock Index (ESSI) had a tough week, down 4% and is up 2% YTD. It saw >5% declines at 8 of the 25 members on concerns with delays in equipment installations and reduced demand.

Among individual panel suppliers:

  • BOE led the week with a gain of 13.7%. BOE is now up 17% since the beginning of the year and up 14% since the Lunar New Year.
  • Tianma was 2nd, up 10.4% for the week. Tianma is now up 9% for the year.
  • CEC Huadong and Visionox were up 8.7% and 8.3%, respectively, for the week. Both companies are still down for the year, by 5% and 4%, respectively.
  • HannStar fared best among the non-Chinese stocks but was still down 2.6% for the week and is now down 13% for the year.
  • Japan Display was down 4.2% for the week and is now down 11% for the year. JDI reconfirmed its plan to issue new shares to Ichigo Trust, with the intent for shareholders to approve the plan at an extraordinary meeting on March 25th.
  • Innolux was down 4.8% for the week, losing most of its YTD gains. Innolux is now up 3% for the year.
  • AUO finished down 5.3% and is up 3% YTD.
  • LG Display was down 6.4% for the week and is now down 10% for the year.

YTD Stock Price Performance by Display Supplier

W/W Stock Price Performance by Display Supplier

Looking at medium and large-cap display equipment stocks, the Chinese companies also outperformed with Wuhan Jingce up 10.5% and Han’s Laser up 4.4%. All the other companies from the US, Japan and Korea declined from 1% to 10.5%. Wuhan Jingce did release some news recently that they received orders of 994M RMB or $141M from BOE in 2019, up from $111M in 2018. Neither Chinee company has released their financials and the Chinese government has given them and other companies affected by the virus until well into Q2’20 to release their Q4’19 results. On a YTD basis, Wuhan Jingce has a large lead up 33% with Han’s Laser the next closest up 6% and AMAT up 5%.

Medium/Large Cap Equipment Company W/W Results

Medium/Large Cap Equipment Company YTD Results

Looking at the small cap equipment companies last week, Top Engineering had the best performance by far as they rose 23% and are now up 34% YTD. Top released their preliminary financial results for 2019 which showed a 33% increase in revenues for 2019 and a 100% increase in operating profit and net profit. They pointed to stronger demand for multiple cameras in smartphones as a catalyst. SNU was #2 last week up 8% even though their preliminary results pointed to a 27% decline in 2019 revenues, a 23% decline in operating income and a 28% decline in net income. V Tech and YAC are the worst performers YTD down 22% with V Tech guiding to a sharp drop in revenues and large losses in Q1’20 on the lack of installations or sales in China in February and March resulting from the coronavirus.

Small Cap Equipment Company W/W Results

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Written by

Bob O'Brien

bob.obrien@displaysupplychain.com