Will SARS Infect High-Tech?

Highly infectious, and with no known cure, the respiratory infection known as SARS is spreading shock waves out of Asia and around the world.

But with new public health measures apparently slowing the virus’ spread, SARS, or Severe Acute Respiratory Syndrome, appears unlikely — at least at the moment — to cause major disruptions to the high-tech industry.

That’s the view of Peter Kastner, vice-president at analyst firm the Aberdeen Group, who’s been following the outbreak. SARS is a very real problem, he says, “but at the moment, it seems unlikely to untrack either the global electronics industry, or the U.S. economy.”

A month ago, Aberdeen was warning high-tech firms about the possibility of a transportation breakdown disrupting the supply chain for electronic parts. Many shipments of electronic components produced in the Asia/Pacific region are carried on passenger jets, according to Aberdeen., and with the drop in both tourism and business travel, those flights are being cut back sharply. Singapore Air, Japan Airlines, Cathay Pacific, and Korean Airlines have all cut flights back, as have U.S. And European carriers.

Today, with the nearly two-dozen countries affected by SARS beginning to institute measures to contain it, Kastner believes “the likelihood of some sort of a transportation breakdown has been reduced.”

But that doesn’t mean everything’s rosy for the computer industry. The People’s Republic of China is the world’s second largest consumer of PCs, according to Kastner, and it’s almost certainly headed for a recession because of the SARS epidemic. “The high-tech industry is definitely concerned that the world’s fastest growing large technology market may be falling off a cliff in a major recession,” he says.

But while the electronics industry as a whole is unlikely to see a meltdown with the shutdown of Asia/Pacific factories, says Kastner, “point events should be expected.”

There will almost certainly be delays in specific projects, according to Kastner, because many high-tech firms are canceling what used to be routine trips to Asia by employees. “Projects for which the presence of nonresident personnel are required,” he says “whether they are sales [representatives], product applications engineers, or semiconductor capital equipment specialists — will slip schedules, and equipment or process failures that require similar human resources to fix will go unrepaired until the epidemic is past. This will degrade production and impede quality.”

The epidemic is also interfering with marketing efforts in Asia, according to Kastner. Sun Microsystems canceled an April 7th product launch to have been held in Shanghai, and Intel called off Intel Developer Forums scheduled for Taiwan and Beijing in April.

“The electronics companies that we have talked to are all watching the SARS epidemic daily,” Kastner says. “Most have already instituted logistics ‘war room’ planning exercises — with frequent reports to the CEO. The planning consensus includes rapidly qualifying second and third supply sources outside Asia.”

Kicking and Screaming

In the long run, the SARS epidemic may have an unintended positive effect, says Kastner, by opening up the PRC’s strict government to a global society.

After weeks of minimizing the extent of the epidemic, which led to widespread international criticism, the Chinese government now appears to be releasing accurate information. China’s health ministry admitted today that the PRC’s capital city, Beijing, had a total of 588 SARS cases, far more than the 38 which it claimed until recently.

China has taken in $50 billion a year in foreign investment, says Kastner, which is a real stimulus to the Chinese economy. “That money could go away overnight, if the government were shown to be untrustworthy,” he says. “So kicking and screaming it looks like the PRC government is being dragged into the 21st century global economy, and that’s much better for China in the long term.”