Weekly Update: Global Coronavirus Impact and Implications

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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.

COVID19 Dashboard by the CSSE at JHU - Week 42

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.

COVID19 Dashboard by the CSSE at JHU - Week 41

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.

COVID19 Dashboard by the CSSE at JHU - Week 40.jpg

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.

14 Day Cumulative Cases per 100k Population - Week 39
Data Source: European Centre for Disease Control and Prevention and Control

 

After a slight dip in August, daily infections are reaching new highs

Sum of New Daily Cases by Continent Since March 1st - Week 39
Data Source: European Centre for Disease Control and Prevention and Control

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.

COVID19 Dashboard by the CSSE at JHU - Week 39

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.

14 Day Cumulative Cases Per 100K Population

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.

COVID-19 Dashboard by CSSE at JHU - Week 37 UpdateIn 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.

COVID-19 Dashboard by CSSE at JHU - Week 36 Update.jpgIn 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.

Counterpoint COVID-19 Dashboard by CSSE at JHU - Week 35 UpdateMore 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.

COVID-19 Dashboard by the CSU at JHU - Week 34 COVID-19 UpdateWith 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.

COVID-19 Dashboard by the CSU at JHU - Week 33 COVID-19 Update

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.

New Daily Cases by Country Since March 1st - COVID-19 Week 32 UpdateA 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.

Sum of New Daily Cases by Continents Since March 1st - COVID19 Update - Week 31In 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.

14 Day Cumulative Cases per 100000 population - COVID19 Update - Week 31This 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.

COVID-19 Dashboard by the Center for Systems Science and Engineering (CSSE) at JHU - Week 30 COVID-19 UpdateBrazil 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.

Daily New Cases by Selected Country - Week 30 COVID-19 updateLooked 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.

Sum of New Daily Cases by Continent - Week 30 COVID-19 UpdateAs 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.

Counterpoint 14 Day Cumulative Cases per 100,000 PopulationTwo 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.

Countepoint daily new cases by selected countries since March 1st, unsmoothened

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.

Counterpoint Sum of New Daily Cases by Continent Since March 1stHowever, 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.

Sum of new cases - COVID weekly update week 27Brazil 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.

Sum of new daily cases by continent since March 1st - COVID weekly update week 27COVID-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.

Counterpoint - Sum of new daily cases by continents since March 1st - Week 26 Update

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.

Counterpoint - Weekly average of daily new cases by countries since March 1st - Week 26 Update

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.

COVID-19 Dashboard by CSSE at JHU - Week 25 Update
Source: Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU)

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.

New Daily Cases by Country since March 1st - Week 26 Update
Source: Data from European Centre for Disease Prevention and Control, Counterpoint Research

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.

Sum of New Daily Cases by Continent Since March 1st - Week 25 Update
Source: data from European Centre for Disease Prevention and Control, Counterpoint Research

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.

Counterpoint COVID19 Dashboard by CSSE at JHU - Week 24 Update
Source: Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU)

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.

Counterpoint Daily New Cases per Thousand Population After Countries Reached 100 Cases per Day - Counterpoint - Week 24 Update
Source: Data from European Centre for Disease Prevention and Control, Counterpoint Research

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.

Counterpoint New Daily Cases by Countries Since March 31st - Counterpoint - Week 24 Update
Source: Data from European Centre for Disease Prevention and Control, Counterpoint Research

Economic Impact

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.

Counterpoint Research A Collapse Followed by a Slow Recovery - Counterpoint - Week 24 Update
Source: OECD 2020

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.

Counterpoint Sum of New Daily Cases by Continent Since March 1st Week 23 UpdateUnglobalization

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.

COVID-19 Dashboard by CSSE at JHU - Week 22 UpdateNevertheless, 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.

Sum of New Daily Cases by Continent Since March 1 - Week 22 Update

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.

Daily new cases per thousand population after countries reached 100 cases per day - Week 22 Update

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.

COVID-19 Dashboard by CSSE at JHU - Week 21 Update
Source: Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU)

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.

Counterpoint Sum of New Daily Cases by Continent Since March 1st - Week 21 Update
Latin America is emerging has a coronavirus hotspot as daily new cases in Europe and North America continue to moderate (Source: European Centre for Disease Prevention and Control and Counterpoint Research)

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 info@counterpointresearch.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 Models

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.

Daily New Cases per Thousand Population After Country Reached 100 Cases per Day - Week 20 Update
Source: Data from European Centre for Disease Prevention and Control, Counterpoint Research

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 Hangover

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.

Changing Forecasts

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?

Europe

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.

USA

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

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.

Daily New Cases After Country Reached 100 Cases Per Day Week 19 UpdateV, 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.

Counterpoint Daily New Cases After Country Reached 100 Cases Per Day - Week 18 UpdateAmong 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.

Early Results

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:

Qualcomm

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

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.

Texas Instruments

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

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

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.

Results

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

Daily New Cases After Country Reached 100 cases per day Week 17 update

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.

Counterpoint Daily New Cases After Country Reached 100 Cases Per Day
Source: data from European Centre for Disease Prevention and Control, Counterpoint Research

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.

US Dollar to exchange rates with various currencies
US Dollar to exchange rates with various currencies, Source: Trading Economics

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.

Counterpoint Daily new cases after country reached 1000 cases per day
Source: Data from European Centre for Disease Prevention and Control, Counterpoint Research

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.

Sectoral Impacts

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.

Counterpoint COVID-19 Expected Impact Relative to Baseline ForecastSmartphones: 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.

Related Posts

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.

Coronavirus COVID-19 Global Cases by John Hopkins University (JHU)
Source: Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU)

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.

FlightRadar24 – images taken on March 31st at around 2pm EDT. (2)

FlightRadar24 – images taken on March 31st at around 2pm EDT. (1)
Source: FlightRadar24 – images taken on March 31st at around 2pm EDT

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.

Daily new cases by continent show how the virus has spread East to West. Asia is not out of the danger zone yet.
Daily new cases by continent show how the virus has spread East to West. Asia is not out of the danger zone yet.

Economic Impacts

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.

Change in GDP Growth Due to COVID-19 in Selected Countries
Source: Economist Intelligence Unit

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.

Other Sectors

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.

Source: Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU)

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:

  1. 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.
  2. 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.
  3. 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.

Counterpoint Covid Weekly Update: Air Traffic
Air traffic over India March 26th. Almost all flights visible are overflying. Source: FlightRadar24

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.

Counterpoint Covid update: Reduced air traffic over the Atlantic
Reduced air traffic over the Atlantic and half of it freight, March 26th. Source FlightRadar24

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.

Coronavirus COVID-19 Global Cases by CSSE at JHU
Source: Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU)

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.

Reduced air traffic over the Atlantic compared to normal on 19th March.
Source: FlightRadar24

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:

  1. An extended global recession. Currently we are assuming a relatively sharp, but short recession, on a global basis.
  2. 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:

  1. 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.
  2. Effective treatments – there are some promising lines of research applying current medicines to treat those most affected by this coronavirus.
  3. 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.

Automotive Markets

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.

Coronavirus COVID-19 Global Cases Johns Hopkins CSSE
Source: Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU)

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.

Counterpoint COVID-19 Many Fewer Flights Than Normal Originating and Terminating in Italy
Source: FlightRadar24

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.

Stock Shocks

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.

Supply-Driven Downturn

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.

Outlook

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.

Coronavirus COVID-19 Global Cases Johns Hopkins CSSE
Source: Johns Hopkins CSSE

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.

Supply-side:

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.

Demand-side:

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:

Counterpoint Coronavirus COVID-19 Expected Impact Relative to Baseline Forecast

Smartphones

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.

Automotive

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.

Travel

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.

Retail

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.

Outlook

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)