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COVID-19 Week 80 Update
As we write this last instalment of our weekly coverage of the COVID-19 pandemic (we will continue to cover it elsewhere, particularly its impact on the tech industry), we are reminded of the situation same time last year. The virus was rapidly spreading in different parts of the world. India had overtaken Russia to become the country with the world’s third-highest number of COVID-19 cases, with the US and Brazil taking the first and second spots, respectively. US top infectious diseases expert Anthony Fauci was warning his country that it was still “knee-deep” in its first wave of infections and the number of cases was yet to reach a satisfactory baseline. The weakness in the global economy due to the pandemic was being expected to reflect in the Q2 numbers even as the companies catering to the work-from-home (WFH) economy were looking at a windfall.
Coming back to today, the situation has hardly improved. The original virus may have moved out of focus, but it has left behind more virulent variants. Now, the most dangerous Delta variant is present in about 100 countries, according to the World Health Organisation (WHO). After ravaging India, this variant is now resulting in fresh waves in countries like Indonesia, UK, Russia, Iran, Colombia and South Africa. USA, India and Brazil continue to top the world in the total number of cases, though most daily new cases are now coming from Brazil, India and Indonesia. Fauci is now imploring Americans to get vaccinated to avoid another wave, triggered by the Delta variant this time. While the global economy as a whole has recovered, the recovery has been patchy, with the developing nations staring at weak annual numbers. Meanwhile, the companies catering to the WFH economy continue to report robust numbers.
What has changed is the availability of vaccines. But even here the developed world has benefited the most, thanks to the resources at its command. A big part of the world won’t get access to any vaccine till late 2022 or early 2023. The pandemic has exposed the weaknesses in supply chains, not just for vaccines but also for sectors as diverse as semiconductors and chemicals. Already, many countries have started taking measures to mitigate the risks on this front. The focus is on a reduction in dependence on other countries for critical supplies.
The pandemic has changed many things permanently and for the better. The issue of climate change is now taken more seriously. The lockdowns showed that nature can quickly heal itself under the right conditions. International cooperation is another beneficiary. The pandemic has taught the world that international problems require international cooperation.
COVID-19 Week 79 Update
Israel is the most vaccinated major country currently, with over 55% of its 9.3 million population having received both doses of the Pfizer-BioNTech vaccine. In May, the eligibility to get vaccinated was extended to the 12-15 age group. But the response from this age group has been lukewarm, a big cause for worry as the most virulent Delta variant of COVID-19 marks its entry into the country. On Thursday, the country’s health ministry reported 307 daily new cases on Wednesday, the highest since April. The ministry reportedly expects this number to jump in the coming days. However, the death rate is firmly in check, perhaps due to the high vaccination rate. According to the ministry, only one person died during the past two weeks.
Confident that the worst was over, Israel had relaxed most of the COVID-related curbs over the last few months. But the Delta variant has now forced the authorities to make an about-turn. The rule requiring wearing of masks indoors has been brought back even as the government rushes to vaccinate children. A “coronavirus commissioner” has been appointed for the first time to monitor arrivals at Israel’s main international airport. The interior minister says the airport will be shut if the situation worsens. The government has already postponed the planned reopening of the country to vaccinated tourists.
Meanwhile, the World Health Organization (WHO) says COVID-19 cases are rising again in Europe after two months of decline. A WHO official said the number of cases rose by 10% last week, warning a fresh wave would come “unless we remain disciplined”. The European Union’s (EU) disease control agency, European Centre for Disease Prevention and Control, estimates that the Delta variant will account for 90% of new cases in the EU region by August end.
COVID-19 Week 78 Update
The Delta variant of COVID-19 has spawned a deadlier variant, called Delta Plus. India, which has so far detected over 40 cases of Delta Plus, has already declared it as a “variant of concern”. The country reported its first death due to this variant on Wednesday. Ten other countries, including the US, UK and Russia, have also reported Delta Plus cases.
The Delta Plus variant has the spike protein mutation K417N, also found in the Beta variant first detected in South Africa. While studies are on to test the effectiveness of available vaccines against the latest variant, experts say it is resistant to monoclonal antibodies cocktail. On the chances of another COVID-19 wave, they say it could happen if people fail to follow COVID-appropriate behaviour.
Meanwhile, chief medical advisor to US president Anthony Fauci has described the Delta variant as the “greatest threat” in the country’s fight against the pandemic as it is more transmissible. According to Fauci, the Delta variant now makes up over 20% of new cases in the US, compared to 10% two weeks ago.
COVID-19 Week 77 Update
While the daily new COVID-19 cases globally have come down to mid-March levels, the pandemic continues to rage in many countries in South America, Asia and Africa. Among the Top 10 countries in terms of daily new cases (listed below), as many as six are seeing fresh spikes in cases due to the different COVID-19 variants in circulation:
- Brazil (↑): With only around 10% of its population receiving the first vaccine dose, Brazil still went ahead with organizing the Copa America football tournament. More than 30 players and officials have already tested positive.
- India (↓): Even as cases go down, the country is in the midst of a debate triggered by a statement from three officials of a key panel that there was no agreement among the panel members when the decision to double the gap between two AstraZeneca vaccine doses to up to 16 weeks was taken.
- Colombia (↑): The country is going through its worst COVID wave so far. ICUs in many cities are reporting full capacities. Quarantine measures taken in April-May have been undone by the large protests across the country which added to the increase in cases.
- Argentina (↓): Officials have cited the decreasing levels of cases to justify the resumption of in-person classes for more than 3 million children in the Buenos Aires province after a two-month suspension.
- USA (↓): The country has inked a deal with Moderna to buy 200 million more doses of its vaccine for primary vaccination as well as for a booster shot for those fully vaccinated if the need arises.
- Russia (↑): The country may be promoting its Sputnik vaccine globally, but only 10% of the citizens have been fully vaccinated so far, thanks to some hesitancy and skepticism. As a result, all Moscow city workers with public-facing roles have been ordered to get vaccinated.
- South Africa (↑): With a fresh spike in cases, the country has reimposed curbs on public gatherings and alcohol sales. President Cyril Ramaphosa says the fresh wave has put the country’s health system under pressure, with COVID-related hospital admissions rising by 59% in many areas.
- Iran (↓): The country has approved emergency use of its first homegrown vaccine after failing to procure sufficient vaccines from abroad. Iranians will vote on Friday to elect a new president. Projections are putting the voter turnout at a historic low.
- Indonesia (↑): Reports say quoting officials that more than 350 doctors and medical workers have caught the virus despite taking the Sinovac vaccine. Indonesia is projecting the current wave of infections to peak in July, with the Delta variant of COVID-19 becoming more dominant.
- UK (↑): A study led by Imperial College, London, says that the Delta variant of COVID-19 was responsible for a 50% rise in infections in the country since May. The fresh numbers came after Prime Minister Boris Johnson’s announcement to delay the lifting of pandemic-related restrictions to July 19 due to the rising cases of the Delta variant.
COVID-19 Week 76 Update
After ravaging India, the B.1.617.2 COVID-19 variant, which was first detected in the country and is now dubbed the ‘Delta variant’ by the World Health Organization, is spreading to the rest of the world. It is now present in as many as 60 countries and rapidly expanding there. Health officials the world over, including in countries with comparatively high vaccination rates, are alarmed. The Delta variant is estimated to be 50% more transmissible than the B.1.1.7 variant, first detected in the UK and now called the Alpha variant. The Delta variant can even affect those who have already had the infection. Public Health England data shows the Pfizer and AstraZeneca vaccines were only about 33% effective against the Delta variant after one dose, compared to 50% in the case of the Alpha variant. However, after two doses, the efficacy against the Delta variant increased to 88% and 60% for the Pfizer and AstraZeneca vaccines, respectively.
Clearly, vaccination remains important across variants. But thanks to the huge demand-supply gap, a major part of the world will have to bear the brunt of the Delta variant. Even in countries like the UK and US, where more than 40% of the population has been fully vaccinated, authorities are concerned over the Delta variant. In the UK, this variant has now overtaken the Alpha variant to contribute to more than 75% of the coronavirus cases. There has also been a noticeable increase in daily new cases and hospitalizations, so much so that the government has been forced to reconsider the plan to completely lift COVID-19 restrictions from June 21. Some experts are even warning of a third wave, though with fewer deaths thanks to vaccination. In the US, President Joe Biden and National Institute of Allergy and Infectious Diseases director Anthony Fauci have appealed to the country’s youths to get vaccinated to avoid a UK-like situation where the Delta variant is spreading more among those in the 12-20 age group.
COVID-19 Week 75 Update
The pandemic-triggered global chip shortage continues to hold strong with industry leaders hinting at a long haul. Some developments on this front during this week:
- Intel CEO Pat Gelsinger says the global semiconductor shortage could take several years to resolve. He feels it could take “a couple of years” to meet the shortfall on the foundry capacity side.
- Logitech CEO Bracken Darrell sees the shortage lasting 3-6 months, with some industry segments experiencing it for up to a year. The computer peripherals manufacturer is relying on new suppliers to meet its demand after facing shortages at its existing suppliers.
- Dell CFO Thomas Sweet said during a post-earnings call that the component supply situation remained constrained even as the rising chip prices were affecting the company’s operating income.
- HP, a leading global PC vendor, says the shortage will continue to affect its capability to meet the demand for its personal computers and printers till at least the end of this year.
- Lenovo chairman Yang Yuanqing says the shortage will last at least 3-4 quarters more. However, Yang feels his company has managed the situation well to benefit from the strong demand for its products.
- Tesla CEO Elon Musk says the prices of the company’s vehicles are increasing due to the challenges faced in procuring raw materials.
- TSMC has started construction for a chip factory in Arizona. TSMC CEO CC Wei says the project remains on track to start production in 2024 using the company’s 5-nanometer production technology.
- Japan has entered a tie-up with TSMC to develop chip technology in the country. Around 20 Japanese companies will work with the Taiwanese chip giant for the project.
- Honchos from South Korea’s biggest conglomerates have asked the country’s president to pardon jailed Samsung Electronics vice-chairman Jay Y Lee to safeguard South Korea’s lead in the chip industry amid global shortages.
COVID-19 Week 74 Update
Counting the number of dead and infected due to COVID-19 has been a challenge ever since the pandemic started. According to the World Health Organization (WHO), the official numbers released by the governments the world over are a “significant undercount”. The UN agency’s estimates put the real number of deaths at 2-3 times higher than the reported figures. It calculates that the total number of deaths due to COVID-19 in 2020 was at least 3 million, compared to the 1.8 million reported officially. With the death toll going up more in Latin America and Asia now, it would be more about relying on estimates than the official numbers as the two continents largely lack proper reporting infrastructure. However, the WHO points out that even in the developed world, where the reporting systems are more reliable, undercounts are likely. For Europe, it puts the number of deaths in 2020 at almost double the 600,000 figure reported officially. Apart from the reporting infrastructure, the WHO says, people dying before getting tested for the virus are also responsible for some part of the variance between estimates and official numbers.
Nowhere is this difference between official and unofficial numbers more glaring than in India, which has recorded the highest official daily death toll for any country during the COVID-19 pandemic. According to the New York Times, even this record number is an undercount. After consulting more than a dozen experts, the newspaper has come out with three possible scenarios. As against the 26.9 million infections and 307,231 deaths announced officially till May 24, the newspaper’s “conservative scenario” puts the infections at 404.2 million and deaths at 600,000, while “a more likely scenario” puts the infections at 539.0 million and deaths at 1.6 million. “A worse scenario” puts the infections at 700.7 million and deaths at 4.2 million.
All these numbers point to the need for boosting efforts for vaccination. The International Monetary Fund (IMF) has proposed a $50-billion plan to end the pandemic by vaccinating at least 60% of the world’s population by the first half of 2022. The international financial institution estimates that doing so will inject around $9 trillion into the global economy by 2025 due to an early revival of economic activities. With rich nations likely to benefit more from this economic revival, there is a good incentive for them to be contributing towards this plan, feels IMF. Under the plan, the IMF is proposing widespread testing, lowering of restrictions on cross-border movement of vaccines and raw materials needed to manufacture them, donation of vaccines, upfront financing, investments to increase vaccine production, creation of sufficient infrastructure for vaccine deployment, and research into dose-stretching strategies.
COVID-19 Week 73 Update
The latest COVID-19 wave in India is showing signs of ebbing in the country’s urban areas, though not at the levels the government would like you to believe. On the other hand, the eastward movement of the wave continues, with some devastating scenes and figures which have only been recorded by the media to some extent. Lack of testing and shoddy data collection in these rural and backward areas ensure that we would never be able to understand the real scale of the pandemic there. Steps taken by different administrations to improve the situation have proven to be too little, too late.
To add to the woes, hospitals are reporting rising cases of black fungus, a disease that can lead to breathing problems, blurred vision, blackening of the nose, chest pain, blood in cough and even death if not treated in time. COVID-19 patients with comorbidities, particularly diabetes, and even doctors treating them are at risk here. Steroids used for treating COVID-19 can worsen diabetes in a patient.
Elsewhere, many East Asian countries are reporting daily records. Most of Thailand’s cases are coming from its prisons. Singapore has decided to shut its schools after finding that new variants, like the one found in India, are impacting more children than the previous strains. Indonesian authorities are anticipating a spurt in cases following celebrations marking the end of the holy month of Ramadan. In neighbouring Malaysia, a record 6,075 new cases were reported on Wednesday. In Vietnam, the fresh wave has resulted in temporary shutdowns in its industrial parks while Taiwan’s companies, including chip manufacturers, have announced measures to prevent the virus from affecting their employees. Japan has extended its third state of emergency till May 31 in Tokyo and other prefectures. Questions are being raised over the government’s decision to go ahead with the hosting of Olympics in July.
In Latin America, Brazil and Colombia are showing signs of plateauing of cases even as Argentina and Uruguay report doubling of daily cases. One distinguishing feature of the current wave in Latin America is that more young people are dying here compared to other regions.
COVID-19 Week 72 Update
If you thought COVID patients dying outside hospitals begging for oxygen and dead bodies lined up at crematoriums were the most horrifying scenes thrown up by the pandemic in India, then you are wrong. In scenes representative more of a different era from history, around 100 bodies were found floating on the river Ganges this week in two states in the country’s north. While the officials are yet to establish whether these bodies are of COVID victims, media reports talk of villagers immersing bodies of victims in the absence of wood needed for cremations. Even as India’s cities report a slight decrease in daily new cases, the countryside is facing the brunt of the second wave with poor healthcare infrastructure. This is also the area not properly covered by India’s much-criticized official COVID data.
According to the World Health Organization (WHO), India now accounts for 30% of COVID deaths globally. The UN agency has now declared the B.1.617 variant of COVID-19, first detected in India in October, as a “variant of global concern” following some studies indicating it spreads more easily than the original virus. There are three other variants in this category – first found in the UK, South Africa and Brazil. The WHO says the B.1.617 variant has been detected in as many as 44 countries so far. After India, the maximum number of cases of this variant have been found in the UK.
Even as India and other developing countries grapple with a huge vaccine shortage, a piece of disturbing news has come from Seychelles, a small island country in the Indian Ocean. Seychelles is the most vaccinated country in the world, with around 60% of the population having taken two doses of either Sinopharm or AstraZeneca vaccine. But last week, according to the country’s health ministry, more than one-third of those testing positive had both doses. The WHO maintains that vaccinations alone can’t stop transmission of the virus.
COVID-19 Week 71 Update
India continues to report record COVID numbers. On Thursday, the country reported record daily new cases of 412,262 and record daily deaths of 3,980. Even in Nepal, which shares a long porous border with India, record numbers are being reported (daily new cases 8,605 and daily deaths 58 on Wednesday). According to the International Federation of Red Cross and Red Crescent Societies, Nepal is recording 57 times more cases than this time last month, with the towns bordering India “unable to cope with the growing number of people needing medical treatment”. The Himalayan country was forced to suspend its vaccination programme last month in the absence of supplies from India and China.
In India, the second wave is now spreading eastwards, a region with poor health infrastructure compared to the rest of the country, even as other regions continue to report record numbers. Experts say the second wave will hit its peak around May 15. At the same time, a top government expert says a third wave is inevitable, and it will require modifications in the vaccines to make them effective.
On the vaccination front, the US has finally decided to back the demand for a global waiver on intellectual property rights for COVID-19 vaccines. India and other countries have been lobbying at the World Trade Organization (WTO) for the waiver. World Health Organization chief Tedros Adhanom Ghebreyesus described the US move as a “monumental moment in the fight against COVID-19”. However, it would take months before this move translates into action on the ground, as WTO decision-making is based on consensus between its 164 members. Besides, the pharmaceutical industry has expressed its unhappiness over the US decision, saying it would affect its response to the pandemic.
COVID-19 Week 70 Update
The COVID-19 situation in India has now completely spiralled out of control. The official data, which has been repeatedly slammed by experts for underreporting numbers, on Wednesday registered record daily new cases and deaths of 3,79,257 and 3,645 respectively. Total deaths crossed the 200,000 mark on Tuesday. According to the World Health Organization (WHO), India now accounts for 38% of the total cases recorded globally. The multilateral body’s calculations show that the B1617 variant (or the double mutant variant) of the virus detected in India has a higher growth rate compared to other variants found in the country. The double mutant variant has so far been detected in 17 countries, including India, US, UK and Singapore.
The global community has moved fast to send emergency aid to India. The US, UK, Russia and many other countries are sending hundreds of oxygen cylinders, oxygen concentrators, ventilators, masks and other medical equipment badly needed by India. Besides, the US has promised to send a part of its vaccine surplus to India, in addition to raw materials required to produce vaccines. It will take some time before we start seeing the impact of all this aid on the ground. Right now, it’s apocalypse written all over India’s cities and towns. Dead bodies are lining up outside crematoriums and graveyards that have run out of space. Public parks and parking lots are being taken over to accommodate the dead. The poor are begging for oxygen outside the hospitals while the rich are doing the same on social media.
The Indian government is in war mode to stem the tide but all efforts seem to be falling short. On Wednesday, when the registrations opened for vaccination for those aged 18-45, the government website meant for the purpose crashed. Many are questioning the government’s rationale in not imposing a lockdown. “At this point lives are so much more important than livelihoods,” tweeted Bhramar Mukherjee, noted epidemiologist from the University of Michigan.
COVID-19 Week 69 Update
India’s hospitals are currently witnessing the kind of apocalyptic scenes that were seen by the hospitals in the US, Italy and other countries last year. Staff, beds, medicines, oxygen, ventilators, all are in short supply even as crematoriums and graveyards work non-stop to tackle the surge in dead bodies reaching their doors. Official statistics for Wednesday put the daily new cases at 295,041 and daily deaths at 2,023, both being the highest ever. But as was the case in the first wave, in the current wave too the experts are sceptical about the official data. They are projecting an as much as ten-fold difference between the official and unofficial numbers for daily new cases and a three-fold difference for daily deaths. Media reports seem to tally with the expert assessments. They talk about crematoriums receiving many more bodies for COVID protocol funerals than those that left the local hospitals the same day. Witness accounts mention how the metal parts of crematorium furnaces have started melting with round-the-clock use, something which was not visible during the first wave.
The Indian government has announced some steps to tackle the fresh wave, while saying another national lockdown is not possible as it would disrupt economic activities. The governments of the affected states have announced partial lockdowns (usually for night hours). On the vaccination front, India has reduced the minimum age for vaccination from 45 to 18. Vaccine manufacturers have been allowed to sell a part of their production in the open market. But the question remains, where is the vaccine stock to meet these requirements? The country, which till some weeks ago was the world’s biggest vaccine exporter, is now grappling with a huge shortfall. The Serum Institute of India, which is the world’s largest vaccine maker and meets 90% of India’s COVID vaccine demand, produces around 65 million doses per month currently. But taking the current daily vaccination average of 3.5 million doses per day, India needs 105 million doses per month. Add to this around 600 million people in the 18-45 age bracket who will become eligible for vaccination on May 1. The government has announced funding for the vaccine manufacturers to expand capacity but that is expected to come not before July.
In extraordinary situations like these, governments the world over face allegations of being tardy in their response (a local court has slammed the Indian government for “not waking up to reality”). While such accusations are not totally unfounded, what is more important is to learn from these never-seen-before situations and avoid a repeat. The coming days will put to test the combined wisdom of the human race on this count, as a fresh and more virulent COVID wave looms in many more countries.
COVID-19 Week 68 Update
The world is now in the grip of a much stronger second wave of COVID-19 and fast approaching the peak of 845,412 daily new cases that was hit on January 8, 2021. India, followed by the US, Brazil, Turkey and France, is the biggest contributor here. On Wednesday, the South Asian country hit a fresh all-time peak of 199,569 daily new cases, with daily deaths also rising proportionately. While the US is showing a plateauing graph of daily new cases, Brazil is witnessing a fresh surge.
This second wave is being attributed to the various variants of the virus that are now in circulation globally, besides the people and governments dropping their guard. Not all of these variants can be tackled by the vaccines currently available. India, for instance, has reported a ‘double mutant’ variant (two mutations in the same virus) that has already resulted in a few cases of reinfection post-vaccination, according to local media reports. Similarly, an Israeli study has concluded that a South African variant can “break through” the Pfizer-BioNTech vaccine to some extent.
This is not to say that vaccination is entirely ineffective. What these examples highlight is the dead heat we find ourselves in. To find whether the virus(es) will beat all vaccination efforts or vice versa, we will have to probably wait till the yearend or early next year. An overwhelming majority has no hopes of getting vaccinated within the next six months, and these are the very people facing the brunt of all kinds of variants in circulation. The longer they remain unvaccinated, the higher the chances are of deadly variants reaching countries with high vaccination rates and reinfecting them.
Whenever pushed to drop profit motive for a humanitarian cause, companies globally are usually evasive. Therefore, it didn’t come as a surprise when the vaccine companies failed to positively respond to the appeals made to them last year by many NGOs and multilateral bodies to share their formulas with generic manufacturers. In a fresh move, more than 160 former heads of state and Nobel laureates, including Joseph Stiglitz, Gordon Brown and Francois Hollande, have asked US President Joe Biden to push for an intellectual property waiver for COVID-19 vaccines. Let us hope for the best.
COVID-19 Week 67 Update
India is headed towards a COVID crisis of gargantuan proportions. This week, the country crossed its peak of daily new cases that it hit in September during the first wave. Not only this, the second wave is showing a steeper climb. From 103,793 new cases on April 4 to 126,315 new cases on April 7, the number has risen by 21.7% in just four days. Experts are blaming the fresh spurt on people and politicians dropping their guard and participating in large gatherings. While the central government has so far not indicated imposing another lockdown, some state governments have imposed night curfews in affected cities, besides shutting malls and places of worship.
India, which is the world’s largest vaccine manufacturer, has so far administered 94 million doses, placing it behind the US and China. All Indian residents above the age of 45 are eligible for vaccination. In a meeting with state chief ministers on Thursday, Prime Minister Narendra Modi rejected calls for lowering this age, saying the poor and elderly need to be prioritized. Many states have complained of vaccine shortages. But India’s health minister maintains that there are sufficient shots. India has already reduced the exports of the AstraZeneca vaccine, which meets 90% of its demand, to cater to the domestic requirement. In addition to laying stress on testing, the prime minister called for a “vaccine festival” from April 11 to 14 to vaccinate as many people as possible.
Meanwhile, AstraZeneca’s tale of woe continues. The UK now wants those under 30 to avoid taking the vaccine in case an alternative is available, as evidence has emerged that it may cause a rare type of blood clot in the brain. This comes after many countries in Europe recommending such a minimum age. Australia, South Korea and the Philippines have also put the vaccine on restricted use while the African Union has dropped plans to buy it. The world, developing countries in particular, is banking heavily on this vaccine due to the scale of its production and ease of storage.
COVID-19 Week 66 Update
The pandemic-triggered semiconductor chip shortage has spurred action on different fronts even as short-term prospects worsen. While governments are focusing on augmenting domestic capacity, chipmakers are busy in firefighting (literally in one case) and planning for the long term, besides dealing with takeover overtures. Some key developments on the chip front from the week gone by:
- Japanese chipmaker Renesas Electronics, which controls around one-third of the global market for microcontroller chips used in automobiles, has said it would take at least 100 days to regain normalcy in production after a fire damaged 23 machines at its plant on March 19. Meanwhile, the Japanese government has asked Taiwanese companies to assist in alternative production.
- Samsung says the production at its chip plant in Texas, which remained affected for over a month due to bad weather on February 16, has now reached near-normal levels.
- TSMC says it will invest $100 billion over the next three years to increase production capacity at its chip plants. This move follows Intel’s recent announcement to invest $20 billion in expanding its advanced chip-making capacity.
- India’s government is offering more than $1 billion in cash to each semiconductor company that sets up production units in the country, according to a Reuters report.
- Hyundai has decided to suspend production at one of its plants in South Korea from April 7 to 14 following a shortage of chips.
- China’s Wise Road Capital and its partners have entered a $1.4-billion deal to acquire South Korea’s Magnachip Semiconductor Corp, a display and power chip maker.
- Micron Technology Inc and Western Digital Corp are in a potential race to buy Japanese semiconductor firm Kioxia Holdings Corp, the world’s second-biggest manufacturer of flash memory chips, says a Wall Street Journal report quoting sources. The deal could value the Bain Capital-controlled firm at around $30 billion, the report adds.
- US-based chip equipment manufacturer Applied Materials has announced that its $2.2-billion deal to acquire Japan’s Kokusai Electric Corp from KKR has been terminated in the absence of any positive indication on Chinese regulatory approval.
COVID-19 Week 65 Update
With the US, UK and some other countries showing a declining graph for daily new COVID-19 cases against the backdrop of increasing vaccination rates there, Brazil and India are now the new pandemic epicentres. A fresh wave of infections is spreading fast in the two countries, with Brazil reporting new peaks in daily cases and India’s cases touching five-month highs.
The surge in India has particularly alarmed the world. This is because India is also a vaccine manufacturing hub. In normal times, it caters to over 60% of the vaccine demand from developing countries. In the present pandemic, India has emerged as the biggest exporter of the AstraZeneca vaccine through a local firm, the Serum Institute of India (SII), which is also the world’s biggest vaccine maker.
However, following the emergence of the second wave, India decided to restrict the COVID vaccine exports, besides lowering the minimum age for vaccination from 60 and above earlier to 45 and above from April 1. While India is doing the right thing in prioritizing its population over other countries, what has compounded the situation is the country’s heavy reliance on the AstraZeneca vaccine, one of the only two vaccines cleared for use in the country.
India has committed to supply 200 million doses to low-income countries under the Covax programme of the Global Alliance for Vaccines and Immunisation (GAVI) and the World Health Organization (WHO). SII has a manufacturing capacity of around 60 million doses per month. GAVI says Covax has already notified participating countries that deliveries from SII will be delayed in March and April.
COVID-19 has brought to the fore weaknesses in global supply chains, from vaccines to semiconductors. Time for governments, multilateral bodies and businesses to get their act together.
COVID-19 Week 64 Update
Among the top 10 countries which reported the highest number of daily new COVID-19 cases on Wednesday, as many as six were from Europe. With the continent in the grip of a third wave of the virus, the less-than-projected supplies of various COVID-19 vaccines have triggered a blame game among the region’s countries. The European Union (EU) has threatened to ban exports of the vaccines to the UK over delay in deliveries of the AstraZeneca vaccine from there. The bloc says it is now thinking of linking the exports to the level of vaccination in a country, an allusion to the UK where more than 40 doses per 100 people have been administered so far compared to less than 20 per 100 in the remaining continent. The UK was quick to react, accusing the EU of brinkmanship and asking it to issue an explanation on its earlier assurances that already contracted exports would not be stopped. Further, on Thursday, the UK health secretary said the country would face vaccine shortages this month due to cuts from the Serum Institute of India, an AstraZeneca partner.
What has made the situation messy is some European countries’ decision to suspend the use of the AstraZeneca vaccine following cases of blood clot formation in the head of around three dozen recipients of the vaccine. The EU drug regulator says the vaccine is safe to use while the UK regulator says the incidence of blood clot formation was not more than what would have occurred naturally. Other countries, including Canada and India, too have announced to continue to use the vaccine. The World Health Organization (WHO), which cleared the AstraZeneca vaccine for emergency use last month, says the benefits of the vaccine far outweigh its risks.
COVID-19 Week 63 Update
Entering the second year of the COVID-19 pandemic, the virus continues to enjoy the upper hand in its battle with all efforts meant to contain it. More than our failure in quickly coming out with an effective vaccine or medicine, it is our failure to coordinate efforts towards a common goal that has hit the fight against the virus the most. According to Bloomberg, more than 334 million vaccine doses had been administered till Friday across 121 countries. The number is indeed impressive but what it fails to convey is the lopsided nature of the biggest vaccination programme ever. On one end of the scale are the developed countries from Europe and North America which have used their economic and political influence to procure vaccine supplies, including from plants located in developing countries. On the other end are countries from regions like Africa which have only the World Health Organization’s (WHO’s) sluggish vaccine distribution to look forward to. The following events from this week show all is not well on the vaccination front:
- Europe is a divided house on AstraZeneca’s vaccine. While as many as nine countries have suspended its use following safety concerns, countries including France and Germany have ignored these concerns. A WHO panel is looking into the matter but the global body says “there is no reason not to use it”.
- In another negative news on the AstraZeneca vaccine, the company has cut its target for supplies to the European Union to around 30 million doses in the first quarter, a third of its contractual obligations, according to a Reuters report. However, there is hope from Johnson & Johnson whose single-dose vaccine was cleared by the EU on Thursday.
- According to a report in the New York Times, the US is sitting on tens of millions of vaccine doses from AstraZeneca even as many countries are desperately looking for supplies. These doses can’t be used in the US as they are still awaiting the clinical trial results. Trials conducted in many other countries have already cleared the vaccine.
- Over 40 African charities blasted rich nations on Thursday for refusing to waive patents for COVID-19 vaccines, which would have helped bring down vaccine prices along with increasing their availability. This will only prolong the pandemic in poor nations, the charities said.
- Unicef has asked countries for around $1 billion more to fund poor nations’ vaccination drives.
COVID-19 Week 62 Update
Many countries have been reporting a spurt in daily new COVID-19 cases for the past week or so. Experts are attributing this rise to new strains of the virus and the authorities and people becoming lax in following precautionary measures. In the US, President Joe Biden has come down heavily on some states’ move to end compulsory wearing of masks, describing such decisions as “Neanderthal thinking”. The World Health Organization (WHO) is alarmed too. “This virus will rebound if we let it,” warned WHO expert Maria Van Kerkhove at a briefing. In fact, the WHO projects that many countries in Europe will see a resurgence in cases in the coming days.
When the vaccines first came last year, the predominant view, including among experts, was that these will be effective in containing the virus spread. But since then, new variants of COVID-19 have cropped up which are not only resistant to the vaccines developed so far but can also evade the immunity developed by already infected people. As a result, experts have revised their forecast and are now talking about COVID-19’s impact lasting for “years to come”. This is not to say that the vaccines are completely ineffective. Experts acknowledge that even with the new variants, the current vaccines seem to prevent deaths and hospitalizations. Besides, companies will come out with updated vaccines to fight the new variants.
It is, therefore, important that the vaccination drive is stepped up, especially in the developing countries, which have been lagging so far. A part of the problem, as the WHO has been pointing out, is the hoarding of vaccine doses by rich nations. COVAX, the WHO-supported programme to provide vaccines to poor countries, is already feeling the heat from countries getting into bilateral deals with vaccine companies. The programme, which aims to send 237 million doses of the AstraZeneca vaccine to 142 countries by May-end, has seen a slow start, with Ghana and Ivory Coast becoming its first beneficiaries last week. “We can’t beat COVID without vaccine equity. Our world will not recover fast enough without vaccine equity, this is clear,” WHO Director-General Tedros Adhanom Ghebreyesus told a briefing.
COVID-19 Week 61 Update
There is no sign of any let-up in the Covid-triggered semiconductor shortage being faced by the automotive sector since last year. The US sanctions against China’s chip factories and just-in-time supply schedule of a typical automobile factory have only added to the problem. Chipmakers too are focused on meeting the spurt in demand from consumer electronics firms, which buy high-end and high-margin chips. As a result, auto companies are lobbying their respective governments to promote creation of chip manufacturing facilities at the domestic level. On the other hand, some governments have approached Taiwan to resolve the crisis. Some key developments on the chip shortage front this week:
- US President Joe Biden on Wednesday announced a $37-billion plan to push chip manufacturing in the country. The US chip industry and auto manufacturers have been asking the government to take action on this front. Biden has also signed an executive order kicking off a review of supply chains for semiconductor chips, large electric vehicle batteries, pharmaceuticals and rare earth minerals.
- Tesla has reportedly halted the production of the Model 3 at its California plant from February 22 to March 7. Tesla said in January it expected a temporary impact from the chip shortage.
- Ford says it may have to cut its production by 20% in Q1 due to the shortage. General Motors says it has cut production at its plants in the US, Canada and Mexico.
- Japanese auto companies’ global production dropped around 4.5% in January from last year due to production cuts after the chip shortage.
- Renault said on Friday the chip shortage and other effects of COVID-19 could result in a volatile year for the French carmaker which reported a $9.7-billion loss for 2020.
- Infineon, the world’s leading supplier of chips to the automotive sector, is expanding its capacity to meet the demand in the long term. It is also planning to open a new chip plant in Austria this year. Currently, Infineon and other such specialist chipmakers outsource some of their production to contract manufacturers like Taiwan Semiconductor Manufacturing Co Ltd (TSMC).
- According to auto parts supplier Visteon, the chip shortage may bring down the global auto production in H1 2021 by 10% to 15%.
- Taiwan’s economy minister said on Saturday her country’s chipmakers were doing “what they should” to address the problem.
- Taiwan is facing a drought, pushing the island’s chipmakers to buy truckloads of water to ensure chip production continues.
- Foxconn chairman sees only “limited impact” from the chip shortage as most of the company’s customers “have proper precautionary planning”.
COVID-19 Week 60 Update
Even as COVID-19 cases show a steady decline globally, the Ebola virus has reared its head again in some African countries. Guinea and the Democratic Republic of Congo have reported fresh cases of the virus which saw its worst outbreak during 2013-2016 in West Africa and killed around 11,000 people. The World Health Organization (WHO) has asked six neighbouring countries to remain alert for a possible outbreak, while helping Guinea arrange 11,000 Ebola vaccine units. Compared to COVID-19, Ebola fares better in terms of vaccines and treatments, thanks to the lessons learnt in the previous outbreak.
All this brings us to the question which is becoming louder with the waning COVID-19 pandemic: How likely are we to see another pandemic of this size in coming years? Most experts say it is very likely. As we are already seeing in countries including the UK, South Africa and Brazil, a virus has a tendency to mutate into different variants, some of them more dangerous than the original. And the more the number of people it infects, the more the number of chances it gets to mutate. Each body a virus infects is a Petri dish for it to grow and change. Besides, a virus or its mutant can stay dormant for years.
So, what can the people and governments do to avoid, delay, or limit another pandemic? Reducing our interaction with nature by opting for sustainable habits is certainly in. The way we react to a pandemic at an international level is also important. Many of the problems faced in the current pandemic could have been easily avoided with a united global response. Already, the clamour for a global mechanism to deal with such a calamity is growing. UK prime minister Boris Johnson wants an international treaty on pandemics to ensure countries share the relevant data and also have an early warning system in place. European Council president Charles Michel has supported Johnson’s call.
COVID-19 Week 59 Update
The vaccine developed by AstraZeneca and the University of Oxford has been dogged by delays and uncertainties both before and after its release. In the latest instance, a study in South Africa says the vaccine has little impact on a COVID-19 variant spreading fast in the country. Following the study, the South African government announced suspension of the programme to roll out one million doses of the vaccine. However, later it said it was considering a “stepped” rollout of the vaccine to monitor its efficacy. In the meantime, it has decided to use the one-shot Johnson & Johnson vaccine.
Experts around the world, including from the World Health Organization (WHO), were quick to jump to the defence of the AstraZeneca-Oxford vaccine. They were unanimous that it was too early to dismiss the vaccine as being ineffective. Some experts even raised questions on the South African study, saying it was conducted on a small scale and after testing the vaccine at an interval of four weeks between the first and second doses, even as evidence suggested that the vaccine was more effective at a longer interval between the two doses. Britain, where the vaccine is being used extensively, pointed out that it was effective in fighting the COVID-19 variant there. France said the vaccine worked well with “nearly all the variants”. The WHO said benefits of the vaccine outweighed any risks and the shot could be taken by all, including by those aged 65 and above.
Among the vaccines approved for use by different governments and international bodies, the AstraZeneca-Oxford one is the most crucial internationally, thanks to the geographical spread of its trials and production. While the wealthier nations are relying more on Pfizer and Moderna vaccines, developing countries, in particular, are betting heavily on the AstraZeneca-Oxford vaccine’s success. The COVAX scheme of the WHO and the GAVI vaccine alliance, which aims to deliver 1.8 billion doses to 92 poor countries in 2021, is relying heavily on the AstraZeneca-Oxford vaccine to make the programme successful.
Any inability of the leading vaccines to tackle any COVID-19 variant would put a big question mark on the global recovery from the pandemic.
COVID-19 Week 58 Update
COVID-19 has brought windfall profits to technology companies, as we have been reporting here. But at the same time, the unexpected surge in demand for products and services related to work-from-home and study-from-home has stretched the global supply chains like never before. The shortage of semiconductor chips which was noticed last year has now spread to the automotive sector. The following developments from this week convey the enormity of the issues being faced by automobile companies on this score:
- General Motors has decided to cut production next week at four of its assembly plants in the US, South Korea and Mexico.
- Nissan Motor has been forced to partially suspend truck production at its Mississippi plant in the US.
- Volkswagen is considering entering direct contractual relationships with chip manufacturers, according to a Reuters report.
To be fair, besides the pandemic, there are other reasons contributing to this shortage, like under-investment in chip capacity over the recent years, geopolitical tensions and emergence of new products like electric vehicles. According to a Counterpoint analysis, this shortage is unlikely to end before H2 2021. However, the analysis predicts that beginning this year, leading foundries will enter a cycle of massive production capacity expansion that will continue till 2023. And far from triggering a glut, this expansion will still fall short of meeting the entire demand.
COVID-19 Week 57 Update
All the top 10 countries ranked by their total number of COVID-19 cases – US, India, Brazil, Russia, UK, France, Spain, Italy, Turkey and Germany – are now showing a declining graph in varying degrees when it comes to daily new cases. Globally, the total number of cases crossed the 100-million mark on Wednesday. Total deaths now stand at over 2 million. India’s government said on Thursday that out of its 718 districts, 146 had reported no new case during the last seven days. The government has decided to relax curbs on public swimming pools and cinema halls from February 1. Russia has also lifted a travel ban for India, Finland, Vietnam and Qatar that was announced last year.
Apple on Wednesday announced financial results for its fiscal 2021 Q1 ended December 26, 2020. Riding high on the new 5G-capable iPhone series, along with the pandemic-triggered demand for its laptops and tablets, the company posted a record revenue of $111.4 billion, up 21% YoY. International sales accounted for 64% of the quarter’s revenue, according to an Apple release. Research from Counterpoint’s Market Monitor service confirms this stellar show by Apple – for October-December 2020, Apple captured the top spot in global smartphone shipments, growing 8% YoY and 96% QoQ.
Microsoft on Tuesday reported a 17% increase in its revenue at $43.1 billion for the quarter ended December 31. Its revenue from Azure cloud computing service grew 50%. LinkedIn revenue increased 23% while Xbox content and services revenue increased 40%, according to a company release. Microsoft’s revenue from the productivity and business processes segment was $13.4 billion during the quarter and increased 13%. The mobile version of Teams has 60 million daily users now.
The pandemic has also popularized newsletters. Realizing their potential, Twitter has acquired an e-mail newsletter start-up, Revue, for an undisclosed sum to attract users who want to earn revenue from their followers. Twitter said it would bring down the paid newsletter fee to help authors retain more revenue from subscriptions.
COVID-19 Week 56 Update
After remaining below the global average for a major part of 2020, Africa’s COVID-19 death rate now stands at 2.5%, compared to 2.2% in the rest of the world. Africa Centres for Disease Control and Prevention director John Nkengasong says the second wave of the pandemic is more aggressive, with as many as 21 countries in the continent reporting a death rate above 3%.
Africa’s plight also brings into focus the efforts being made by multilateral bodies and countries for a timely delivery of vaccines to poor countries. Sadly, the pace here has been frustratingly slow. Under the COVAX scheme of the World Health Organization (WHO) and the GAVI vaccine alliance, 1.8 billion doses are targeted to be delivered to poor countries in 2021. But thanks to a shortage of funds, the scheme is yet to secure sufficient shots. According to GAVI, the 1.8 billion doses will be sufficient to cover 27% of the population in the 92 countries eligible under the scheme.
Some poor countries lack the regulatory infrastructure needed to clear vaccines for use and, therefore, rely on the WHO for clearances. The global body is planning to clear several vaccines for their rapid deployment in poor countries starting February.
The regime change in the US has come as a big relief in the efforts to combat the pandemic, not only in the country but also the world. On January 21, US’ chief medical adviser Anthony Fauci told the WHO that the US government under President Joe Biden was willing to join the COVAX scheme to help poor countries.
COVID-19 Week 55 Update
The COVID-19 situation will get worse before it gets better. With the vaccination drive seeing a slow start globally, many countries are coming in the grip of a fresh wave of infections. Sweden, which had been avoiding putting curbs on the movement of its citizens in contrast to other European countries, has now brought in tougher rules for social distancing at shopping complexes, private gatherings and gyms. The country will close businesses if the situation worsens.
China has registered its biggest jump in cases in over 10 months as infections surge in the Heilongjiang province. This comes just before a national holiday when millions of people usually travel. A paper by Chinese researchers published in the PLOS Neglected Tropical Diseases journal on Thursday said the number of people infected with COVID-19 in Wuhan could be three times the official figure. This conclusion was reached after analysing the blood samples of more than 60,000 people. Meanwhile, a World Health Organization (WHO)-led delegation arrived in Wuhan on Thursday to investigate the origins of COVID-19.
The Japanese government says it has detected a new variant of the virus in some travellers from Brazil. The variant has as many as 12 mutations.
The WHO hopes to launch COVID-19 vaccines in poor countries in February via its COVAX programme. It has asked countries to avoid striking bilateral deals with manufacturers so that poor countries can get access to the vaccines.
COVID-19 Week 54 Update
A fresh wave of the COVID-19 pandemic has gripped the world, whether due to a new strain of the virus or otherwise. In terms of daily new cases, the US (260,973 on Wednesday) is now followed by Brazil (62,532), UK (62,322), Germany (26,651) and France (25,379).
China on Thursday registered its biggest rise in daily cases in more than five months. The epicentre this time is Shijiazhuang, the capital of Hebei province, near Beijing. Over 200 cases have been confirmed in the city so far. Reports say the authorities are planning to test over 10 million people. On Wednesday, China said it was making arrangements for a visit by a World Health Organization (WHO) team looking into the origins of the virus. The statement came after the WHO expressed its concern over the delay in authorization for the visit.
Japan on Thursday declared a one-month emergency for Tokyo and three neighbouring prefectures after daily new cases hit a record in the capital. The government has avoided imposing wider restrictions due to their potential to cause economic hardships. According to Counterpoint’s Japan handset tracker, Japan’s smartphone sales plummeted 24% YoY in Q2 2020 but went up 10% YoY in the following quarter, supported by the government’s pro-economy stance in tackling the virus.
With the vaccine distribution campaigns still in their initial phases the world over, the fresh wave of infections will continue to inflict damage in the weeks to come. Stricter lockdowns like the latest one in the UK may have to be brought back.
COVID-19 Week 53 Update
There is no doubt the year 2020 will count among those which left an indelible mark on the course of history. Hardly any sphere of life has remained untouched from the COVID-19 pandemic. Many things have changed for the better and a few for the worse. Some of these changes will be permanent while others will depend on how early we are able to control the pandemic.
Climate change: Before the pandemic started, climate change was struggling to take prominence in human discourse. But COVID-19 has taught a valuable lesson — nature can quickly heal itself under the right conditions. With lockdowns in force globally, we saw pollution levels hitting multi-year lows and flora and fauna regaining some of the lost vitality. As soon as these lockdowns were lifted, we were back to square one. Expect policymakers to discuss effective mitigation of climate change more seriously in the coming year and beyond.
International cooperation: The pandemic has taught the world that global problems require global solutions. International cooperation was found wanting during the pandemic, whether in detection of the virus or development of vaccines. The post-pandemic world also requires a coordinated action on the economic and social fronts. Hopefully, the governments will get it right this time. There is an urgent need to give more teeth to multilateral institutions like the United Nations and World Health Organization.
Human behaviour: COVID-19 has imposed many restrictions on our normal behaviour, whether it is social distancing or wearing of masks. We have also “discovered” that work-from-home, study-from-home and shop-from-home are workable concepts.
Remote work: Before the pandemic, work-from-home as a concept was still taking baby steps. The CEOs were mostly sceptical about it. But COVID-19 has demonstrated that it is not only workable but also brings benefits to the employers in the form of cost savings on office maintenance. At the same time, it has also divided the employees among haves and have-nots. It is not possible for many to work from home as the nature of their work requires physical presence at the office.
E-commerce: Lockdowns meant no visits to markets and malls. As a result, e-commerce portals witnessed record traffic. Going forward, a big chunk of this increased traffic will become permanent. Same holds true for fintech.
Public transport: With the social distancing norms in force, public transport has taken a major hit. If the pandemic prolongs, there is a risk of people permanently shifting to personal vehicles and, therefore, increasing pollution and traffic congestion.
Real estate: With work-from-home taking roots, both residential and office property values in big cities will fall. Companies will opt for smaller offices while employees will prefer suburbs and small towns where property prices are lower.
COVID-19 Week 52 Update
Even as the COVID-19 vaccine distribution drive gathers steam in different parts of the world, a new ‘super-spreader’ strain of the virus has been detected in the UK. According to the country’s government, this new strain is up to 70% more infectious but there is no evidence to suggest that it is more deadly. Following the UK government’s statement, several countries stepped up testing of air passengers arriving from the UK and have already detected a few cases of the new strain.
A study by the Centre for Mathematical Modelling of Infectious Diseases, London School of Hygiene and Tropical Medicine, says the new strain is 56% more transmissible than other strains. “Nevertheless, the increase in transmissibility is likely to lead to a large increase in incidence, with COVID-19 hospitalisations and deaths projected to reach higher levels in 2021 than were observed in 2020, even if regional tiered restrictions implemented before December 19 are maintained,” the study adds. The authors of the study further warn that measures like the national lockdown imposed in England in November are unlikely to reduce infections unless schools and universities are also closed. “We project that large resurgences of the virus are likely to occur following easing of control measures. It may be necessary to greatly accelerate vaccine rollout to have an appreciable impact in suppressing the resulting disease burden,” the authors add.
From the COVID economy this week, Counterpoint expects that the global laptop market will hit a high in 2020, increasing 9% YoY to reach 173 million units. With uncertainty persisting over COVID-19, work-from-home and study-from-home will likely continue into 2021 and some part of 2022. Therefore, we expect the global laptop shipments to continue to grow slightly in 2021 and 2022. After reaching its peak in 2011, the laptop market growth had slowed down with the rise of alternatives such as smartphones and tablets.
COVID-19 Week 51 Update
With the developed countries beginning to roll out COVID-19 vaccines, the focus has now shifted to the developing countries and the challenges faced by them in procuring and distributing vaccines. Consider this: In the US, Pfizer’s vaccine costs $19.5 per dose while Moderna’s vaccine is expected to come at $37 per dose. In addition, these vaccines require procurement of special storage boxes. For a developing country, these costs are unaffordable, something which multilateral bodies are now discussing to find a way out.
The World Health Organization (WHO), in alliance with GAVI, plans to provide vaccines and diagnostic kits to economically weak countries through the Access to COVID-19 Tools (ACT) Accelerator fund. However, there is a big funding gap of $28 billion that needs to be filled. The WHO is now considering financial instruments like concessional loans and catastrophe bonds to meet the urgent demand. At the same time, the WHO says it is in talks with Pfizer to make its vaccine a part of the multilateral body’s global rollout and bring down the price to match the budgets of poor countries.
In the meantime, a Reuters report says, the European Union (EU) is considering donating 5% of the COVID-19 vaccines it has secured to poorer nations.
The Asian Development Bank (ADB) has launched a $9-billion facility to help countries fund purchase and distribution of COVID-19 vaccines.
The Inter-American Development Bank (IDB) says it will mobilize $1 billion to help the Latin American and Caribbean countries acquire and distribute COVID-19 vaccines. This is in addition to around $1.2 billion already committed in 2020.
Among countries, Canada has promised to spend $380 million on COVID-19 tests, treatments and vaccines in low- and middle-income countries through the United Nations International Children’s Emergency Fund (UNICEF).
COVID-19 Week 50 Update
As nations begin rolling out mass vaccination drives to fight the COVID-19 pandemic, fresh issues are cropping up, highlighting the challenges associated with administering a vaccine at such a large scale.
The UK started its mass vaccination drive on Tuesday, and soon the country’s Medicines and Healthcare Products Regulatory Agency was forced to issue an advisory that those having a history of anaphylaxis (an extreme allergic reaction) to some medicines or food should not get Pfizer’s COVID-19 vaccine.
In the US, highlighting the supply chain challenges being faced by the vaccination drive, Pfizer has slashed its COVID-19 vaccine production target for this year by half to 50 million doses. The decision was taken after some batches of the vaccine raw material failed to meet the standards.
Transportation of a COVID-19 vaccine like the one from Pfizer, which needs to be stored at minus 70 degrees Celsius, means having sufficient supplies of dry ice. But reports say officials in the rural areas of the US are not sure about the country’s dry ice production capacity to meet this spurt in demand. One can easily imagine the situation in a developing country with poor infrastructure.
Hackers, too, seem to be having a field day if Pfizer and its German partner BioNTech are to be believed. In a statement on Wednesday, the two companies claimed that documents related to their COVID-19 vaccine had been “unlawfully accessed” in a cyberattack on the European Medicines Agency, the EU body which assesses medicines and vaccines.
From the Covid economy this week, food delivery company DoorDash debuted at the NYSE on Wednesday with a gain of 80%, taking its value to around $71 billion.
COVID-19 Week 49 Update
Britain has become the first country in the West to approve a COVID-19 vaccine shot. Announcing the approval for Pfizer’s vaccine on Wednesday, the government described it as a ray of hope amid the surrounding gloom. It has already ordered doses for 20 million people against the country’s total population of around 67 million. Care home staff and residents will be the first ones to get the vaccine, followed by healthcare workers and the elderly. People will be contacted directly when their turn to get vaccinated comes. The main challenge with rolling out the vaccine is the requirement to keep it at around -80 degrees centigrade. This requirement will make it difficult to use the vaccine in countries with poor logistics infrastructure. Meanwhile, the UK government has also asked the country’s regulator to assess AstraZeneca’s vaccine for rollout, even as experts raise doubts over the trial data.
The World Health Organization (WHO) said on Wednesday it was reviewing the Pfizer vaccine trial data for “possible listing for emergency use” so that other nations could authorize the vaccine for national use. Pfizer has also approached the EU for a regulatory clearance, which is expected to come this month itself. However, the WHO believes that the world will not have sufficient quantities of vaccines in the next three to six months to prevent a surge in infections.
From the Covid-triggered economy this week, Salesforce is buying workplace messaging app Slack for $27.7 billion, betting on work-from-home outlasting the pandemic and the company getting into a better position to take on Microsoft. Slack has not been able to make the most of the opportunity presented by the pandemic.
COVID-19 Week 48 Update
The total number of COVID-19 cases in the world crossed the 60 million mark on Wednesday with the US (13,138,204 cases), India (9,266,697) and Brazil (6,166,898) continuing to be the top three most affected countries. In terms of daily new cases, apart from these three countries, rest all in the global top 10 belong to Europe, with Italy (25,853 daily new cases), Russia (23,675) and Germany (20,825) taking the top three slots for the continent. When it comes to daily new deaths, the picture changes considerably. The US continues to top here with 2,304 deaths, but is followed by Mexico (813), Italy (722), UK (696) and Poland (674).
While the recent announcements by Pfizer, Moderna and AstraZeneca-Oxford on successful completion of their vaccine trials have raised hopes everywhere, it is the poor countries which run the risk of getting the vaccine horrendously late and thus suffering avoidable calamities. The World Health Organization (WHO) said on Monday that $4.3 billion more was needed for its global vaccine programme, which has raised $5 billion so far.
Dell continues to benefit from work-from-home and study-from-home with the soaring demand for its PCs and laptops giving the company a surprise 3% rise in Q3 revenue. Dell says it has not seen for over a decade the kind of demand it is seeing for its notebooks now.
Another sector that is emerging due to the pandemic is telemedicine. The sector is seeing an intense merger and acquisition activity, the latest being the merger of UpHealth Holdings Inc, Cloudbreak Health LLC and GigCapital2 Inc to create a $1.35-billion digital healthcare company.
COVID-19 Week 47 Update
The race for a COVID-19 vaccine is set to touch the finish line next month with the first batch of recipients getting the dose in December itself, thanks to the vaccine frontrunners starting production of their candidates before receiving the final approval.
Moderna announced on Monday that its vaccine candidate had been found to be 94.5% effective in preventing COVID-19 in a late-stage trial. Similarly, Pfizer said on Wednesday its candidate had been found to be 95% effective. The World Health Organization (WHO) demands at least 70% efficacy while the US Food and Drug Administration (USFDA) requires at least 50%.
If both Pfizer and Moderna get the emergency use authorization (EUA) from the US government, they will be in a position to supply around 60 million doses in the country in December this year. According to officials, US states are ready for the distribution at a 24-hour notice.
In a related development, USFDA said on Tuesday it had approved a COVID-19 self-testing kit that would provide the result within 30 minutes. The kit, produced by Lucira Health, has received the EUA for use by those aged 14 and above.
However, internationally, it is the vaccine candidate being developed by the University of Oxford and AstraZeneca that is inviting more attention due to its size and geographic spread. Here too, AstraZeneca says “billions of doses” of the candidate are already being produced with the late-stage trial data release expected by December.
The COVAX facility, set up by the WHO and the GAVI alliance, has managed to exceed the initial target of raising $2 billion to buy vaccine for poorer countries. The alliance said the collection would allow it to buy one billion doses for 92 countries.
COVID-19 Week 46 Update
With its rickety healthcare infrastructure and poor living conditions, Africa was being described as a COVID-19 disaster waiting to happen. But what has happened in reality is just the opposite. Even as the wealthier parts of the world grapple with their second or third waves of coronavirus, Africa has managed to retain the casualty numbers at the lowest levels among big continents. Against the World Health Organization’s (WHO’s) prediction in May that 190,000 people would die in the continent if measures to check the pandemic failed, in all 46,357 deaths had been reported till Wednesday. While experts have pointed out the low levels of testing in Africa as the likely cause of underreporting of deaths, reports from other quarters, including hospitals, have mentioned no unusual spurt in casualties.
There are many factors going in Africa’s favour here. The continent’s relative isolation means that many countries receive very few foreign visitors or send people abroad. A case in point is South Africa, which is among the African countries recording maximum interaction with the outside world, and also leads the table in total deaths related to COVID-19. Africa’s relative isolation also meant that the continent was hit by the virus late and countries got time to prepare themselves for the outbreak.
The other reason is the continent’s young population. According to the United Nations (UN), as much as three-quarters of Africa’s population is aged below 35. COVID-19 is known to have more adverse impact on older population and those with comorbidities.
The continent has also gone through other outbreaks like Ebola in the recent past to prepare for the current pandemic to some extent. Experts are also looking into whether a TB vaccine popular in the continent is helping impart immunity in this case also.
COVID-19 Week 45 Update
Even as the world awaits the US presidential election result, the country on Thursday reported its highest ever daily new COVID-19 cases at 118,204. In Europe, Denmark has decided to cull around 17 million minks after discovering that a mutation of the coronavirus found in the animal had spread to humans. The country’s prime minister said this particular strain of the virus showed decreased sensitivity against antibodies, which could affect the efficacy of any future vaccine.
According to the latest research from Counterpoint’s Market Monitor Service, the global smartphone market grew 32% QoQ to reach 366 million units in Q3 2020. This recovery was driven by key markets like the US, India and Latin America returning slowly to normal due to eased lockdown conditions. The smartphone market has shown resilience to the ill effects of COVID-19 both from the supply and demand side. Samsung regained the top spot, shipping 79.8 million units to register 47% QoQ growth. This is the highest ever shipment by Samsung in the last three years.
PayPal continued to benefit from the surge in digital payments in Q3. However, the company, while beating estimates for Q3, forecast Q4 profit to be below expectations, mainly due to the uncertainty surrounding the pandemic and concerns over the US presidential election outcome. The US-based company processed $247-billion payments in Q3, an increase of 36% from the year-ago period, and added 15.2 million new active users.
Japan-based gaming company Nintendo has revised the forecast for its operating profit by 50% to $4.31 billion as it expects to sell 24 million Switch gaming consoles in the year ending March 2021, up from the previous forecast of 19 million.
COVID-19 Week 44 Update
With the second wave of COVID-19 strengthening its grip on Europe, Germany and France have ordered fresh lockdowns. Germany has decided to impose a month-long lockdown which will see closure of restaurants, theatres, pools and gyms from November 2. France has decided that from October 30, anyone leaving home will have to carry a document justifying the presence outside. On the other hand, the UK is resisting calls for imposing a nationwide lockdown, saying it brings economic hardships.
On the vaccine front, US’ top infectious diseases expert Anthony Fauci has said the country will get a vaccine only after January next year. Reports in the UK say the government there expects the results from the trials for Pfizer’s candidate would be available before those for AstraZeneca’s candidate, and that the Pfizer vaccine could be available for distribution before Christmas. An assessment by the European Union says the bloc will be able to administer a vaccine to all its inhabitants only by 2022 as the sufficient number of doses won’t be available till then.
From the COVID-triggered economy this week, Azure, Microsoft’s cloud computing business, has reported a 48% rise in its revenue for the latest quarter. Teams software continues to attract new users even as the demand for Windows for laptops and Xbox gaming services soars.
Sony has registered a record Q2 profit, convincing it to raise its outlook for the annual profit. The company’s gaming business continues to perform well before the launch of the PlayStation 5 (PS5) console next month.
Capgemini has reported an 18.4% increase in its Q3 revenue at $4.74 billion on good show by its digital and cloud offerings, which now bring more than half of the French company’s business.
COVID-19 Week 43 Update
Even as the total number of COVID-19 cases globally crossed the 41-million mark this week, with daily new cases hitting fresh peaks in Europe, the World Health Organization (WHO) came out with a study that said remdesivir, hydroxychloroquine, lopinavir and interferon were not effective in treating coronavirus. These are among the handful of drugs being used for the treatment. Interim trials by the WHO under its Solidarity Trial programme suggest these drugs are ineffective in reducing hospital stays and death risk. More than 11,000 adults with COVID-19 in around 30 countries participated in the trial. Reacting to the trial findings, Gilead, which produces remdesivir, said other studies had showed the efficacy of remdesivir. Besides, the US company said, there were differences in the way the WHO trial was conducted at different locations. Following the trial findings, the WHO announced that the Solidarity Trial would now cover monoclonal antibodies and other antiviral drugs.
On the vaccine front, Pfizer has said it could file for US authorization of its COVID-19 vaccine candidate in late November. This means there is a possibility of the company’s vaccine becoming available in the US this year itself. Pfizer is developing the vaccine with German partner BioNTech.
From the COVID economy this week, a World Economic Forum (WEF) study says that the pandemic has accelerated the shift towards automation in industries. Robots may end up destroying 85 million jobs over the next five years, the study warns.
Technology companies benefitting from work-from-home and study-from-home continue to report good numbers. US’ Verizon Communications beat third quarter profit estimates on Wednesday. Operating revenue fell 4.1% to $31.54 billion. Net income fell to $4.50 billion from $5.34 billion a year ago. The company has raised its adjusted EPS growth range guidance for 2020 from -2%–2% to 0%–2%.
Cyber security firm McAfee has raised $620 million in its US IPO. The IPO values the company at $8.6 billion. In 2016, TPG had bought a majority stake in McAfee from Intel in a deal that valued the company at $4.2 billion after including debt.
Taiwan Semiconductor Manufacturing Co (TSMC) has reported a record net profit of $4.8 billion in the July-September quarter, an increase of 36%. The company is betting big on the projected demand for the next two years. It has also raised its revenue forecast for 2020 from more than 20% increase to more than 30% jump now.
On the other hand, the boom triggered by the virus seems to be over for Netflix. On Tuesday, the company reported its weakest subscriber additions in four years, mainly due to lifting of pandemic restrictions during Q3. In the quarter, Netflix added 2.2 million paid subscribers, missing analysts’ and own forecasts.
COVID-19 Week 42 Update
The second wave of COVID-19 is turning out to be more destructive in Europe, with the top five countries in terms of total number of cases — Russia (1,354,163), Spain (937,311), France (779,063), UK (654,644) and Italy (372,799) — reporting record daily new cases during the last month. As a result, lockdowns and shutdowns are back in many countries. France has announced night curfews in its major cities, including Paris, while Germany and Italy have ordered midnight closure of bars and restaurants. The UK is applying three levels of restrictions depending on the prevalence of the virus at a regional level. However, even at its highest level, it is still not as strict a lockdown as seen in March and April.
On the vaccine front, Johnson & Johnson said on Tuesday it was pausing its vaccine trial after a participant developed some unexplained illness. A panel will study the case before deciding on the trial restart. Similarly, Eli Lilly and Co said on Tuesday the US government had paused its trial for an antibody treatment following safety concerns.
China has joined a World Health Organization (WHO)-backed vaccine distribution programme COVAX. The country is planning to buy vaccines for 1% of its population (around 15 million) through this programme. Norway has announced that it will offer a COVID-19 vaccine free of charge to its citizens while making it a part of the country’s vaccination programme.
From the COVID-triggered economy this week, Walt Disney Co said on Monday it had restructured its media and entertainment units to push growth of streaming services like Disney+. Under the new structure, production and distribution of programming will form two different units.
Amazon finally managed to organize its Prime Day event in the US on October 13-14. The event is usually held in July but was postponed due to the pandemic. Rivals like Walmart, Best Buy and Target have also launched their competing sales, keeping in mind the reduced footfalls at their stores due to COVID-19.
A survey by Cisco says that as many as nine out of 10 employees want to retain the option of working from home after the COVID-19 restrictions are lifted.
COVID-19 Week 41 Update
Ten months into the COVID-19 pandemic, around 10% of the total global population of 7.8 billion has been infected by the virus, according to the World Health Organization (WHO). On Thursday, estimates based on the official data put the total cases globally at just over 36 million (around 0.5% of the global population). “Our current best estimates tell us that about 10% of the global population may have been infected by this virus. It varies depending on the country, it varies from urban to rural, it varies between different groups. But what it does mean is that the vast majority of the world remains at risk,” said WHO expert Mike Ryan.
On the vaccine front, WHO Director-General Tedros Adhanom Ghebreyesus said on Tuesday there was hope that by the end of this year “we may have a vaccine”. According to another WHO official, China is in talks with the global body to make available its vaccines for international use. Reports in the UK say AstraZeneca and Oxford University’s vaccine candidate could see a mass rollout in the country in three months and cover all adults within six months. The European Medicines Agency said it was reviewing in real time the data from the trials for the AstraZeneca and Oxford University’s, and Pfizer and BioNTech’s vaccine candidates to speed up the approval process. In the US, Regeneron Pharmaceuticals and Eli Lilly have applied for emergency use of their antibody treatments following encouraging results.
From the COVID economy this week, streaming service provider fuboTV raised $183 million through an initial public offering. The US-based company is now valued at over $620 million. It had 286,126 paid subscribers in Q2, an increase of 47% YoY.
Levi Strauss on Tuesday reported 52% growth in its online sales in Q3, beating expectations and giving the company a surprise profit. On the other hand, the world’s second largest fashion retailer, H&M, said on Thursday that it was planning to close around 250 of its stores as shoppers were increasingly shifting to online channels.
COVID-19 Week 40 Update
One in 15 people aged above 10 in India had been exposed to COVID-19 by August, according to the latest sero-survey conducted by the Indian Council of Medical Research (ICMR). Such surveys involve testing of blood serum of a section of the population. Further, the survey says 7.1% of the adult population, aged above 18, showed evidence of past exposure to the virus. This is a big jump over the 0.73% reported in the previous sero-survey. India’s total population is estimated at 1.3 billion. Going by the latest ICMR survey, over 60 million people in India may have been infected by the virus, which is almost double the number for the whole world. On Wednesday, the total number of COVID-19 cases in the country were put at 6,310,267 based on officially available data. India is only second after the US (7,447,282) globally in total number of cases.
Even as the number of cases continue to rise in India, it has announced further easing of curbs on certain activities from October 15. These include educational institutions, cinema halls, multiplexes, holding of certain exhibitions, swimming pools and social gatherings having more than 100 people.
The World Health Organization (WHO) said on Wednesday it felt that the number of deaths globally were higher than what was being officially reported. A WHO official said thousands more were “fighting for their lives in hospitals all over the world”.
On the vaccine front, Moderna has said it would not be in a position to seek emergency authorization for its COVID-19 vaccine candidate before November 25, a Financial Times report said quoting the company’s CEO. In Europe, the regulators are planning an accelerated review of AstraZeneca’s COVID-19 vaccine candidate, even as they cleared Becton Dickinson & Co’s 15-minute test to detect the virus.
From the COVID economy this week, SoftBank’s robotics unit has said it would bring a robot named Servi, developed by US-based Bear Robotics, to Japan to help restaurants grapple with labour shortage and social-distancing norms. To be launched in January, the robot will cost 99,800 yen ($950) per month, excluding taxes, for a three-year plan.
COVID-19 Week 39 Update
A second wave of COVID-19 has tightened its grip on key economies like Russia, Canada, UK, Germany, France and Spain. The global financial markets took note of this and got into a correction mode this week. In Europe, the second wave is being driven by younger generations – especially after schools reopened in September. However, most youngsters suffer modest symptoms. The concern is more for older populations. And it is among this group that hospitalizations are now also beginning to escalate.
In Canada, Prime Minister Justin Trudeau said in a national address that the country was “on the brink of a fall that could be much worse than the spring”.
Strong second waves of infections emerging in France and Spain. Argentina now the most impacted market in Latin America.
After a slight dip in August, daily infections are reaching new highs
A study by Houston Methodist Hospital says that a more contagious strain of COVID-19 dominates in the second wave of the virus in Houston, Texas. As many as 5,085 genomes from virus samples recovered during the two waves of the pandemic were examined as part of the study that is yet to be peer-reviewed.
The UK is expected to commence challenge trials of a vaccine, likely in January. These trials will vaccinate healthy young volunteers and then dose them with the virus to observe what happens. This is a key step in isolating an effective vaccine.
The International Monetary Fund (IMF) said on Wednesday that the virus had lasted longer than expected and it would take some countries’ economies a few years to recover from the pandemic. The European Commission on Friday asked its members to increase the pace of rollout of fibre and 5G networks to help revive the region’s virus-hit economy and secure its “technological autonomy”. The Commission further said: “The Commission invites member states to come together to develop, by March 30, 2021, a common approach, in the form of a toolbox of best practices, for the timely rollout of fixed and mobile very high-capacity networks, including 5G networks.”
From the COVID economy this week, Microsoft on Monday announced that it would acquire ZeniMax Media for $7.5 billion, adding popular game franchises like Doom, Fallout and Dishonored to its Xbox offering. Microsoft said it was planning to offer future games from Bethesda, which is a ZeniMax Media unit, as part of its monthly Xbox Game Pass subscription service.
Zero-fee stock trading app Robinhood, often credited with popularizing stock trading among stuck-at-home millennials, has raised an additional $460 million as part of its Series G fund-raising round. In August, it had raised $200 million as part of the same round. Now the company is valued at over $11.7 billion.
Shares of online prescription drug platform GoodRx Holdings surged 40% at their Nasdaq debut on Wednesday. The company has raised $1.14 billion through its initial public offering.
COVID-19 Week 38 Update
Global coronavirus cases crossed the 30 million mark this week, with the epicentre gradually shifting to India. The country’s total number of officially reported cases is expected to cross that of the US next month if current rates of increase persist. Many hospitals in the worst affected regions of India have already started reporting oxygen shortages.
The World Health Organization (WHO) said on Wednesday that worrying trends were visible in some countries before the approaching onset of winter influenza season, with hospitalisations increasing “particularly in Spain, France, Montenegro, Ukraine and some states of the US”. The WHO has asked people who fall in the high-risk category for COVID-19 to get themselves vaccinated against flu.
The chart below shows that France and, especially, Spain are experiencing stronger second waves of infection than in the spring.
The race for a COVID-19 vaccine has intensified with over 150 candidates in the fray globally. AstraZeneca, which had halted its global trial for a vaccine being developed along with Oxford University after a subject in the UK reported some illness, on Saturday announced resumption of the trial following clearances from safety watchdogs. Supported by the Trump administration, many companies in the US have already started mass production of some vaccine candidates in the hope that one of them will clear the required trials. Reports say plans are being finalised to ship the vaccines within a day of getting the regulatory clearance.
Russia and China’s efforts for a vaccine, though low on support from the global medical fraternity, are claimed to have produced positive results. Both the countries have tied up with other countries for manufacture or distribution of their vaccines.
From the COVID economy this week, data warehousing company Snowflake made a stellar debut in the stock market on Wednesday, more than doubling its IPO price of $120 per share. The Warren Buffett-backed company has raised more than $3 billion in the largest US listing this year so far.
With its cloud business booming, Oracle has reported 1.6% increase in its total Q1 revenue to $9.37 billion, beating estimates. The company’s unit that also houses its cloud business reported 2.1% increase in revenue to $6.95 billion.
Amazon has announced that it will hire 100,000 more workers for full and part-time roles in the US and Canada this year to meet the spurt in demand due to the pandemic. In addition, it is also opening as many as 100 new warehouses and operations sites.
COVID-19 Week 37 Update
Following the expected trajectory, India on Monday overtook Brazil as the country with second highest number of total COVID-19 cases. On Wednesday, India reported 95,529 daily new cases, taking the total to 4,462,965, against Brazil’s 34,208 daily new cases and 4,199,332 total cases. However, in total deaths, India is at third position with 75,091 deaths till Wednesday against Brazil’s 128,653.
What is more worrying is that India’s cases are rising steadily with the peak nowhere in sight. Add to this the rickety health infrastructure and densely populated areas with poor hygiene, and you have a big disaster waiting to happen.
In the race to find a vaccine for COVID-19, two of the front-runners had some discouraging news this week. On Tuesday, AstraZeneca announced that it had halted its global trial for a vaccine being developed along with Oxford University after a subject in the UK reported some illness. An independent panel will now go through the clinical trial data before giving a go-ahead to restart the trial. On Friday, Moderna said it had asked its teams to enrol more members from the minority communities for the clinical trials for its vaccine candidate, even if that meant delaying the trials.
Commenting on the AstraZeneca trial suspension, the World Health Organization (WHO) was reported to have said such suspensions were not uncommon and that the safety of subjects was most important. Meanwhile, in an unusual move, leading vaccine developers in the US and Europe on Tuesday pledged that they won’t bow to any pressure to rush through their trials and would follow all safety and efficacy standards. AstraZeneca and Moderna participated in the pledge. All these companies were further buttressed by the US National Institutes of Health chief, who told a congressional hearing on Wednesday that there was no way to tell if a safe vaccine would be available before the November 3 presidential election, thus contradicting President Donald Trump.
COVID-19 continues to affect the technology companies in different ways. On Tuesday, Apple announced that its annual event on September 15 would go virtual for the first time. Apple usually showcases its most important products in these events, but this time around expectations are that new versions of iPhone will miss the September 15 date.
COVID-19 Week 36 Update
As testing is stepped up in India, a true picture of the spread of COVID-19 pandemic in the country is emerging. And the news is certainly not good. On Sunday, India reported the biggest single day rise in coronavirus cases anywhere in the world so far. As against the previous record of 78,619 cases in the US on July 24, India reported 79,457 cases on August 30. Among the top three countries in terms of total number of cases, the top two — the US and Brazil — are now on a downward trajectory when it comes to daily new cases.
In the US, the White House has rejected the World Health Organization’s (WHO’s) concerns over the move to introduce a COVID-19 vaccine in the country without completing the Phase III clinical trials. A White House spokesman said the president would spare no expense to ensure that “any new vaccine maintains our own FDA’s gold standard for safety and efficacy”. Calling the WHO “corrupt”, the spokesman said the US would not join any effort led by the multilateral organization to develop and manufacture a vaccine. Meanwhile, the US Centers for Disease Control and Prevention (CDC) has reportedly asked all states to start preparations for distribution of a vaccine among high-risk categories beginning late October.
Even as efforts are on to have a vaccine as soon as possible, existing medicines continue to get a chance to prove their efficacy. An analysis of results from seven separate global trials has revealed that steroids can lead to survival of 68% of the sickest COVID-19 patients compared to around 60% in case of those not taking steroids. Following these results, the WHO has updated its advice to include a “strong recommendation” for use of steroids in seriously ill patients.
Technology companies are also doing their bit in the fight against COVID-19. Google and Apple have come out with a new system, Exposure Notifications Express, which makes it possible for health officials to use smartphones for contact tracing without needing an app. Under the system, officials have to submit a configuration file to Google and Apple, which then use it to set up a functionality that phone users can opt for to determine their possible proximity to any person testing positive for COVID-19.
COVID-19 Week 35 Update
Even as the COVID-19 cases crossed the 24-million mark globally this week, countries which had seen a spurt in cases during the initial phase of the pandemic are reporting fresh spikes. On Wednesday, Italy reported 1,367 new cases, highest in three-and-a-half months. The fresh wave in the country is being blamed on the citizens returning from vacations. South Korea reported 441 new cases on Wednesday, which is the most since March, while France reported 5,429 cases on the same day, the most since mid-April.
More distressing news came from Hong Kong on Monday, where researchers reported the first documented case of coronavirus re-infection. A man who had recovered from COVID-19 got infected again by a different strain after four-and-a-half months, according to the University of Hong Kong experts.
In the US, the Centers for Disease Control and Prevention (CDC) has triggered a big controversy by stating that asymptomatic people may not need to be tested. Experts and politicians have slammed the move, with many saying it is politically motivated. National Institute of Allergy and Infectious Diseases director, Anthony Fauci, is reported to be concerned over the guidance. He fears people would be misled into believing that asymptomatic cases are not of great concern.
In the COVID-spurred economy this week, Salesforce on Tuesday reported a 29% jump in its Q2 revenue to $5.15 billion, beating estimates. Good demand for its software for remote work has convinced the company to raise its 2021 revenue forecast to $20.7 billion-$20.8 billion from $20 billion.
Box Inc on Wednesday said its Q2 revenue increased 11.4% to $192.3 million, beating estimates, on more customers for its online services for content management and storage, and for data security products.
According to a KPMG survey, 80% of business leaders have accelerated their digital expansion plans, with 69% saying they are planning to reduce their office space in the short term.
UK’s largest supermarket Tesco on Monday said it would create 16,000 new permanent jobs to service its growing online business.
COVID-19 Week 34 Update
India is sitting on a COVID bomb if a study by a leading chain of laboratories in the country is to be believed. Antibody tests conducted by Thyrocare across the country show that the virus has infected one in four Indians. This could potentially take the total number of cases in the country to 325 million, much higher than the government estimates.
Concerned over some developed nations reaching deals with companies for vaccine candidates, the World Health Organization (WHO) has lashed out at this ‘vaccine nationalism’ that encourages hoarding and overlooks the interests of developing nations. The global body wants its 194 member countries to join an agreement for a ‘COVAX Global Vaccines Facility’ to share vaccine candidates with developing countries. It has set August 31 as the deadline for joining the pact.
With the pandemic forcing a tectonic shift in the way we live and work, investors have started betting big on the long-term success of tech companies like Apple. Their stocks and valuations have hit record highs even as the broader economy plumbs new depths.
On Wednesday, Apple became the first listed US company with a $2-trillion stock market value. The company’s shares rose to as high as $468.65, which is equal to a market capitalization of over $2 trillion. The company’s stock has been much in demand following its impressive results for the quarter ended June 27.
Another US company that has seen its valuation rise due to the pandemic is fintech start-up Robinhood Markets. The company, which has contributed to the surge in day trading among stuck-at-home millennials, has raised $200 million from D1 Capital Partners at a valuation of $11.2 billion in the latest funding round.
The pandemic may have hit hard Airbnb’s main business, but it can’t stop the company from betting big on future and bringing an IPO. Airbnb on Wednesday confidentially filed for an IPO with the SEC, with the details like the number of shares on offer and the price range yet to be worked out.
In Finland, Rovio Entertainment, known for its Angry Birds game series, has reported a 160% jump in its Q2 adjusted operating profit at euro 13.8 million on surge in demand due to the COVID-19 lockdowns.
COVID-19 Week 33 Update
India’s ballooning COVID-19 cases continue to bring worry to health officials and policymakers. Though the country stands third globally after the US and Brazil in terms of total number of cases, it has been leading in daily new cases since August 4, with the graph following a definite rising trajectory. On Wednesday, India reported 61,252 daily new cases, compared to 54,519 in the US and 54,923 in Brazil.
However, the biggest news this week on the COVID-19 front came from Russia on Tuesday when President Vladimir Putin announced that his country had become the first one to approve a COVID-19 vaccine after testing it on humans for less than two months. Named ‘Sputnik V’ after the world’s first satellite, which was launched by the erstwhile Soviet Union, the vaccine is expected to enter mass production by this year-end. But experts the world over have raised an alarm over Russia’s claims on the vaccine, saying in the absence of proper data and large-scale trials the vaccine’s efficacy cannot be trusted. Russian health minister Mikhail Murashko has dubbed these concerns as “groundless”.
Cisco has reported 9% fall in its revenue to $12.2 billion for the fourth quarter ended July 25. However, it managed to beat estimates on increased demand from the work-from-home (WFH) segment for its web security and teleconferencing solutions. But the bigger picture is not so rosy for the company. It has forecast its Q1 numbers below estimates and announced a restructuring plan as the pandemic forced its clients to hold back spending.
World’s biggest electronics contract manufacturer and Apple supplier Foxconn has reported a better-than-expected second quarter profit of $778.54 million, with the rising demand from the WFH segment managing to offset sluggish smartphone sales.
The pandemic has hit demand for Toshiba’s electronic devices and chip-making equipment, with the Japanese conglomerate registering its first quarterly operating loss in nearly four years. The company reported an operating loss of $118 million for the June quarter.
China’s gaming and social media major Tencent has reported a 37% rise in its second quarter net profit at $4.8 billion, beating estimates. Though the COVID-19 pandemic hit its other entertainment businesses, it pushed the demand for the company’s video games.
COVID-19 Week 32 Update
The total number of deaths due to the COVID-19 pandemic crossed the 700,000 mark on Wednesday with the US alone accounting for more than 160,000 deaths. However, in terms of fresh daily deaths, Brazil (1,322) nudged past the US (1,311) on Wednesday. In daily new cases, India took the top slot with 56,626 cases. However the US data is becoming increasingly dubious following the US administration’s insistence on taking over some aspects of data reporting from the US CDC.
A big casualty of COVID-19 has been the education of children the world over. On Tuesday, United Nations (UN) Secretary-General Antonio Guterres warned that the world was facing a “generational catastrophe” due to shutting down of schools. According to UN calculations, schools remained closed in around 160 countries in mid-July, impacting more than 1 billion students, with around 40 million missing out on pre-school. This is accentuating the digital divide where relatively affluent children can often use PCs, tablets or smartphones to reach online learning resources, but many in families with marginal incomes cannot.
From the COVID-created economy this week, Teladoc Health announced on Wednesday that it would buy chronic care provider Livongo Health in a $18.5-billion deal, spurred by the boom in online medical care due to coronavirus.
Sony reported a marginal 1.1% fall in profit for the June quarter, surprising markets and analysts. The company registered a profit of around $2.15 billion riding the demand for its gaming products, which managed to neutralize the impact of profit drop in other business segments.
Another Japanese major, Nintendo, has reported an operating profit of $1.37 billion for the June quarter on the soaring demand for its Switch device and popular title ‘Animal Crossing: New Horizons’.
On the other hand, Japan’s Sharp reported 38% drop in its June-quarter operating profit at $85.2 million, beating analyst estimates. The pandemic has affected its sales of electronic devices and office printers.
Many other companies have reported earnings with several high profile component players reporting slightly better results than they expected. They continue to expect the 2H to be down slightly (c5% Y/Y) with smartphones and compute a bit better due to WFH/distance learning. But automotive likely a bit worse. Macro conditions cloud the perspective as the full impacts on unemployment are not yet visible due to job retention/furlough schemes that are beginning to wind down in some countries, leading companies to make people redundant in increasing numbers.
COVID-19 seems to have shown the way forward to the newspaper industry. The New York Times’ revenues from its digital business overtook that of the legacy print segment in the second quarter for the first time in its history.
COVID-19 Week 31 Update
COVID-19 has tightened its grip across countries with the total number of cases crossing the grim milestone of 17 million. It took just three days for the cases to rise from 16 million to 17 million.
In another grim figure, COVID-19 deaths in the US crossed the 150,000 mark this week. This is around quarter of the global number and higher than any other country. Meanwhile, President Donald Trump’s security adviser Robert O’Brien has tested positive for the virus, becoming the country’s highest-ranking official to test positive so far.
However, official statistics for the US have come into doubt now that the White House has effectively taken over reporting data from the CDC. US data was always complex due to multiple agencies across the states having a hand in compiling the statistics. However, there is now the shadow of political interference to further muddy the water.
In India, after last week’s surveillance study report which implied at least 6.6 million cases in Delhi, India’s most populous city, a similar report came this week for Mumbai, the second most populous city. According to the report, around half of the population in city’s slums is carrying the virus. To understand the scale here, Mumbai has a total population of around 12 million with 65% of it living in slums.
This grim picture of galloping cases and no concrete cure has forced Google to extend work-from-home (WFH) for its employees till June next year. Others are expected to follow suit. The company was planning to reopen its offices globally in June. Similarly, the world’s biggest technology and gadget show CES, which is held in Las Vegas every January, will be online-only next year, the Consumer Technology Association has decided.
Samsung’s operating profit increased 23% in Q2 on good sales of DRAM memory chips to online providers. The company’s chip arm’s operating profit soared around 60%. Samsung forecasts that the global demand for smartphones and consumer electronics will recover in the second half of the year.
The COVID-19 lockdowns did hit Verizon’s store sales in Q2, but they also pushed the demand for the company’s internet services, adding more phone subscribers. As a result, the fall in total operating revenue was contained at 5.1%.
Music and video streaming apps have been among the biggest beneficiaries of the COVID-imposed lockdowns. But the spurt in subscribers didn’t help much in pushing up Spotify’s Q2 numbers. Reason: The pandemic also kept the advertisers away! Revenue from advertisements fell over 20% during the quarter.
However, this was not the case with online payments processor PayPal. The company reported an 86% increase in its Q2 profit. It processed $222 billion over the quarter, which is 30% more than the same period last year.
COVID-19 Week 30 Update
COVID-19 cases crossed the 15-million mark globally this week, with South Africa replacing Peru among the top five worst affected countries.
Brazil reported a record number of daily new cases on July 23 at 67,860. The World Health Organization (WHO) had on Friday predicted a plateauing of the country’s graph. Meanwhile, Brazil President Jair Bolsonaro on Wednesday tested positive for the third time since July 7, when he was forced to go into self-isolation at his official residence. Bolsonaro had been opposing measures to curb the pandemic, including wearing of face masks.
India also reported a record number of new cases on the same day, at 45,720. However, new research suggests that almost a quarter of Delhi’s 29 million residents may have had COVID-19. Among a random sample of 20,000 Delhi residents, antibodies were found in 23.5% of the tests. This would imply at least 6.6 million cases in the city – vastly more than the official 124,000 cases.
The number of cases in the US continue to accelerate. They are likely to surpass the 4-million mark by Friday, meaning it will have taken just 16 days to add a million cases; the previous million took 27 days. Only Chile has more official cases per capita than the US.
Looked at by continent, the Americas continue to dominate the viral outbreak picture. Asia is also rising fast – with much of this being accounted for by India. Africa seems relatively unaffected, but the data from South Africa points to the likely level of infections being much higher than officially reported. South Africa had 60% more deaths from “natural causes” than normal, indicating that many of these could have been related to COVID-19, which would imply a much higher number than that officially reported.
As was being predicted in media reports, The Lancet on Monday reported positive results from the trials conducted by AstraZeneca and Oxford University for a vaccine candidate. Called AZD1222, the vaccine was able to produce an immune response in early-stage trials. The WHO had earlier described it as the leading candidate for a vaccine. However, on Wednesday, the global body added a note of caution, saying the world would have to wait till early 2021 for any vaccine to hit the market.
COVID-19 continues to impact the balance sheets of technology companies. On Wednesday, Microsoft reported 13% increase in its fourth quarter revenue at $38 billion. This increase came on the back of 14% rise in revenue from the sale of its products for PCs and Xboxes. Similarly, the company’s cloud computing arm, Azure, reported around 50% jump in sales, pushing the overall revenue of Microsoft’s Intelligent Cloud segment by 17% to $13.4 billion. On the other hand, COVID-19 negatively impacted Microsoft’s professional networking site LinkedIn’s numbers, thanks to a weak job market.
International Business Machines (IBM), a Microsoft rival, on Monday reported that revenues at its cloud business increased 30% to $6.3 billion in the second quarter.
Logitech International said on Monday its non-GAAP operating income had increased by over 75% in its first quarter, riding on the rising demand for video conferencing products, webcams and headsets.
On the deal street, Norway’s Adevinta will buy eBay’s classified ads business for $9.2 billion, betting on increased traffic at digital marketplaces.
COVID-19 Update Week 29
Among the top five countries by total number of COVID-19 cases, three — Brazil, Russia and Peru — have followed a downward or plateauing graph for daily new cases, for the past couple of weeks (see chart). But in the case of Brazil (daily new cases at 39,705 on July 15) and Peru (3,857), we will have to wait before reaching a certain conclusion, mainly due to inadequate testing in the two Latin American countries. Russia’s graph (6,422) displays a definite downward trajectory after reaching a peak on May 11 (11,656) while the United States (71,750), India (32,682) and Mexico (7,051) continue their journey upwards.
Two pieces of heartening news on the COVID-19 battlefront came last week, with financial markets across the world also acknowledging it. On Tuesday, US-based company Moderna announced that it was planning to start a late-stage clinical trial around July 27 for its vaccine candidate. In its early-stage study, the candidate showed it was safe and managed to provoke immune responses in all the 45 volunteers.
In the other good news, The Lancet reported that it would publish on Monday the Phase I clinical trial data on a COVID-19 vaccine candidate being developed by British-Swedish company AstraZeneca and Oxford University. This candidate has already reached the Phase III trial stage in Brazil. Media reports say the data to be released on Monday will have “positive news”. World Health Organization (WHO) chief scientist said in June that this vaccine was probably the world’s leading candidate.
In an indication that demand for products like smartphones will take time to return even after recovery from the pandemic is achieved, Counterpoint’s early data for June suggest smartphone sell-in remained depressed in China, down almost 10% YoY. This despite China being largely free from many of the fears and restrictions dogging other global markets. As if to underscore the this anomaly, shipments to other regions including North America and Europe have bounced back to similar or even better levels than a year ago despite more severe and long-lasting restrictions caused by the pandemic. How sustained these will be in the face of growing unease at the situation in North America and renewed flare-ups in parts of Europe, remains to be seen.
Elsewhere in the smartphone market, a Reuters report said on Monday that Foxconn was planning to invest up to $1 billion to expand a factory in southern India where it assembles Apple iPhones. The report lists COVID-19 as one of the reasons for the “shift” from China to India.
The work-from-home (WFH) segment continues to attract corporate attention. India’s Bharti Airtel and Verizon Communications Inc’s BlueJeans have come together to launch a business-focused video conferencing tool. Airtel BlueJeans will be free for three months and store its data in India, according to Bharti Airtel CEO (India and South Asia) Gopal Vittal.
Google said on Wednesday that Gmail’s business customers would now be able to edit documents without leaving the e-mail service. The company has been eyeing for long the segment dominated by Microsoft Office.
With WFH, there is another activity that has increased at some homes due to COVID-19. The United Kingdom saw an unexpected rise in its June inflation, thanks in part to the rising prices of gaming consoles.
COVID-19 Update Week 28
As testing is stepped up in emerging economies and hitherto undetected cases enter the official records, the order is changing in the charts tracking the pandemic. On Monday, India overtook Russia to become the country with the world’s third-highest number of COVID-19 cases at around 700,000. The United States (3,000,000+) and Brazil (1,700,000+) take the first and second spots. Globally, the total cases crossed the 12-million mark on Thursday.
A study by researchers from the Massachusetts Institute of Technology (MIT) [find here] predicts that India will hit 287,000 cases per day by early 2021 if no vaccine or medicine is developed by then.
A glimmer of hope came from Mumbai’s Dharavi, Asia’s largest slum, on Tuesday when it reported just one fresh case. Though the number went up to three on Wednesday, it goes far to prove that if authorities get going there is no mountain that can’t be scaled.
Elsewhere, US top infectious diseases expert Anthony Fauci has warned that the country is still “knee-deep” in its first wave of infections and that the number of cases had never reached a satisfactory baseline before the current resurgence.
However, a starker piece of information came from the World Health Organization (WHO) on Tuesday, which admitted to an “emerging evidence” that COVID-19 could spread by air beyond the two-metre distance that the global body had been asking people to maintain. The WHO is expecting results in around 10 days from the clinical trials it is conducting for possible drugs to be used for treatment of COVID-19 patients.
The weakness in the global economy due to the pandemic is expected to reflect in the Q2 numbers (we could as well call it the ‘Covid quarter’) put out by the companies as the earnings season gets underway. But the companies catering to the work-from-home (WFH) economy that COVID-19 has given rise to are set to beat the trend. On Tuesday, Samsung Electronics forecast a 23% rise in its second-quarter operating profit, thanks to the increasing chip sales to data centres. The good numbers from this segment were able to offset weak demand for Samsung’s other products, like smartphones.
In the Philippines, broadband service provider Converge ICT Solutions on Friday filed for an IPO of around $725 million on the local bourse, riding the increase in demand for broadband from the WFH and e-commerce segments.
In Africa, Loon, an arm of Google’s parent Alphabet, on Wednesday started offering the world’s first commercial 4G internet using balloons to villagers in Kenya’s remote regions. The floating base stations cover about a hundred times the area of a traditional cellphone tower. The company admits it is getting more enquiries about this service from operators and governments ever since the pandemic started.
COVID-19 Update Week 27
The US and Brazil continue to vie for the lead in ‘most daily cases’. While Brazil has been on a steadily increasing trend, the US had seemed to be getting the outbreak under control. This was the case until lockdowns started to be eased in mid-May. In states that had been relatively lightly hit, the virus immediately flared-up, even while previously badly hit areas, like New York, continued to moderate. Now the trend is accelerating and the US is recording new record daily highs. On a weekly granularity that smooths some of the daily fluctuations, the US is now recording an average case count of more than double the level in mid-June.
Brazil is the worst representative of a broader outbreak in Latin America, with most countries in the region suffering significant impacts from the virus.
The International Monetary Fund (IMF) predicts that Latin American economies will suffer most among all global regions; it expects the region’s economy to shrink by 9.4% this year. It’s outlook for 2021 is for only a moderate recovery. Latin America has endured a number of years of below par economic growth, but the only time in recent history that has seen a economic contraction on the level currently being forecast, was in the early 1980s. Then, the convulsions caused by several countries defaulting on their foreign debts, caused widespread political upheavals.
The consequences of the COVID-19 pandemic on the personal finances of individuals across the region will potentially lead to increased anger at the poor handling of the viral outbreak; Jair Bolsonaro in Brazil being the most egregious case. The anger may then lead to changes in leadership, although elections are not due in Brazil and Mexico for several years. Either way, the outlook for the region is bleak. For more detail on Counterpoint’s forecast for the mobile device markets in Latin America, please contact us.
Other countries and regions causing concern include South Africa and India. South Africa, like India, had imposed a strict lockdown. It has now started to ease the restrictions, but the outbreak is responding by showing sharp increases.
India is showing a similar pattern – putting a strain on its already overburdened health system. India has the fourth largest number of cases globally – closing in on Russia’s number; though we believe Russia’s official case number is highly manipulated.
COVID-19 Update Week 26
As we have been highlighting for several weeks, Latin America and particularly Brazil, has become the epicenter of the COVID-19 outbreak. The USA too is experiencing a sharp rise in cases. The data in the following chart shows the sum of new daily cases. It is unsmoothed hence the rapid oscillations day to day, but the trajectory is clear. Europe, which was the center of the pandemic in March and early April, has largely brought the outbreak under control, although the level of control is fragile and likely to suffer some recurrences over the coming weeks.
The USA was the next epicenter – with New York state a particular concern. However the USA tried to move quickly towards reopening and, in some states, had not fully locked down in the first place. These states are now seeing rapid increases in the viral outbreak.
But even the USA is being overtaken by Brazil in terms of daily new cases and the wider Latin America region seeing a large spike in cases, with 18th June recording a new daily high for any region with almost 85,000 new cases. However, as we’ve said from the outset, the level of testing is likely insufficient to reveal the true extent of the outbreak.
Daily new cases in India are also on the rise. For several weeks, the number of official new cases seemed to be oddly consistent day after day. However that trend has now broken to the upside – with an average of over 15,000 daily new cases in the last week, compared to fewer than 10,000 in the first week of June.
The US and India are two of the three largest smartphone markets globally. In both countries lockdowns are easing and we’re seeing the smartphone markets returning to growth. But both markets are at risk of renewed restrictions on freedom of movement, though returns to full lockdowns remains unlikely.
Jobless claims likely to surge
Many of the financial support packages implemented to help companies furlough workers are likely to come to an end over the coming weeks and months. These schemes served to forestall widespread redundancies in many countries. As these financial props come to an end, it will inevitably lead to a sharp rise in redundancies as companies seek to align their cost bases to much lower revenue run rates.
The US had few such packages which led to the sharp rise in jobless claims over the last two months. This has continued with an additional almost 1.5 million new claims in the last week. The unemployment rate in the US is running at over 13%. While some employers have started hiring again, others are continuing to make layoffs at roughly the same rate.
Now, we expect the waves of redundancies seen in the US to start occurring in other countries. Qantas, the Australian airline has announced 6000 lay-offs – adding to 10s of thousands of other travel-related job cuts.
Unemployment is usually a lagging indicator in recessionary times. Given the severity of the economic downturn caused by coronavirus, the response of the unemployment rate may be much sharper than we’ve seen in previous recessions. Unemployment always impacts consumer confidence and will likely therefore dampen any recovery in sales as lockdowns continue to ease.
COVID-19 Update Week 25
China is trying to contain a flare up of new cases in Beijing – which has caused a partial tightening of restrictions in some areas of the city. This is raising concerns about the potential for a second wave of infections. However the first wave is still gathering pace in most of the world.
The total number of official cases has risen by almost exactly one million in the last week, with Brazil on course to surpass 1 million cases within a few days. This is very likely a gross underestimation of the actual situation in Brazil following President Bolsonaro’s calamitous handling of the outbreak.
Beyond Brazil, which is now the new epicenter of the outbreak, we’re seeing significant increases in cases in several states in the USA that had moved away from lockdowns around the middle of May. States seeing record daily increases in infections include Florida, Arizona, Texas, Oklahoma, Nevada and Oregon. After bringing its rate of infection growth down from its peak, the US has settled into a pattern of averaging over 20,000 new cases per day – while there are fluctuations on a day to day basis, taken over a period of seven days, the trend is flat.
India, which is also relaxing its lockdowns, is now seeing new cases moving higher, although the official statistics for India still look strange with reported daily new cases within a very tight range. This may simply be a function of the availability of testing, rather than a specific effort to manipulate the statistics, such as we have seen in Russia. But this notwithstanding, the trend in India is upward. This is also the case in neighbouring Pakistan and Bangladesh. Indonesia has also seen its highest level of new daily cases in the last few days.
Many politicians have contracted COVID-19 over the last few months – notably the UK prime minister, Boris Johnson. There are now several more senior politicians either with confirmed infections or self-isolating. These include the president of Argentina – a country that has seen several cases among politicians. The president of Honduras has been admitted to hospital with pneumonia linked to coronavirus. And in central Asia, the national leader of Kazakhstan has tested positive for the virus.
With infection levels continuing to climb in many markets around the world, should we therefore expect the imposition of new restrictions on movement and the closure of shops again? We currently think that this is unlikely. Countries have to balance the need to protect the public with the pressing economic reality that businesses cannot return to any kind of normalcy with lockdowns in place, crippling output and constraining wages or preventing people from earning at all. This is especially acute among informal workers that make up the majority of workforces in many emerging economies. The threat from malnutrition and other diseases of poverty is likely greater than from COVID-19 itself. The new normal may be having to live with COVID-19 as a constant threat, or frequent feature of the disease landscape of the world.
COVID-19 Update Week 24
The USA has surpassed 2 million confirmed cases. A grim statistic, but at the population level it is not worse than several other countries. As the US eases its lockdown measures across the nation, we are monitoring the viral response. The US is off its highs of daily new cases – seen in late April, but the rate of infection has not slowed much for several weeks and continues to run at around 20,000 new cases per day.
Brazil stopped reporting official case numbers and deaths last weekend. But its supreme court has ordered the restoration of reporting. It’s not a surprise that the Brazilian government wanted to supress the information, because it is so bad. Brazil has cemented its position as the second worst affected country after the USA. The real infection rate in Brazil is likely far higher – and could exceed that of the USA, based on analysis from the University of Pelotas.
However Brazil is not the only country seeing cases rise. Mexico has reported its highest daily rise in cases within the last few days. Also of concern is India, which had observed one of the world’s most severe lockdowns. However, it is progressively easing the lockdowns despite a high levels of viral transmission in the country. Like Brazil, India has limited capacity for testing, so the official figures likely under-represent the true picture of infection levels in the country. The data from India is also strange in that the total of daily new cases has been consistent, a few cases below 10,000 for five days in a row. This looks suspiciously like data is being manipulated. Similar patterns were seen in Russia, which has been manipulating its data.
Irrespective of individual country anomalies, the pattern of new daily cases is far from flattening, it is actually getting steeper; every day since May 28th has seen more than 100,000 new daily cases globally.
The impacts, both direct and indirect, are seen in economic data that continues to show the world slipping into a deep recession. The OECD published its forecast earlier this week and it makes for sobering reading. The OECD has outlined two scenarios – the first being a deep recession followed by a slow return to growth – a so-called U-shaped recovery. The second scenario factors-in the potential impact of second wave of coronavirus infections, that may emerge in the latter part of 2020 and in to 2021; fall and winter in the Northern hemisphere.
Despite the dire economic data, we continue to believe the smartphone market is relatively resilient compared to many industries. Consumers rely heavily on their mobile devices for information and entertainment, however they may delay upgrading to a new model when economic uncertainty is high. This is most likely to disproportionately impact low-end devices – those favored by consumers on marginal incomes – as they are the ones most likely to find their jobs impacted by the economic downturn.
Some updates from companies in the smartphone supply chain indicate less negative outlooks than many fear. Some of this is likely due to supply issues resolving, but there are also positive indicators connected with OEM demand as shops reopen. We will continue to monitor these modest green shoots because we expect they will move to more solid indicators of demand recovery.
COVID-19 Update Week 23
The focus of the pandemic in Latin America, especially Brazil, continues to gather pace. Recent analysis by the University of Pelotas suggests the real rate of infection is seven times higher than the official rate. We expect the situation in Brazil will continue to worsen for some time as lockdowns have been relatively poorly observed, and even those that have been, are being relaxed. Furthermore, the lack of widespread testing makes it impossible to assess at what stage the infection is at. However, notwithstanding that, if the actual caseload is seven times the official number, it would imply the true figures of those infected in Brazil could be almost double that of the USA.
The coronavirus pandemic has contributed to a trend we’ve been seeing develop over the past several years – that of a gradual weakening, and in some cases a reversal, of globalization.
China arose to become the workshop of the world over the last three decades. This was especially true in the smartphone ecosystem where the vast majority of smartphones have historically been manufactured in China – mostly in and around Shenzhen.
The China-US trade dispute has accelerated focus on the location of manufacture as some OEMs fear that any escalation in the tussle between the two countries will risk their ability to export goods.
Other self-interested projects, such as Brexit, which is driving a wedge between the UK and the rest of the EU, is further fracturing the fragile stability in global trade.
Now COVID-19 is adding new pressures to international divisions that were already evident. The fact that the Chinese government seemed to supress initial information about the novel coronavirus, potentially missing opportunities to contain it before it became an international problem, has harmed China’s perception around the world. And the extent to which various industry sectors are exposed to fluctuations in supply is more evident now than it was before.
As markets try to gradually reopen following the pandemic, it is unlikely that we return exactly to the way things were before the virus outbreak. Travel to develop new products was curtailed during the worst phase of the outbreak, leading to delays in product launches. It is probable that travel continues to be restricted in various ways. Immigration for work will be increasingly constrained as governments impose limits on visa grants – often in response to those imposed by others.
National governments have tended to become more nationalistic – favouring local players, many of whom they will have had to prop-up with crisis financing – this again will hurt international trade. In India, there has been a backlash against Chinese applications. This has spawned a rise in apps that target Chinese apps for removal from devices, though these apps have themselves run into problems.
In the telecoms sector, Huawei was already under suspicion in the US, Oceania, India and parts of Europe as a vector for Chinese espionage. The US has been lobbying governments to ban Huawei from critical telecoms infrastructure. The responses to COVID-19 and other developments in China, for example the pressure on Hong Kong, are leading governments to look again at previous decisions on Huawei, potentially leading to reducing its potential involvement.
The US is also piling-on pressure by extending its year-old inclusion of Huawei on its ‘entity list’. The new extension will effectively prevent Huawei from using TSMC as a foundry for its Hisilicon-branded chipsets. We write about it in detail here.
And TSMC is making strategic investments to build new fabs in the USA, something it hasn’t done before. This is no knee-jerk reaction however; decisions this big are years in the making.
Nevertheless, it does point to a new trend that we expect to see post-COVID-19 – more diversified supply chains. Instead of relying on few suppliers and geographic locations, we expect manufacturers to develop a broader web of suppliers. The net result will be greater complexity, possibly slower development and slightly higher costs, but more resilience.
COVID-19 Update Week 22
Little evidence showing a slowdown in new cases since last week. Over 700,000 new cases have been added to the total in the last seven days. Global official deaths have now exceeded a third of a million. However this total is likely a significant underestimate. For example, the official UK total is 37 thousand deaths. However deaths in which coronavirus was a likely cause of death, but no testing was carried out to confirm it, is closer to 70,000.
Nevertheless, new cases are continuing to moderate in Europe and North America, with the focus shifting more and more to Latin America, as we identified in last week’s update. The latest data shows this trend quite starkly.
Brazil is a large part of this rise, it now ranks second globally in terms of cases – and this despite a lack of testing, so the real number is likely far higher.
Brazil is a populous country, but accounting for the population size the following chart shows that Brazil is now leading in terms of daily new cases.
Our Latin America Senior Analyst, Tina Lu, summed up the situation in Brazil as follows:
Everything is feeling quite chaotic in Brazil. As the number of confirmed cases and deaths in Brazil continues to increase, the not poorly organized lockdown has taken a toll in the economy. The PT, the previous ruling political party, which ruled Brazil for 20 years, is asking for President Bolsonaro’s impeachment, which is bringing increased uncertainty to the country.
Recently, the president, the state governors and some legislators agreed to work together. This truce is providing some measure of political stability that is adding confidence to the market.
Bolsonaro was pushing for states to reopen, but currently Sao Paulo and Rio are both on lockdown until May 31st and Sao Paulo may remain locked-down through June, as this state is seeing one of the highest impacts in Brazil.
Despite the turmoil, most smartphone production facilities are continuing to operate. All major OEMs’ factories are currently in operation, although output is around 40% to 50% of normal levels due to the need to observe strict hygiene and social distancing measures. In addition the market itself is sharply lower.
Despite the situation, OEMs are launching new models. For example, Nokia-HMD launched the brand in Brazil with its Nokia 2.3 model.
Channels are operating as best they can, almost all shopping malls are closed, but many have implemented store pick up. In addition, online sales, with WhatsApp aid, is increasing, especially for large sales ticket items.
Despite the decline in output, stores have sufficient stock to cover the reduced sales; demand having reduced more than supply.
COVID-19 Update Week 21
While many countries are now either beginning to ease restrictions or are planning to do so, the number of cases continues to rise. The WHO reported on 20th May, that the highest daily increase was registered on 19th May – over 105,000 new cases. The world has also reached a new milestone in the total number of infections – it has now exceeded five million. While these numbers, as always, must be seen in the context of broader availability of testing, it does indicate that the pandemic is showing no signs of abating.
Of the countries that are faring worst in terms of case numbers and deaths from COVID-19, there is an emerging pattern. Those countries with populist and/or authoritarian leaders tend to do worst (US, Russia, Brazil, UK) while those with progressive, democratic (and often female) leaders are doing best (New Zealand, Germany, South Korea, Finland). It is not within the purview of Counterpoint Research to speculate about politics, but it is relevant if you see any of these markets as being critical to your business fortunes. Countries that are not coping well with the pandemic are likely to experience more severe and prolonged coronavirus outbreaks with the potential for extended periods of disruption.
Poorest Countries Becoming Focus – Latin America Worst Hit
As we have discussed in previous weekly updates, the impact on emerging markets is likely to be felt most strongly. This is because they don’t have healthcare systems capable of responding to a pandemic like the coronavirus. For example, Uganda has more cabinet ministers than critical care beds in hospitals.
Brazil is a case in point. It officially has the third worse outbreak in reported numbers of cases. But testing is not widely available so the real level of infection is likely far higher – quite possibly the highest globally, with some experts in the country estimating at least three million cases.
Brazil has a populist president, Jair Bolsonaro, who has consistently played-down the threat from the disease, urging people to defy attempts by Brazilian state authorities to maintain lockdowns and social distancing measures. Brazil has lost two health ministers since the start of the outbreak – both in disagreements with Mr Bolsonaro.
Reports from Manaus, which is the biggest city in the Amazonas region, suggest that the healthcare system has been completely overrun. They also show the use of mass graves as the conventional burial processes are unable to cope.
Mexico is also experiencing a rise in the level of infections, even as it begins to relax lockdowns in some municipalities. Like many emerging countries the level of testing is low, so the real situation is difficult to assess with any confidence.
Peru is another country in Latin America that has experienced a severe outbreak. Testing of stallholders in a market in the capital Lima, showed that almost 80% were infected. And this despite Peru otherwise applying relatively sound quarantine measures. It is thought that public produce markets across the Latin America region have become significant vectors for viral spread.
In our revised handset forecast, Latin America is notable because we expect it to suffer the most significant downturn of all the world’s regions. This is because the economies were already fragile and because online channels are underdeveloped relative to many other regions. In most Latin American countries, mobile handsets are not regarded as essential items and are thus unable to be sold. If you would like more details of our regularly updated forecasts, please contact your Counterpoint representative, or contact email@example.com.
COVID-19 Update Week 20
Many people are impatient to be out of lockdown. This is understandable. Lives and businesses have been put on hold. The economic disruption is likely to be long-lasting and profound.
And the straightforward facts are that even in the most heavily impacted countries very few people have actually contracted COVID-19. This means there remains a large percentage of the population that has had no contact with the virus and has not developed immunity. So countries are therefore vulnerable to new spikes in infections, such as has been seen recently in South Korea. A vaccine, should one even be possible, is unlikely to be available widely until late 2021. So, what should we do until then?
The disease is potentially deadly. But the vast majority of people who catch it, recover without issue. And many never knew they even had it in the first place as they were asymptomatic. Until broad scale population testing is undertaken, we won’t know for sure the exact mortality rates. However based on current data, COVID-19 has a mortality rate of between 0.5% and 1%. At 1% it would be 10x deadlier than seasonal flu. But this still means that even among those that do contract the disease, only a small number will become seriously ill. For most it is a mild disease with no long-lasting impact.
Policy responses by governments are based on modelling the direct impacts of COVID-19 – but not other impacts to the well-being of the economy or society. For example the mental health impacts of being made redundant or of businesses going bankrupt.
The most common policy response has been a lockdown. In most cases this is done to reduce the pool of people susceptible to infection, lowering the transmission rate and easing pressure on stressed healthcare systems. But what has been the impact of different policy responses?
Sweden did not implement a severe lockdown. It essentially asked the population to apply common-sense, to not gather in large numbers and to practice social distancing as far as possible. Its outbreak, as illustrated on the following chart, has not been significantly different than other countries that did implement more severe restrictions.
We expect that governments will be forced to continue gradually lifting the lockdowns despite the potential for infection levels to return to a pattern of growth. US states are starting to reopen. This despite the fact that, outside of New York State, infection rates were not consistently falling.
For countries that have a much higher percentage of casual workers, less developed healthcare systems and little to no social welfare, it is likely the impact of the lockdown on people’s lives and livelihood will be more severe than the disease itself and will be difficult to continue to enforce without draconian measures or the risk of civil unrest.
And it is likely the disease will be here to stay. It will not disappear as abruptly as it appeared. It may undergo mutations over time – most likely to a form that is less lethal.
So life should start to move to some sort of post-COVID state – but what will that look like?
The impacts on our ways of life have been profound and there is much talk of the ‘new normal’. Twitter has told staff that are able to work from home that they may continue to do so, forever. Several other organizations, Facebook and Google for example, have implemented homeworking for some roles until later in the year, but Twitter is the first to make the change effectively permanent. It is unlikely to be the only one. Vodafone, in its results presentation highlighted that 90% of its European-based staff had switched to home working. It said that productivity had not been significantly impacted, though it did note that staff were working longer hours.
Changes in many industries are likely to be long lasting. With even a modest increase in the numbers working remotely, the use of digital collaboration tools will increase, commuting levels decline and international travel – for both business and leisure – also likely to be permanently altered. Vodafone said it had seen a dramatic fall in roaming revenue of between 65-70% which is likely to cost it Euro 0.5Bn, although lower churn is leading to savings on connection commissions. It also experienced a rise in SMEs asking for payment delays or suspensions and large enterprises delaying projects.
Retail has seen a strong shift to online channels. There may be some return to offline when restrictions ease, but much of the shift is likely to be permanent. Vodafone said that through March and April it saw a strong shift to digital channels.
We have revised our forecasts for the year to account for more severe impacts. We now expect the smartphone market will be down 10% year over year in 2020 – driven by shifts in replacement rates and the impact of a deep and longer recession. However, we continue to see mobile communications as essential. All our consumer research has highlighted the fundamental role it plays in people’s lives; a smartphone is usually the last thing someone looks at before sleeping and the first on waking. However, for most people, buying a new smartphone is a discretionary purchase and one that can be delayed in the face of economic uncertainty. But it’s not a purchase that can be delayed indefinitely. This means the market for smartphones is likely more resilient than many others, but it is not immune from the impact of the current economic turmoil. For more details on our forecasts, please contact us directly.
COVID-19 Update Week 19
More financial results have confirmed the picture that was emerging from early reports. The impact of the coronavirus is hitting all companies but with wildly different levels of severity. This will play out as countries move towards a relaxation of the most severe levels of lockdown. The focus now shifts to the shape of the economic recovery.
Economic activity rebounded in China quite quickly, but remains at a reduced level compared to where it would otherwise have been at this time of year. The initial rebound looked promising – an expectation that businesses would get back to pre-coronavirus levels. But this has not fully happened. Much of daily life remains curtailed – fewer people are eating at restaurants, using public transport, visiting shopping malls. As we consider countries that are behind China in the progress of the disease’s development and that were harder hit, for example Europe and the USA, what can we expect?
Countries across the region are now moving toward easing the most severe restrictions. Germany, the EU’s largest economy, started to allow small shops, hardware stores and car dealerships to reopen in late April. Restaurants and hotels can reopen from May 9th. Even the Bundesliga football season can resume from late May – albeit with matches played in empty stadiums. Large gatherings may be permitted from September provided there’s no resurgence in the levels of infection.
Italy allowed manufacturing and construction to resume earlier this week. Shops will be allowed to reopen from mid-month. Schools will not resume until September.
France is allowing some stores to reopen from May 11th, but people are being encouraged to continue working from home until at least June.
Spain is extending its state of emergency through May 23rd, though it is allowing people outside to take exercise.
The UK is reviewing its options and will make announcements at the weekend. It is expected to introduce a phased relaxing of the lockdown.
There is a patchwork of different approaches to relaxing stay-at-home orders across different US states. The US administration is anxious to get the country back to work as jobless claims in the last seven weeks have exceeded 30 million.
India has extended its lockdown until at least May 21st. It has also introduced three zones to identify the most and least affected areas, with greater relaxations allowed in the so-called green and orange zones. However the red zones include the major economic centers such as New Delhi, Mumbai and Bangalore.
For the above markets, we expect some level of normalcy will have been reached by June – with most stores open and people starting to return to offices, though we do not expect a full move away from increased levels of remote and home working, perhaps ever.
This is unlikely to be a smooth resumption of economic activity. There is a high chance of new spikes in infection – especially if measures to maintain physical distancing – are not observed. This can lead to the R0 or reproduction number exceeding 1.
Our regular chart of the rolling seven day average of new cases across several important markets highlights several concerning points:
- While the new cases in the US are trending lower, the pattern is not consistent – even with averaging. We also note that widely available testing is still not in place in all parts of the country, so, as with many countries, the true picture of infections is likely far higher.
- Russia has been included this week instead of Germany. Like many dictatorial states that like to control the news flow, Russia was slow to acknowledge that coronavirus was even a problem. But now it is officially reporting more than 10,000 new cases per day. With an economy that’s highly dependent on oil, the outlook for Russia is bleak.
- Brazil’s new case line continues to rise – and has now exceeded the patterns observed in the most severely impacted markets in Europe. Given the tension between President Bolsonaro and state governors, which is creating confusion in the country about how best to respond, we expect that the numbers in Brazil will continue to worsen.
- India – the new daily cases also continue to rise, even as the government plans some easing later this month. Should this curve continue its upward trajectory, extensions to the most severe restrictions may not occur.
V, U or W shaped recovery?
That the world is in the grip of a recession is not in doubt. The question is what does the future hold in general and what does this imply for the technology sector in particular?
Economic forecasters are wrestling with the data. The most likely outcome for the global economy in the first quarter was a year over year contraction of around 1.3%. The US is thought to be running at around 12% lower than it was a year ago. Goldman Sachs estimates that the impact of a severe lockdown, such as applied in Italy, leads to a GDP decline of 25%. Even countries that successfully contained the outbreak, such as South Korea can expect a GDP decline of 10%.
Surveys of consumers in several countries suggest that many will not rush to return to pre-coronavirus lifestyles – for example a reluctance to visit bars, restaurants and jump on aeroplanes. But as we noted in last week’s update, spending on streaming services, gaming, online retail etc, has been holding up. So any recovery will have a different complexion than the economy before the coronavirus outbreak.
However, governments will not be able to prop-up ailing companies and furloughed employees indefinitely. This will likely lead to a rise in companies going bankrupt and employees, currently being kept in a state of suspended animation, being made redundant. This suggests the rate of unemployment in many countries will trend down or, at best, flat for many months. Unemployment is normally a lagging indicator in ‘normal’ recessions. This one is far from normal, unemployment has immediately spiked higher. Some of the casual workers that were quickly laid off, may be able to find new positions as economies rebound, but salaried worker unemployment is likely to get progressively worse for months to come – exacerbating already poor levels of consumer confidence.
The indicators all point to a lengthy period of reduced economic activity – so a U-shaped recovery is more likely than V-shaped. And any re-emergence of coronavirus infections either later in 2020 or in early 2021, will almost certainly cause a second dip – producing a potentially even more destructive W-shaped economic pattern.
COVID-19 Update Week 18
Since last week, we’ve now had many more companies reporting results for 1Q as well as giving their assessments of what the future holds. Companies rarely have perfect visibility of their downstream markets, and even if they do, take care not to over or under play the risks for fear of being penalized by the financial markets. But much as a school of fish or flock of birds simultaneously change direction, insights can be gleaned by listening to their collective voice. And what we hear is: the first quarter wasn’t so bad, the second quarter will be worse. The outlook for the year is unclear, but the nearest analogue we have is the 2008/9 financial crisis, so until greater clarity emerges, we will use that as our guide.
Economic tide recedes
In addition, we’ve had initial GDP numbers from several countries – notably the USA that posted a fall of 4.8%, its largest contraction since the financial crisis of 2008, an end to the longest period of expansion in its history, and likely the first taste of a more severe downturn in the second quarter. The US has also now recorded 30 million jobless claims in the last six weeks.
The US GDP number comes on the heels of China’s official GDP statistics – a drop of 6.8% – its first contraction in GDP for four decades. And although China’s economy is now gradually moving forward again, its GDP outlook for the year will be little better than 1% growth, in the best case.
The COVID-19 wildfire continues to rage
An update on the COVID-19 numbers. Several grim milestones have been reached this week. The world passed 3 million confirmed cases, the US alone accounting for almost a third of them and its total number of deaths, as has been widely reported, has exceeded the number of US service personnel killed in the Vietnam War. However it’s European countries that have the highest number of cases and deaths per 1000 population. But the number of confirmed cases is not the same as the real total number of cases because it is a function of the level of testing. Many emerging countries do not have the facilities to test widely, so the official numbers likely underplay the impact in many countries. This fact will become more and more apparent over the coming weeks and months.
Among the countries that have been hardest hit so far, the picture continues to improve. South Korea that was hit early, but instituted rigorous levels of testing, and tracking and tracing, has reported no new cases on 30th April; it’s new case load has been hovering at around 10 per day for several weeks. Even countries that had severe outbreaks, such as Spain, are managing to contain the spread of the disease through strict lockdown and physical distancing measures. This is leading to the cautious restarts of grounded economies, the phased opening of schools, and efforts to return to some semblance of normality. Some US states have been jumping ahead, even while the outbreak still rages. The danger of relaxing the lockdown too soon, will be new spikes in infections. Let’s see.
As the Q1 earnings season progresses, we’re seeing the impact of the virus on companies financial results and forward guidance, if given.
Sectors hardest hit include those involved in travel, hospitality and tourism, offline retail of non-essentials, automotive and oil. Those actually benefiting include grocery retailers, online retail specialists and software and service companies supporting remote access and working. Telecom operators and internet companies that have mixed revenue sources not overly reliant on advertising, are generally holding up, though the pattern of the businesses is changing. And the 5G rollout continues, with a few hiccups, so infrastructure players are reporting respectable results. A selected few companies highlight the trends:
Reported earnings yesterday. Given its broad exposure to the mobile communications market, it should be indicative of the general health of the sector. It indicated that the initial impact of the coronavirus outbreak was around a 20% fall in handset sales – mainly from China (see our analysis of the market here). Qualcomm expects this to deepen to a 30% fall in the second quarter, as the impact of the outbreak ripples across the globe. However its overall outlook for the year, is for around a 10% annual decline. It nevertheless continues to hold its forecast for 5G devices for the year – though its forecasts covers a wide range (175m to 225m).
Apple reported iPhone volumes were 7% lower y/y in the first quarter. It started the quarter strongly, before the coronavirus hit the Chinese supply chain and consumer demand. Apple now has a much more diversified revenue base than it did a few years ago, so benefited from more people accessing its digital life services and adding wearable devices to their personal portfolio of Apple devices. And while Mac and iPad volumes were down, many of the buyers were new to the products. More detailed analysis here.
TI has exposure to many industries – so provides a broader snapshot of developments. Its results and commentary highlighted the nuances that are characterising the impact of the coronavirus-driven downturn. It reported broadly flat sequential revenues, down a few percent y/y. It said March orders had rebounded following the China New Year extended shutdown, but this surge in orders had started to evaporate into April. It is, nevertheless, continuing to build inventory, speculating that the market may prove to be more resilient, while expecting around a 20% drop in 2Q. TI further said it is basing assumptions on the 2008/9 financial crisis – in the absence of anything better to work with. Management highlighted the snapback in demand in 2009 as the reason it is building inventory in the second quarter.
Another chip vendor with a broad customer base, Microchip, also saw March orders rebound. It is also assuming a pattern similar to 2008/9, but unlike TI, Microchip is trimming its costs.
Intel has a narrower customer base. Its first quarter benefited from stronger sales of notebook PCs and for datacenters – especially from cloud providers. While its business looked strong, it maintained a cautious outlook given the economic conditions, and pulled back from guiding for the year.
Microsoft is benefiting from the massive rise in remote and home working. It reported that in a single day in March, its system hosted over 200 million meeting participants generating over 4 billion meeting minutes (I have been in meetings that felt that long). It’s also benefiting from the rise in gaming; with nearly 90 million active users of Xbox Live. Xbox Game Pass has more than 10 million subscribers. Its Windows OEM, Surface and gaming revenue increases were enough to more than offset declines in ad-driven search.
Facebook and other social media platforms, have seen surging use during the last few weeks as locked-down consumers turn to platforms like Facebook, WhatsApp, Instagram and Messenger to stay in touch and assuage boredom. It has surpassed 3 billion people using at least one of its services. The surging use, though, is coincident with falling advertising revenues and falling advertising rates, as advertisers seek to cut costs as their industries are directly impacted (travel, entertainment) and channels to market are closed for others (offline retail).
Google’s parent Alphabet reported similar patterns in ad revenues, though Google is benefiting from stronger cloud computing revenues; its business is more diversified than during the 2008/9 downturn.
Operators – holding us together
The importance of high quality, high capacity, resilient networks has never been more starkly shown than now. It’s testament to the work that telecom providers do that they are able to flex to the increased demand with barely anyone noticing. With most operator stores closed, sales of mobile phones are lower, but this also means churn has trended lower, so acquisition costs have not weighed on the financials. However, with many consumers and businesses using fixed-price plans, increasing usage does not necessarily translate to substantially higher revenue. Two operators from different parts of the world illustrate these trends:
Orange – the France-based operator with shares in operators in Europe, Middle East and Africa, saw first quarter sales up 2% – with decent performances across its properties apart from Spain – but here it was more competition than coronavirus that impacted its progress.
America Movil – one of Latin America’s largest operators, also saw a 2% improvement in sales in Q1. It has seen many of its stores close amid tight lockdowns across the region. But it reported that most sources of revenue were higher. However, the second quarter will be tougher because most of the first quarter was unaffected – AMX’s outlook for the second quarter and rest of 2020 is more downbeat as it expects a severe economic pullback to hurt demand.
Offline retail battered, online strongly up
Grocery retailers – both online and offline are having a good crisis. But most offline retailers are faring badly. In the tech sector, results from the UK’s Dixons Carphone, which includes the mobile retailer Carphone Warehouse provide a good illustration.
Immediately prior to the coronavirus outbreak, Dixons Carphone announced it was closing over 500 of its Carphone Warehouse stores and moving to a store-in-store model with its large Currys-PCWorld consumer electronics stores. The viral outbreak accelerated the Carphone Warehouse store closures and forced the temporary closure of Currys-PCWorld offline stores as well. However, in the latter part of March and into April, the company has seen a 166% increase in online sales – with the early emphasis on homeworking products – PCs, printers — then food preparation and storage products. More recent sales have emphasized health and fitness. It says that the rising online sales have replaced around two-thirds of the missing offline sales.
Automotive – a car crash
Auto sales have started to rebound from low levels in China during February; Nissan is the latest company to report encouraging signs. However, the broader sector continues to struggle across Europe and the US. The current consensus from car companies is an expectation of a 20% reduction for the full year, though some are talking of current sales being only 20% of what they would normally expect. The problem for the car companies is that the pandemic is coming amid the biggest ever transition for the industry – from internal combustion engine to electric drive trains. This transition alone was an existential threat for many car companies; sales of ICE cars are relatively profitable – electric cars are not. That profit from ICE car sales was needed to fund the colossal investment needed to shift to electric cars. With near-term sales mortally wounded, the investment outlook, which was already challenging, has become even cloudier.
COVID-19 Update Week 17
While the countries around the world start to consider their next steps – furthering lockdowns or easing them – companies are now reporting results from the first quarter. These provide an indication as to the likely impact for second quarter as most economic activity was seriously impacted only in March and will likely deepen before, hopefully, recovering by mid-year.
Economic pressure mounts
Oil prices are often viewed as an important economic indicator. Indeed, during the early 2000s, as China’s economy grew along with many other emerging markets – the so-called BRIC economies – the oil price rose as demand for the commodity increased, reaching a peak of $146 per barrel in 2008, just before the last recession.
Currently, Brent Crude is hovering around $22 per barrel, off its lows but still at levels not seen for decades. Oil is not a particularly good economic indicator, because it is subject to the vagaries of politically motivated variations in supply. However, the current low price shows that the market has little confidence in the global economy, suggesting we’re likely in for an extended, deep, recession.
Unemployment is a better economic indicator, but one that typically lags in periods of recession. But the coronavirus is causing an atypical economic situation. Millions of workers across the developed and emerging economies are out of work. Around 26 million workers have filed new unemployment claims in the US in the last few weeks, more than 15% of the workforce.
In emerging economies, the situation for millions of casual workers is bleak. In countries including India, Bangladesh, Indonesia, Philippines, over 70% of workers are in the informal economy with most unable to work during the lockdown, but with government support patchy or non-existent.
Lack of remittances
For many emerging economies, remittances from citizens working abroad, form a significant portion of the economy – especially for poor families. Many of these emigrants work manual jobs in the hospitality, transport and building sectors – all of which are working at reduced levels, or not at all, which is causing the flow of remittances to dry-up – heaping further stress on already weakened economies.
Low income, little chance
Even in developed countries, the impact of coronavirus is falling disproportionately on the poorer segments of society. Research by a team of economists that interviewed 4,000 US workers in late March, showed that 16% had already lost their job and among the 20% least able to work from home, 40% had lost their jobs. Conversely, those with relatively high incomes, above $60,000 per year, had seen relatively little impact on their employment status.
These data feed through into how spending on products like smartphones is likely to respond to the coronavirus crisis. For many consumers, high cost discretionary purchases are being put on hold. For the smartphone market this means longer replacement cycles. However, buyers of high-end and premium smartphones are the ones least likely to be directly affected by the economic meltdown. As they come to terms with the new normal, their levels of anxiety are likely to diminish, confidence rise and we therefore expect purchasing of essential technology products, which smartphones are, to rebound. The short term however, will be characterised by a short, sharp, slowdown. And products typically purchased by those on the margins of the economy, prepaid, low-end smartphones and feature phones, are likely to be disproportionately more impacted, though this may be offset by people opting for cheaper alternatives. In Europe, phones for elders – mostly feature phones – have seen an uptick in sales as families provision loved ones with every available means to remain in contact at a time when physical distancing is required.
As companies’ 1Q 20 results are starting to be reported, the impact of the lockdowns is becoming clearer. European car sales were down by more than half in March compared to 2019; March is usually a strong month for sales. February sales, by comparison, were flat y/y. Nevertheless, after enduring several weeks of lockdown, several car manufacturers, including Daimler, VW and Renault are starting to reopen plants in Europe.
AT&T reported decent results, but sales of phones were down sharply in the quarter.
LG Display reported a sharp contraction in sales, citing weak demand for TVs and smartphones, though demand for monitors, laptops and tablet devices was improving, to support increased remote and home working.
Building 5G Networks – a burning issue
Problems continue in the UK and other markets where conspiracists are drawing a link between 5G and the spread of coronavirus. This absurd notion has led to several base stations (the vandals have little idea which are and are not 5G) being set on fire. Government bodies and telcos are appealing for sense to prevail, but conspiracists are deeply distrustful of the authorities and continue to spread the rumors via social media.
In addition to vandalizing base stations, telecom engineers have been harassed and threatened with physical harm, even when not actually working on 5G infrastructure.
The combined impacts of this, together with the needs for social distancing and the difficulties in obtaining planning approvals during lockdowns, is slowing network rollouts.
Impact of telecoms
Although challenges are mounting, most telcos and ISPs are delivering resilient services in the face of substantially increased demand for services. For example, US telcos are reporting:
- Core network traffic up ~25%
- Hotspot usage up 60%
- Gaming traffic up 75% or more
- Lower cell-to-cell handoffs – by 30%-55% as people stay home
- Wi-Fi calling up 85%-105%
Impact on other tech
Gaming is one of the sectors seeing the greatest surge in use as people turn to gaming in increased number to escape the boredom and anxiety caused by extended lockdowns. However game developers are finding the new remote working mode is increasing the challenge of readying new titles for release. While much of the coding can be, and has been, done remotely, the coordination costs are sharply higher when teams are no longer collocated. This may delay the launch of some new titles this spring.
How to exit lockdown
With the numbers of new daily cases in many markets slowing, or at least flattening, governments are trying to balance their need to get their economies rolling again with the fear that opening up too quickly will cause a surge in new cases. This fear is well-founded. Research from China, Korea and Italy suggests that people that previously had COVID-19 continue to test positive for the virus even a month after the symptoms are gone. And even in the most badly affected countries, only a tiny proportion of the population has been infected, meaning that if those that have recovered from the disease do have immunity, this will apply to very few people in total.
Nevertheless, various countries are cautiously opening up. Spain has allowed some construction and manufacturing workers to return to work. In Germany, shops up to 800 square meters in size and car dealers are being allowed to open. However France has extended its lockdown into May – as has India.
Several US states are discussing how to reopen their economies – some under pressure from protesters. The states include New York, the worst hit in the US, and California.
Contact Tracing by Phone
One of the tools that will enable economies to reopen, is the ability to test widely and then track and trace those that may have had contact with an infected person. Apple and Google have taken the unprecedented step of aligning their Bluetooth protocols for iOS and Android. This will allow app developers to use the capability to develop apps capable of alerting phone users that they may have been in close proximity with someone who became ill with coronavirus. The system uses the Bluetooth LE protocol. When an appropriate app is installed, the smartphone continuously broadcasts a unique code while simultaneously listening to codes from other phones in the vicinity; Bluetooth LE’s range is up to 9 meters. Phones will create records of which codes it has ‘heard’. Should a user of the app subsequently fall ill and test positive for COVID-19, the code of the infected person’s phone will be broadcast, allowing all phones with the app to cross match if it was in close proximity with that of the infected person.
This could prove an excellent way to tighten the contact tracking and tracing process, which is notoriously difficult, resource intensive and time consuming. However, it both requires that a high number of smartphone owners install the app – ideally significantly more 50% of the population – and that there is widespread and easily accessible testing, which currently only applies to a few countries. Markets where similar initiatives have been tried, for example, Singapore, have not achieved the requisite numbers of app installs despite a relatively compliant population.
A further hurdle is the lack of Bluetooth LE support in many phones, especially feature phones that are still widely used in many emerging markets.
So while the accord between Apple and Google is remarkable, it’s no silver bullet.
COVID-19 Update Week 16
The global total of official infections now exceeds 2 million, with the worst affected country, the USA, accounting for over 30% of the total. The real number of infections likely far exceeds the official total; many countries are still unable to test sufficiently large numbers to verify the extent of the disease outbreak.
Nevertheless, for several countries in Europe and the United States, the rate of new daily cases is noticeably slowing. And the rate of slowing in new cases has been sufficient for several European countries to have either already started to lift the most severe restrictions, or start to plan for this to occur. Borders are being reopened gradually, though in Europe, this is partly to admit agricultural workers to harvest crops that would otherwise rot in the fields.
As restrictions are relaxed, there is a strong possibility of further flare ups in infections necessitating a re-tightening of restrictions. And lockdowns continue to be enforced in India and many other markets, with prospects for these to be extended into May.
But while there are positive signs from tracking the path of the disease, the global economy is far from out of the woods. Claims for unemployment support are soaring. The US released new unemployment claims today that exceeded 5 million, meaning the total of new claims for the month have exceeded 20 million.
While some European countries have seen unemployment rates rising, governments across the region are paying up to 80% of employees’ salaries in a variety of furlough schemes. These governments learned from the problems caused by the 2008 global financial crisis, when such schemes weren’t widely deployed. This resulted in several European countries, notably Spain and France, suffering high unemployment rates for up to a decade following the recession. Germany, that did use the furlough scheme following the 2008 recession, recovered more quickly.
Governments that are capable of doing so, are putting in place schemes to support companies and even the self-employed, so that as the coronavirus wildfire passes, green shoots of recovery can quickly be nurtured. But the pattern of recovery, will vary dramatically from sector to sector and even company to company.
The International Labour Organisation says that the sectors facing severe declines in output and therefore a high risk of layoffs or furloughs employ almost 38% of the global workforce, which equates to around 1.25bn people. This implies that even a V-shaped recession will likely be deep. And any U-shaped recession will cause an extended period of misery for many.
Emerging market stress
Capital flight from emerging markets has been acute. This can be seen in the foreign exchange markets where the Mexican Peso, Brazilian Real, Russian Rouble and South African Rand have all depreciated substantially against the US dollar. The slump in world trade and almost complete cessation of tourism is also hitting many emerging markets. So while many of these markets are not feeling acute pain from the impact of the viral outbreak, their economies are under severe strain.
Consolidation in corporate power
Many large companies were in a healthy condition before the outbreak, with ample cash on their balance sheets and limited debt. They will likely be comfortably able to withstand the inferno and come out the other side, not only in a reasonable shape, but finding the landscape less cluttered than before; a consequence of the viral outbreak will be that smaller and weaker firms, are less able to survive. And those that do, will be vulnerable to being acquired. Expect therefore that power will concentrate in the hands of those that already had most of it before the outbreak.
A further consequence is likely to be an acceleration in the diversification of supply chains. Companies that were overly reliant on China were hurt early in the outbreak. But before the coronavirus crisis, we’d already seen companies moving to diversify their manufacturing bases away from China; Vietnam and India are likely to be the biggest beneficiaries.
COVID-19 Update Week 15
The rolling seven day average of new daily cases of corona virus show that lock downs and physical distancing do work, though it takes time. They work by reducing the pool of potential people that the virus can infect, which slows the spread and allows authorities a chance to contact-trace and quarantine those that have been infected or that have been in contact with people infected. It is a mammoth task and economically destructive.
The US was slow to implement lockdowns and they’re still not universal across the country. The chart below shows the rolling seven day average of new daily cases for selected countries. A rolling average is used because the data is noisy and the average helps to smooth out anomalies. Previous epicentres in Italy and Spain are trending lower. The UK (including Prime Minister, Boris Johnson) continues an upward trend, though at a slower rate.
The US is, very clearly, still escalating rapidly though the rate of growth is slowing, however this may be more a function of the number of tests being carried out.
China and South Korea continue to offer encouraging pictures with new daily cases in the few 10s and daily life returning to normal, even in Wuhan.
Economics of a pandemic
Our concern is now shifting more and more to the long term economic impact that the pandemic will cause. The world is officially in a global recession as declared by the International Monetary Fund around 10 days ago. However the impacts are likely to be felt differently among the developed and developing countries.
Lockdowns, while effective at slowing the spread of the virus, are economically harmful. In a crisis, perfection is the enemy of the good. We have seen governments rushing to close borders and lockdown cities, while also creating financial lifeboats to help citizens and corporations weather the storm. While many of these measures are good and necessary, the haste with which they’ve been established has left many vulnerable people outside the safety nets.
In rich countries, governments have the capacity to support the economy for months. In developing countries, this is not the case. In India, the government acted with great speed to lockdown the country. But in so doing, it seemed to forget the millions of migrant and casual laborers that make-up a large percentage of the workforce. Many found themselves not only jobless, but also homeless – more or less overnight. With nowhere else to go, and little functioning public transport, many embarked on journeys by foot, for hundreds of kilometres to their home villages. In some cases carrying the virus with them. And many of the world’s poor live in overcrowded conditions with little access to facilities to carry out the mandated regular handwashing.
There are similar cases throughout the developing world. South Africa and Brazil, among many other countries, have implemented lockdowns of varying severity, meaning many migrant and casual workers are out of jobs, but with limited or no savings to fall back on. This puts casual workers in an invidious position, either starve, or try to continue working in some capacity and risk either contracting the virus, the wrath of the authorities, or both.
And the governments of emerging economies are not strong enough to support their populations or corporations during lengthy shutdowns. And worse, capital is fleeing to safe havens – which has meant the US dollar, almost exclusively. The US Federal Reserve is easing access to the dollar for some countries, but this is likely scant comfort.
The US, while rich, is a highly stratified society with a large underclass working low paying jobs, effectively on a casual basis; most American employment contracts have few protections against immediate dismissal. And even those with decent contracts tend not to have access to statutory sick pay. As a result jobless claims have skyrocketed – 16 million new claims in the past three weeks. And those were the ones able to negotiate flaky jobless claims websites that continually crashed under the weight of numbers, or visit overcrowded unemployment offices, running the risk of contracting the infection while doing so.
Rich countries have, nevertheless, created massive cash lifeboats to support companies unable to continue operating at capacity, or, in some cases, at all. Some countries, the UK for example, are also creating support packages for the self-employed – such as builders, plumbers and electricians. These packages should mean that as the countries come out of lockdown they can rapidly resume economic activity at something close to previous levels. The calculus is that a rapid resumption of economic activity will start fiscal flows to start paying-down the massive debts that governments are establishing.
We doubt, however, that the resumption of activity will be smooth across all sectors of the economy. Furthermore, the new ways of working for many may become a new normal, with more people than ever working from home. Companies may be able to reduce the size of office space as they realize that as many as a third of employees can work effectively from home on a near continuous basis.
We have updated our assessment of sectoral impacts. These are not designed to be read as detailed forecasts, but to guide thinking around which sectors are likely to be hardest hit and which are, conversely gaining in the current situation.
Smartphones: The smartphone market in China saw a sharp hit in January and February but was already recovering before the end of March as supply chains, retail activity, return to normalcy. We expect 2Q to reflect a slight rebound with further slight positives throughout the balance of 2020.
The smartphone market outside China is contracting sharply as retail stores are shuttered leaving online as the principal route to market. The downswing had already started before lockdowns were implemented. It may be as deep as China’s sharp slowdown but will likely last longer. Unlike China, where at least a part of the slow down was supply driven, the rest of world’s contraction is driven more by consumers withholding replacement activity until they get more comfort with the new economic realities of their situation. Assuming the lockdowns ease within a few weeks, the recovery should be strong, though we can expect some consumers to change their spending patterns.
Automotive: The auto sector is likely to be hit hard globally. In the early part of the year Chinese car sales almost halted entirely. And while they are recovering, there is now a mismatch between supply and demand. This pattern is likely elsewhere. In Europe the COVID-19 crisis has also coincided with new and highly restrictive emissions regulations. It is likely part of government stimulus spending will encourage consumers to scrap older, higher polluting cars, in return for cash subsidies.
Hearables: following a modest supply interruption we expect sales of hearables will benefit. Consumers that are self-isolating, working from home and relying more on streamed media will likely seek out high quality audio.
Retail: the impact is nuanced.
- Offline Retail: Grocery is seeing a surge as consumers stockpile for isolation and/or disturbed supply chains. Non-essential stores however, are being forced to close.
- Online Retail: sees a surge in demand as consumers forego venturing out to physical retail stores. Provided deliveries can still be made, consumers realize a preference for online over physical retail and while there is a mean reversion, online remains slightly ahead of physical
Streamed media: Physical isolation causes an uptick in demand for streaming media services especially video and games. Streamed music benefits less as consumers seek sources of news through radio stations or news-based podcasts.
Transport in all forms is hard hit. Airline travel is sharply lower, with many fleets grounded or flying extremely limited schedules. Tourism is also largely halted. The recovery is likely to be long, slow and painful with many companies seeking bailouts from governments.
Telecom: not charted, but we are seeing telecom service use substantially higher. For some mobile operators the reduction in international travel means lucrative roaming revenues are reduced, but more use of hotspots to enable home working means many are using networks more with many users migrating to higher data packages as a result, so a net benefit to operators – both fixed and mobile.
Cashless Payments: cash is being seen as a potential vector for the virus. This is stimulating the faster adoption of digital payment mechanisms across the world, even overcoming fears about the security of some systems.
Big Tech: in general the established tech giants are faring well. Use of cloud resources and over-the-top applications supporting audio and video-conferencing and collaborative remote working are seeing strong upticks in demand. Aside from a few early teething troubles, the services have flexed to accommodate the increased demand effectively underscoring the importance of resilience, quality and capacity.
One additional positive for the tech sector is that governments preoccupied with fighting the impact of the viral pandemic will spend less time scrutinizing M&A. This together with substantial pull-backs in valuations will likely mean a number of new deals will be made through 2020.
Coronavirus (COVID-19) – Update Week 14, 2020
The novel coronavirus continues to wreak havoc on daily life around the world, and in an increasing number of countries; 180 have now reported cases. In the past seven days the total number of confirmed cases has doubled again and is still accelerating – with new cases increasing by around 20% per day (75,000 between March 31st and April 1st).
But physical distancing and lockdowns do bring results – Italy’s number of new cases on April 1st was almost the same as the previous day – indicating that it is nearing the top of the new case growth curve and should see a decline in the days to come. However more worrying were spikes in new cases in Spain and France, both countries that had previously seen slowing growth. However, the data is noisy, and a slowing trend is seen in most markets that have been rigorously enforcing lockdowns and physical distancing measures.
Last week we said the US was, ‘almost certain to overtake all other countries..’, it didn’t take long. The US now has a massively higher number of cases than all other countries – almost twice as many as Italy. We indicated our concern about the US when we started keeping this weekly update and this has now been borne out. The fast growth in newly reported cases is partly a function of greatly increased testing, which is now uncovering the extent of the infection. Despite the sharp rise in cases, March manufacturing data from the US was more resilient than feared. But new jobless data shows a massive rise in new claims 6.64 million compared to an expected 4.88 million. That the new number is so much worse than even the most pessimistic forecast highlights that the full extent of the impact remains unclear.
However, while many states in the USA have implemented lock downs, there is still a stark contrast in indicators of activity. For example, two snapshots taken at the same time and at the same scale, from FlightRadar24, show the level of air traffic over the US compared to that over Europe. Pre-COVID you would see comparable levels of air traffic, though the US has always been somewhat higher. But in the midst of the current crisis, we are surprised at the continued level of passenger air traffic in US airspace. While the one over Europe is early evening and that of the US is around 2pm EDT, there is clearly more traffic over the US. Inspection of the flights does show a high proportion of cargo, but many are still passenger flights. By contrast, around 80% of the flights over Western Europe are cargo flights. On April 1st, the Trump administration said it was considering isolating hotspots from flight traffic, but has not yet imposed such as restriction. That said, data shows the number of passengers in the US is dramatically lower. So while many aircraft continue to fly, most are almost empty.
Income and Infection – strongly linked
New York City accounts for almost half the cases in the US. Data released by the city by zip code indicates a strong correlation between median income levels and the number of cases. This is unsurprising as the localities with the lowest incomes see the most overcrowded living conditions, where people have the greatest difficulty in self-isolating. This also gives us concern about fast growing and emerging markets that exhibit similar living conditions.
The Dharavi area of Mumbai is home to around a million people living in extremely high population density, in make-shift housing. The first coronavirus casualty was reported overnight. It is reasonable to expect the number of cases in the area to multiply rapidly. The Indian authorities are enforcing the largest lockdown globally. While official cases remain relatively low in the country, the lack of testing means that real number of cases is likely far higher. We continue to monitor the situation in India with concern as it is now the second largest smartphone market globally and still growing – unlike China and the US. A deep and sustained impact from corona virus will have a profound impact on the global smartphone market.
Indonesia is the world’s fourth most populous country. It has also seen an uptick in infections. While again the official number is low, we also think community infection is likely occurring unseen due to the lack of testing and preparedness. Expect the case rate to move sharply higher in the coming days and weeks.
Brazil has seen a sharp rise in cases. President Bolsonaro has been dismissive of the threat posed by the disease and has been urging Brazilians to return to work. However, most of Brazil’s state governors are defying the government and requiring people to self-distance and remain home. Nevertheless, it is likely that community transmission is underway in Brazil and cases will grow exponentially.
The International Monetary Fund declared that the world had officially entered a global recession. Given the scale of reductions in economic activity across multiple sectors, this is not surprising.
Forecasts are being updated as the situation unfolds. Currently, most economists are expecting a contraction in economic growth of around 2% y/y in 2020, which represents a downside swing of some 4.5 percentage points over previous forecasts.
Smartphone Market Impact
We have modelled the most likely impact on the smartphone market based on the mix of factors we have seen so far, and expect to see over the next few months. We have looked at parallels from recent recessions to help guide our thinking. Our conclusion is that we expect to see a sharp contraction as consumers withhold making discretionary purchases during periods of maximum uncertainty. The result is an extension in the replacement cycle. However we expect that extension will be limited to no more than six months. We further expect that the long run average market growth rate will not vary significantly – but the near term growth rates will reflect the slow down and then rebound — a similar pattern to that seen in recent recessions but allowing for the different level of market maturity.
Automotive remains hard hit. Most production facilities across Europe and North America remain closed. It’s a similar story in India. During the recession in 2008/9 the governments in the US and Europe implemented scrappage schemes to encourage consumers to replace older vehicles and inject spending into the auto sector. Given the strict new emission norms being implemented in Europe, governments in the region are likely considering the potential to gain benefits from newer lower emission vehicles that will go some way to addressing air pollution, while also pushing money into the hard hit auto sector. We are therefore expecting the return of scrappage schemes, perhaps with escalating rebates for the most fuel efficient cars such as full electric.
Subscribing clients can request more detail of our forecasts across a number of sectors including smartphones, IoT, automotive and more.
Coronavirus (COVID-19) – Update Week 13, 2020
A week is a long time in politics, and also in this coronavirus outbreak. In the past seven days, the number of confirmed cases has risen by 255,000 and still accelerating – currently by around 50,000 cases per day.
China still has the most cases, but Italy is fast catching up. Italy and Spain have recorded more deaths than China.
Statisticians have observed that the coronavirus outbreak precisely follows mathematical models and it is these that are informing government behaviours once an initial period of denial is overcome. The stages are clear and follow a consistent pattern. This from a former colleague, Dr Timo Partanen:
- Discovery phase – the virus has been present for days or weeks, spreading within a population but largely unnoticed because testing has not taken place. Testing starts to happen but is lagging behind. The daily growth rate of cases is very high.
- Exponential growth phase – the unrestricted spread of the disease is about 25% per day. This can be observed when the virus is spreading freely in a community without any social distancing measures, but testing is comprehensive enough so that significant numbers of new cases are recorded. Italy stayed in this stage for around the first 12 days of March.
- Declining growth phase – When social distancing is established, the growth rate starts to decline in a somewhat predictable pattern. How long and how quickly it declines varies by country based on the measures taken. This has happened in Italy for more than a week; yesterday’s growth rate, 7.5%, was again lower than the previous day. Spain, at 18% is behind Italy but growth rates are starting to slow. France 13%, Germany 13% are below the unconstrained growth rate. The UK, at 18%, is still high, but social distancing measures have only just been rigorously applied. The next two weeks should show a declining rate of growth in the UK.
What about Korea and Japan?
Both countries followed a different pattern, because their strategies were to test and track the epidemic intensively. They didn’t get a long period of 25% daily growth, because they followed every case and isolated all contacts. That cut the “natural growth” towards 10% a day.
And where is the USA?
As a whole it is still in the discovery phase and the numbers are distorted by the lack of tests. Some states have applied tough measures – such as California. But at the country level the growth rate in cases in the last 24 hours was almost exactly 25%. It is still not under control and there is no clear indication of how widely the virus has spread already. For example, in New York testing was expanded properly only last week and it is now undertaking more than 15k tests per day, and is finding 5k cases per day. The federal government is unwilling to impose the most stringent levels of control for fear of impacting the economy more deeply. This will likely mean a longer period of unconstrained growth in cases, unless almost all individual states apply the lockdown in a coordinated fashion. But it is the federal government that controls air traffic, for example.
It is almost certain that the US will overtake all other countries, including China, with the highest total number of cases.
Anomalies in the numbers
Iran is likely far, far worse than official statistics imply. Iran has not imposed a lockdown, so we expect there to be an almost unconstrained spread of the virus among the population. But with little testing and a government that rigorously controls communication, we may never know the true extent.
Russia too is likely to be experiencing a worse outbreak than official numbers suggest. It has established special facilities to deal with the outbreak, but is not reporting its cases freely.
India – the official number of infected is low. But while it is growing relatively quickly (20% in the last 24 hours) the government has moved fast to implement draconian lockdown measures that should slow the spread even if the real level of infection is much higher. The problem for many places in India is that social distancing, in some of the most densely populated areas, will be difficult to sustain for long. India has implemented the fiercest measures of any country. It will be a test case of how to bring the outbreak under control across a vast and populous country.
Impact on the Global Economy
There is a high probability of a global recession occurring in Q2 and Q3 of 2020. Sectors most obviously impacted include travel and tourism, hospitality and entertainment; people are not travelling, eating out or going to the cinema. These sectors employ millions globally and have come to an almost complete stop in many countries.
The stark economic indicators seen in China in February are now being replicated in many other countries, even while China gets back on track.
The disruption to international travel is hurting trade already. Over half of global air freight is carried on passenger aircraft. The image below from FlightRadar24 looks similar to last week’s. But an examination of the aircraft criss-crossing the Atlantic shows that around half are cargo planes. The American Association of Port Authorities, an alliance of ports of the US, Canada, Caribbean and Latin America has warned that cargo volumes during the first quarter are likely to be down 20% y/y. Jobless rates in the US are surging, applications for income support in the UK have jumped.
Governments are acting fast though. The experience of the financial crisis of 2008/9 showed that decisive action helped address the damaging levels of uncertainty. Central banks in Europe, US and in other countries have prepared stimulus packages of staggering magnitude. Yesterday, the US Senate approved a package totalling around $2trn (9% of GDP). The total extra fiscal stimulus announced so far amounts to more than 2% of global GDP – far more than was applied in the wake of the 2008/9 financial crisis.
The stimulus and support packages may help. But consumer uncertainty tends to lead to withholding spending in times of trouble, only returning to previous levels once confidence returns.
Developed countries are fortunate in being sufficiently wealthy that they can afford to support the economy and workers for an extended period. In addition, healthcare systems are well-developed. Poorer countries have a higher proportion of casual workers and patchy healthcare, so the impacts will likely be, proportionally, greater.
Impact on Smartphones and Technology
We have developed new forecasts that are available for subscribing clients. These show a sharp fall in demand, moving in a wave across from China to the west, consistent with the viral spread. Under lockdowns, almost all offline retail activity ceases, though online continues to function.
The smartphone market is resilient; smartphones are perceived by consumers as essential. However, aside from replacing a broken phone, the purchase is usually discretionary and can therefore be delayed, effectively extending the replacement rate. The resulting contraction in the market will likely be short term in nature, we expect it to recover relatively quickly once the worst of the outbreak passes.
Homeworking and social distancing are underscoring how important technology is to keep people connected and entertained. While we see the Coronavirus pandemic as a sharp, short-term negative, we continue to believe the long term impact on the market will be marginal.
Counterpoint will be hosting a webinar to talk through the likely impacts as we see them. Click here to register
Coronavirus (COVID-19) – Update Week 12, 2020
While the pandemic escalates in the west and increasingly wreaks havoc on daily life, China and South Korea are starting to get back to normalcy. Early, stringent action by the authorities was effective at containing the outbreak. There is chance of flare-ups but we expect those to be dealt with rapidly. Other countries such as Taiwan, Hong Kong and Singapore also appear to have been successful in limiting the disease spread. The biggest risk for these nations now is nationals returning home from countries on the fast escalation curve – notably Europe and the USA.
In the last eight days, the number of confirmed cases has risen by almost 100,000. Almost a quarter of these new cases are in Italy, with many more in Spain, France and Germany. The UK has also seen a steep rise in cases, with London the epicentre of its outbreak.
The US continues to give us concern. The country as not been able to test widely, so we continue to believe the official number of confirmed cases massively under represents the true scale of the problem.
India, Russia, and many parts of the Middle East and Africa, and much of Latin America, have either been successful at preventing the virus from spreading or, more likely, are not able to test sufficiently effectively to reveal the true scale of the pandemic.
The bottom-line, is that the picture from Johns Hopkins shown below is just the ‘tip of the iceberg’. The full scale of the disease may not be known for months or even years.
Impact on Commercial Activity
Turmoil continues on stock markets. Central banks are releasing unprecedented funds and instituting quantitative easing, but investors continue to lack confidence as they cannot see an end to the disruption. In this environment only safe haven assets are in demand – recently the US dollar. The price of gold had escalated but sold-off to cover investors’ losses in other asset classes while others opted for the US dollar above all other assets.
Many countries are being progressively locked-down. Italy has been in this state for a couple of week and is being joined by France, which is imposing penalties on citizens straying outside without good reason. Many European countries are closing land borders to prevent foreign citizens from entering. Canada and the US have closed their land border. Brazil has closed its border with Venezuela.
In markets that are locked down, all but essential stores are closed. Online remains active though and has seen strong upswings in activity.
Airlines are reducing flights, with many grounding part or all of their fleets, and temporarily laying off staff.
Travel and tourism, and hospitality more broadly, is hard hit with hotels empty and restaurants and bars being shuttered.
Impact on the smartphone market
Mobile phones are considered a necessity by most people. This means it is a resilient market. Recent parallels include the sub-prime mortgage crisis and subsequent global recession in 2008/9, the tech bubble bursting in 2001 and the impact of SARS in 2002/3. In each case, the market was knocked back but rebounded in the aftermath.
The market has changed since 2009 – it is now much more mature, and in the markets currently most severely impacted, almost everyone has a smartphone. For many consumers, the purchase of new smartphone is a discretionary purchase; they can choose when to buy. The consequence of this has been seen over the last few years in lengthening replacement cycles, which has caused the smartphone market to contract as people hold on to their phones for longer and longer. The immediate impact of the coronavirus pandemic, is that the replacement cycle is likely to stretch still further. But consumers will replace. So while the market will slow down during the worst period of the crisis, it will rebound; we don’t think volume will be lost – just that the pattern of demand will change.
There are two main risks, that could cause a material lowering of our long-term outlook:
- An extended global recession. Currently we are assuming a relatively sharp, but short recession, on a global basis.
- A second wave of viral infections peaking in 4Q 2020 and 1Q 2021. Past pandemics have seen this double peak. COVID-19 may be the same.
There are also mitigating factors:
- Preparation of a vaccine – many teams around the world are working hard to isolate a vaccine – though this is unlikely to be ready until 2021.
- Effective treatments – there are some promising lines of research applying current medicines to treat those most affected by this coronavirus.
- Herd immunity – if sufficient people in a population are infected, recover and develop immunity, it is harder for the disease to spread. It is unclear how effective this is with COVID—19.
We are updating our forecasts more frequently during this period. Subscribing clients will receive regularly-revised short-term forecasts that assimilate the latest information.
Impact on other technology markets
Demand for home working equipment and services are sharply higher, displays and headsets, and conferencing services. Access to Microsoft Teams was temporarily impacted earlier this week as thousands of normally office-based workers across Europe tried to access the service from home. More capacity is likely being made available.
Car companies are still coping with supply issues arising from the initial outbreak in Hubei Province that caused many parts to go into short supply. These companies are now having to contend with potential shortages of labor, as workers either become sick or have to self-isolate. Several factories in Europe and North America are implementing temporary closures.
We also expect demand for new vehicles to be sharply lower in many markets as car dealerships are closed.
Audio visual equipment and streaming
With higher numbers spending more time at home, demand for streaming entertainment is escalating sharply. This may trickle over into demand for new equipment such as TVs, but big discretionary spends are more likely be deferred. However, demand for hearables is likely to rise as households try to manage the situation of multiple people enjoying their own content without disrupting others. Hearable devices are readily available from online stores.
Coronavirus (COVID-19) – Update Week 11, 2020
As we predicted two weeks ago, the WHO has been forced to pronounce the coronavirus a pandemic. It doesn’t change anything much in relation to the likely viral spread, but should help focus the minds of governments that may be reluctant to take the necessary steps to contain the outbreak, or mitigate its worst effects.
Also as we noted last week, the coronavirus infection rate in China is decelerating. This is good news and should allow most factories outside the Hubei province to move back toward normal, seasonal activity levels by the beginning of the second quarter.
In other countries, however, the picture is less positive with more than 25,000 new cases reported in the last week.
The pattern of infection and recovery is becoming clearer. The infection spreads rapidly through a population, reaching a peak and then subsiding almost equally rapidly once there are no new people to infect. By locking down areas and curtailing socializing, the pool of potential virus recipients is reduced, causing the outbreak to moderate more quickly. This is what happened in China. But a rapid lockdown it is not what has happened in Iran, Italy and many other parts of Europe, and the United States. The disease has likely been in the community in these countries for several weeks before being formally identified. Containment measures are belatedly being taken in some countries, Italy for example.
Many Fewer Flights Than Normal Originating and Terminating in Italy
But in most other countries, little is being done to either monitor the virus’ spread, or to prevent it. Angela Merkel, Germany’s Chancellor, has warned that as many as 60-70% of the German population may become infected, if stringent measures are not taken. It is reasonable to assume that this rate of infection would apply to other, similar countries.
The USA is most concerning. Evidence from Seattle suggests the existence of coronavirus in the community as far back as early February, but the Centers for Disease Control and Prevention (CDC) was not able to effectively test for the virus at that stage and even prevented some research laboratories from reporting their own positive test results. The alarming conclusion is that the reported positive cases in the USA likely massively underrepresent the true picture of infections in the USA.
As the potential impact of the virus has become better understood, stock markets have been hit hard, with major indices registering falls in excess of 10%. Some of the falls were also related to a conflict between major oil producers that saw a sharp fall in the price of oil. Nevertheless, money markets are trying to price-in a short sharp shock to the world’s economy with little to guide them on what this will actually look like.
Most recessions have been caused by falls in demand. The most recent one of 2008-9, was triggered by a financial crisis that spilled over into a sharp reduction in demand as banks spiralled into a debt crisis of their own making.
In this case, there is the potential that workers will be prevented from working due to illness or having to isolate themselves at home. If this occurs for a significant proportion of the population at any given time, it will have a short-term negative impact on economic activity – initially from the supply of labor, but then also in demand, as consumers will refrain from buying much beyond core necessities. The shock to the system should be short-lived and likely resolved relatively quickly. We expect a rebound in most economic activity to occur before the year end.
Central banks are continuing to offer support. The Bank of England in the UK has cut interest rates by 50bps in a move that echoes that of the US Federal Reserve, last week. However in a supply-driven crisis these moves are unlikely to do much to stimulate economic activity. Governments are likely to need to support small and medium sized businesses that will inevitably struggle with cash flow problems, and support workers that are forced out of work. The UK government is implementing a raft of measures to support small businesses and the self-employed who may not otherwise be eligible for sickpay.
Impacts beyond the numbers
Rumors have been circulating for several weeks that Apple will delay the launch of the, yet to be named, lower cost iPhone. This is to be the successor of the iPhone SE, built around the same form-factor as the iPhone 8 series (SE2, iPhone 9..?).
Problems with the launch were initially thought to be because initial volume ramps could be delayed due to Foxconn’s inability to start production. Travel restrictions on Apple’s engineers flying to China to supervise pre-production testing might also be a factor. And if all these were not problematic enough, just holding a launch event at this time, is difficult. So we expect Apple to postpone the launch for a few weeks at least. Other smartphone manufacturers are continuing to launch new products however (link to blogs)
The E3 2020 expo in Los Angeles is the latest among more than 250 trade shows to be cancelled or converted to online events.
We continue to expect a rapid increase in infections in Europe, USA and many other countries over the next eight to twelve weeks before returning towards normal during 3Q and with an expectation of largely normal levels of economic activity by the year end.
Coronavirus (COVID-19) – Update Week 10, 2020
There is cautious optimism that the worst of the outbreak in China is now past. Factories are beginning to ramp up production slowly, though many are still below normal capacity at this time of year. Foxconn said it is running at about half its normal low-season capacity – this equates to about 25% of full capacity. While factories are anxious to ramp-up production, they’re also being careful that labour-intensive work does not rekindle viral outbreaks.
While this is somewhat positive for China, the outlook in the rest of the world is rather more bleak. And the realization of the potential for lasting economic disruption has caused a sharp falls of up to 15% in the value of shares on many stock markets. This has prompted central banks to intervene with support – for example a 50bps cut in interest rates by the US Federal Reserve.
Last week we outlined countries of concern as, South Korea, Japan, Iran, Italy, UK and US. We think these will be good analogues for how the virus is likely to spread more widely.
South Korea has continued to see infection rates escalate – mostly centered around the southern city of Daegu.
Japan is considering delaying the Olympic Games until later in the year, but has not yet cancelled the event.
Iran has the highest number of deaths outside China, but due to efforts by the regime to deny the extent of the outbreak it has likely led to a greater level of infection in the country. The number of deaths do not tally with the reported number of infections, which must be far higher than the official numbers would indicate.
Italy – it is likely that the virus was circulating for several weeks before being fully recognized. This has led to the level of infections seen and also allowed for travellers to take the infection to other countries.
UK – while the number of cases remain low, several people have been diagnosed who have not been to centers of infection or knowingly interacted with those that have. This indicates that containment is likely no longer possible. The UK government has enacted an emergency plan in which the realistic worse case scenario would see up to 20% of the workforce either off-sick or self-isolating.
USA – new cases are emerging at a fairly rapid rate now, which suggests the virus is circulating and containment is no longer possible.
More than 80 countries have now reported cases, although the actual numbers of reported cases are likely to be the tip of the iceberg; many people have only mild symptoms and may not be counted.
As China gradually recovers from the initial peak of infections, we expect factory production to gradually return towards normal. However, the reduced capacity is likely to continue into the second quarter.
While some supply restrictions ease, we are becoming more concerned about the probable impacts on demand as consumers moderate economic activity in the face of growing infection rates in multiple countries around the world. Our current scenario models a relatively modest decline in demand for smartphones outside China, but there is a growing likelihood that we will revise our estimates downward.
We have also modeled the likely impacts across a range of industry sectors relative to our base line forecasts. Some of these are shown in the chart below:
The impact to supply and demand was most acute in China. Supply restrictions have started to show up in other global markets. However we are now expecting to see some impact to demand in global markets as consumers moderate their economic activity in the face of personal and economic uncertainty. We nevertheless expect a rapid reversion as the worst of the infection passes with a slight positive rebound effect.
The Chinese automotive sector came to almost a complete halt in January and February. This was mostly driven by a massive drop in demand, although factories also ceased activity through a combination of the Lunar New Year and coronavirus.
Internationally, auto makers have been hit by reduced supplies of parts made by Chinese companies. Several have reported the need to reduce production until supplies return to normal.
We are modelling the Chinese and global automotive sectors to rebound relatively quickly with a slight positive rebound, though we doubt all of the shortfall will be recovered in the near term.
Streaming Media and Gaming
We expect the enforced isolation that many will experience will lead to a greater consumption of streamed media such as music and video, and an increase in online gaming.
Airlines are already cutting capacity – even between countries where there are limited outbreaks. This is driven by business travellers reducing flying – partly due to generally lower activity levels and partly due to the cancellation of large events, for example MWC and the Geneva Motor Show. We expect that as travellers realize that alternatives such as teleconferencing offers a good experience and people think harder about the need for travel – especially in the face of mounting climate change evidence — there will be a longer-term reduction in absolute person/km travelled. UK regional airline FlyBe collapsed late on 4th March. It had been struggling financially, but it cited reduced bookings caused by the coronavirus as a significant factor in it halting operations. It will likely not be the last airline to fail caused by coronavirus.
We think retail will be a tale of two types – offline, brick-and-mortar stores, are likely to suffer a short term decline, while online stores will benefit. Though if there is any significant and sustained impact on logistics, then online stores may also suffer. We expect both to revert to the mean over time, though online may enjoy a slight boost while offline suffers a slight long-term reduction.
The likely extent of infections remains unclear however, we expect countries outside China will likely see a peak in infections in the May/June period before recovering towards normal by the end of 3Q beginning of 4Q. Countries’ ability to contain the outbreak now looks challenging with the emphasis shifting to managing the impact as best they can.
We will continue to monitor and update our scenarios as the situation unfolds.
Coronavirus (COVID-19) – Update Week 9, 2020
- Global stock markets are, perhaps belatedly, responding to the escalating impact of the Coronavirus outbreak and have started falling on expectation of extended and systematic supply chain disruption. Oil prices are also lower on fears that transport will be affected. Traditional safe haven assets, such as gold, have increased in price.
- The Coronavirus is likely to be declared a pandemic. A pandemic is when an epidemic spreads to multiple regions/countries. There are political implications to declaring a pandemic, but it doesn’t change the dynamics of the disease spread – though it will serve to heighten peoples’ focus on the potential transmission of the disease and may also contribute to further disruption.
- With cases escalating fast in S. Korea, Iran, Italy and Japan – and further cases emerging in Germany, Brazil and several other countries, it’s probable the World Health Organization (WHO) declares a pandemic within the next few days.
- Despite initial failings in recognizing and reporting the novel Coronavirus, China has been quite effective at limiting people’s movement and therefore spread of the virus. But other countries may be less successful at containing outbreaks. And as China is the manufacturing source for N-95 facemasks, supplies for export will be restricted. India likewise is restricting exports of facemasks. Some drugs are also likely to become supply constrained.
- Developed nations have vulnerable supply chains – shops in big cities are resupplied daily, for example. Any breakdown in supplies can lead to panic buying, shortages and further disruption to travel and many normal behaviors at a population level. At extremes, civil unrest can result in looting and a breakdown in law and order.
Countries to watch closely for developments:
South Korea: a spike in cases and lack of clarity among potentially infected peoples’ movements will lead to more cases developing over the next week or two. Containment currently looks challenging despite the alert level being raised to RED.
Italy: a popular tourist destination, Italy is now attempting to lock-down parts of the country most badly affected. Nevertheless, cases are emerging in other countries based on people travelling from Italy. Likely a prime source for infections across Europe. The forthcoming Italy vs Ireland rugby international match has been postponed based on concern about the virus spreading with travelling fans.
Japan: most cases relate to the impounded cruise liner, Diamond Princess, but the true number could be higher due to poor handling of passengers on the cruise ship.
Iran: even the health minister has been infected. Cases likely under-reported and given the importance of some infected areas to Muslim tourists, high likelihood of spread to other Muslim nations in the region.
U.K. has now started testing people showing flu-like symptoms but who have not been to known infected areas. If infection is found it will indicate that the viral spread has not been contained.
U.S. it is likely that the true extent of cases is unknown and unreported due to lack of screening on ports of entry, lack of sufficient diagnostic testing and lack of funding to health agencies to take effective action. Increased testing, like in the UK, will reveal to extent to which the viral spread has already occurred.
Overall, our expectation that we see widespread transmission of the disease and a concomitant impact on retail sales, supply chain disruption and other economic disturbance has risen from somewhat unlikely to likely. Companies will need to plan for an extended period of disruption to a business-as-usual situation – likely lasting well into the second quarter.
Impact on China and Global Smartphone Demand
- Demand-side: the PRC economy has been impacted severely during this period. Sales have fallen sharply and will recover slowly. We estimate a 30% drop during the lock down period. The lock down period and travel restriction period will last for at least two months, so affecting through the end of March. Some offline retailers are saying they have experienced a 50% drop in sales during the late January period. However there is some sales offset by an increase in online sales.
- Supply-side: there will be impact to new devices to be launched in the first half which have facilities in China, as factories will not function properly. Components sourced from China will also be impacted as all factories will resume operation slowly and cautiously. This will range from displays from BOE, CSOT and semiconductors from YMTC and further on. So the negative impact from the supply chain side will last until end of Q2 minimum.
- Our initial expectation was that the virus would be contained within two months and take three further months for things to get back to normal. We now expect Q1 PRC sales to be down by around 25% compared to our original forecast. This is 18% lower than Q1 last year. But this can worsen if the virus is not contained. Global sales will also go down 7% compared to same period last year. Overall we think Q1 and Q2 will show negative growth both globally and in PRC before rebounding.
- This is our base case scenario. The downside risks are increasing daily and we will likely revisit this forecast based on emerging information over the next days and weeks.
- We also expect China smartphone sales to drop over 20% in Q1 2020. The impact of nCoV could be much more severe than many currently expect. (Click here to listen to the latest Counterpoint Podcast on the Coronavirus)