SARS looms large for tech firms

  • Business
  • Thursday, 01 May 2003

SAN FRANCISCO: Electronics manufacturers, already reeling from low margins and fierce competition, must now also contend with the Severe Acute Respiratory Syndrome (SARS) outbreak, which analysts said could dent business in Asia this quarter. 

Contract manufacturers that recently reported quarterly results tried to ease concerns about SARS, but nervous analysts expect the June quarter results to show the illness has further disrupted already slow business. 

Since appearing in China in November, the deadly flu-like illness has spread worldwide, infecting some 5,500 people and killing more than 350. 

“SARS is a major theme,” said Michelle Gutierrez, an analyst with SoundView Technology Group. “If SARS is not contained or controlled in the next month or so, it’s hard to see how it won’t affect their supply chains...There are customers asking about contingency plans.” 

Analysts already had reason to expect a slow June quarter for contract manufacturers, which make products for such tech companies as IBM Corp, Hewlett-Packard Co, Cisco Systems Inc, Nokia, and Microsoft Corp. 

Demand for printed circuit boards and telecommunications gear remains anaemic, and demand for consumer electronics is seasonally slow. Contract manufacturers are also under price pressures and have excess capacity despite deep restructurings, according to Deutsche Bank Securities analyst Chris Whitmore. 

SARS has suddenly added more uncertainty to contract manufacturers’ prospects, especially since so many rushed into China to take advantage of the country's low costs. 

Fitch Ratings warned this week that the fallout from the spread of SARS could shave one percentage point, or roughly US$30bil, off Asia’s growth this year. 

“There’s clearly a level of apprehension, and it’s growing,” said Raymond James and Associates analyst Shawn Severson. “One more thing this market doesn’t need is another question mark.” 

Flextronics International Ltd chief executive Michael Marks told analysts last week that SARS had not had a “discernible impact” on the Singapore-based company’s business, and that none of its employees had the disease. 

The company said it had taken steps to protect employees, including travel restrictions and directing employees returning from trips through Asia to go into “self-imposed isolation” for at least 10 days before returning to work. 

Analysts, however, said they saw SARS-related business disruptions built into many companies' cautious June quarter revenue outlook.  

“The fear factor is certainly causing disruptions in travel and programme ramps,” said Whitmore of Deutsche Bank Securities. – Reuters  

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