We’re all talking about it. Its effects are being felt now and it will leave a mark for the next 6 – 12 months. Perhaps longer. Coronavirus is affecting every single one of us in some way, far beyond the initial health implications.
When something this big manifests this fast and wide, it begins to impact more than our individual lives; it starts eating away at our economy.
We’re here to talk about smartwatches, so let’s discuss the impact COVID-19 is going to have on the smartwatch industry.
China is a technology manufacturing Mecca; especially for smart technology and other electronics. Since the outbreak of COVID-19, the tech market has met difficulties.
The SARs outbreak was just shy of 20 years ago but many remember how this spread in China where many thousands were affected, which lead to a huge impact on the economy. Back then, in 2003, the economic input from China equated to 4% of global GDP. Today, it’s closer to 16%.
The world has become heavily reliant on China for its quick and cheap manufacturing ability. This spreads across multiple industries from seafood to diamonds. More commodities than you’d ever have thought.
This gives you an idea of how influential China is to us all. Since the WHO officially announced the outbreak of Coronavirus in January of this year, companies worldwide who are largely dependent on Chinese imports are experiencing severe challenges and setbacks.
The world of tech
In the tech world, it’s been suggested that the smartwatch market is going to be hit the hardest. An estimated 12m units have been imported from China to the US in this first quarter of 2020 compared to 14.5m in the previous. Smartwatches aren’t the only devices to see this decline, notebooks, games consoles, smartphones and TVs are also seeing a huge drop.
The tech market in America will be the most disturbed. It has (had) an incredible dependency on Chinese manufacturing. Until today, China has been a major goods supplier in the US.
Remember the fairly-recent Huawei blacklisting in the US in the trade war with China? This was the start of tensions between the two countries which caused a cumulative impact of $26b to those business involved. Now the Coronavirus pandemic has been introduced to the equation, things can only get worse.
The effect that Coronavirus is having on technology companies is simple but catastrophic; doors are being forced closed. This includes manufacturing plants as well as shops and offices. The restriction of business travel in and between countries is grinding trade to a halt. Non-essential travel bans mean consumers aren’t able to shop, and online retailers are struggling to courier items effectively. Amazon, the largest online retailer in the world, is struggling to cope with this situation. This gives us a tragic forecast of how smaller smartwatch makers will fall.
Factories shutting down means production delays
As it’s been said, a large number of smartwatch makers are reliant on China for manufacturing. Wuhan is the virus epicentre and simultaneously a hub for technology suppliers.
We’re not seeing any significant progress when it comes to slowing the virus; China has been proven to be supplying the rest of the world with false information at every stage of this pandemic. On the whole, we’re very much in the woods rather than coming out of it.
There is an inevitable negative repercussion on the supply chain. Thanks to Wuhan going into lockdown, this has caused disruptions to transport. Workers can’t get to factories, so those factories can’t function. This is how Chinese technology giants will be brought down. You can pick any smartwatch brand with roots in China and you’ll see their stock prices are currently crashing.
Apple is due to release the Series 6 Apple Watch in September of this year. The release of the iPhone 12 was set for March and has been delayed, so we will just have to wait and see what happens in Q4 with regard to the Watch launch. Companies are expected to have backup plans for production to cover missed deadlines, but no one seems to be coming up with a solution. The world will have to wait.
Huawei is the largest tech company in China. It has forecast a 15% decrease in production thanks to Coronavirus’ impact on manufacturing processes and wider uncertainties regarding getting employees back to work.
Wuhan is a major location for the manufacture of critical components for smartwatches. Disruption to the supply of these components will cause a decline in the ability to meet demand from consumers.
In fact, thanks to COVID-19, the export of components for electronics from China to the USA has fallen by over 50%.
What is the longer-term impact?
We’re coming into Q2 of the financial year, which is a key time for all industries, including technology. Tech giants aim to get new products launched in this specific period following a concentration on innovation, design and testing in Q1.
As China supplies so many smartwatch brands with the components they need to manufacture their wearable tech globally, we can expect to see this 50% decrease in exports everywhere, not just in the US.
Brands are now looking to turn to alternative countries for their supplies. This is going to strengthen the market in these other countries if they can meet the vast demand. Analysts say it is far too early to be able to accurately predict how the smartwatch industry will be impacted by the coronavirus pandemic, although we can confidently say the repercussions are going to be felt globally.
Will buyer behaviour change?
The short answer is, absolutely, yes.
People are losing their jobs. Some are seeing their annual salary slashed to keep companies afloat. Disposable incomes are being squeezed and smartwatches are not an essential item.
There will be a small proportion of people who are keen to keep an eye on their health in times of lockdown. Calorie and step-counting fitness trackers will no doubt see some spikes in sales, but certainly not enough to keep the market as a whole afloat.
All we can do in this uncertain time is to stay safe, sit back and wait it out.