The impact of Coronavirus in IT Market

March 5, 2020

In times of coronavirus and epidemic risks, how does the IT market behave? What is the impact on forecasts for this year?

 

 

 

A New York Times article caught our attention about this : Coronavirus Disrupts the Industry.

 
Companies are telling investors that sales are slumping because of the outbreak, conferences are being canceled, and workers are being instructed not to travel.

 

The biggest story of the moment is the rapid spread of the coronavirus, which can cause a potentially fatal flulike illness and originated in China. The virus — and the global attempts to contain it — has rocked the business world, sending financial markets into correction territory, down more than 10 percent.

 

The virus, which has now spread to 47 countries, has put pressure on businesses and supply chains around the world.
 
The global stock market slid for straight days this week, as the S&P 500 index plunged to its worst loss in almost nine years and investors worldwide grew increasingly fearful that the coronavirus outbreak could cause a recession as it squeezes corporate profits. The index is down 12 percent since that peak, entering what is known as a correction — a drop of at least 10 percent that signals a more significant sell-off than a few days of pessimistic trading.
 
The outbreak could crush consumer demand, as people limit travel or stay home even without a government order to do so.
 
Over the past few days, companies as varied as United Airlines, Mastercard and Pfizer have said the outbreak poses a threat to their 2020 earnings.
 
Analysts at Goldman Sachs predicted on Thursday that companies in the S&P 500 would generate no profit growth this year as a result of the crisis, because of a “severe decline in Chinese economic activity,” disruption in the supply chain for American companies and a slowdown in the U.S. economy.
“When you get into a situation like this, it cascades, and that really becomes a problem,” said Steve Sosnick, chief strategist at Interactive Brokers in Greenwich, Conn.

As stocks were falling Thursday, other countries struggled to contain the outbreak.

Prime Minister Shinzo Abe of Japan asked all of the country’s schools to close for a month. Health officials in Germany reacted aggressively after a man with no known connection to anyone infected with the coronavirus had tested positive, closing schools and urging some who may have come in contact with him to stay home for two weeks.
 
In Italy, the number of coronavirus cases rose to 650, and in France they more than doubled to 38. “We have before us a crisis, an epidemic that is coming,” said President Emmanuel Macron of France.
 
In Europe, Denmark, Estonia, Norway and Romania all reported infections for the first time, joining Austria, Croatia, Germany, Greece, North Macedonia, Spain, Sweden and Britain. And concerns grew about the severity of the outbreak in Iran, the source of infections in many other countries. The government there said that 245 people had been infected — including a member of President Hassan Rouhani’s cabinet and six other officials — and 26 had died.
 
Indexes in Shanghai and Japan closed 3.7 percent lower, and European markets opened sharply, with the DAX in Germany down 3.4 percent. Futures pointed to a slide when Wall Street starts trading.The S&P 500 is on track for the market’s worst week since the 2008 financial crisis, and other economic indicators are flashing warning signs.
 
But what about the IT Market ?
 

In the tech industry, companies with direct exposure to China were the earliest to feel the effects. Apple, for instance, warned investors that the supply of iPhones — the company’s marquee product, which accounts for the bulk of its revenue every quarter — would be hampered by the spread of the coronavirus. Apple relies heavily on factories in Shenzhen, China, and Chinese consumers are an enormous segment of the company’s customer base.

 

Days later, Microsoft rang the alarm bell. The tech giant depends on customers who install its Windows software on laptops and Surface tablets, and both of those hardware products are also being hammered by closings and slowdowns in China. Personal computing accounts for roughly a third of Microsoft’s revenue. After sharing the impacts on its sales because of the outbreak’s effect on its supply chain, the most valuable company in the United States, fell 7 percent.

 

While hardware companies seem to be the most obvious candidates to face trouble, the impact is starting to ripple outward to other, less obvious internet companies.

 

Expedia, the travel aggregator, declined to provide a full-year financial outlook because of the coronavirus’ disruption of travel. Companies like Didi, the Chinese ride-hailing giant, have started providing drivers with plastic barriers to place between the front and back seats, offering another layer of protection from the virus.

 

Dun & Bradstreet, the business research firm, said about 51,000 companies had one or more suppliers in regions of China affected by the virus, almost certainly leading to a broader impact in the months ahead.

 

To try to keep their employees safe, some companies are taking preventive measures. Organizers called off MWC Barcelona, the annual global telecommunications trade show in Spain. But the giant RSA security conference still went on in San Francisco this past week, even though big companies like IBM, AT&T and Verizon pulled out of it.

 

Facebook canceled one of its advertising events, which is attended largely by employees, and its annual F8 conference — one of the company’s most anticipated events. That’s where it showcases its products and plans for the future to software developers. Mark Zuckerberg, the chief executive, is a mainstay at the event, giving a regular state-of-the-industry keynote address.

 

Employees at Amazon’s worldwide operations — the company’s largest division, which runs the technology and operations for warehouses, deliveries, Prime membership and physical stores, among other things — were told that they should not travel domestically or internationally “until further notice,” according to emails viewed by The New York Times.

 

Dave Clark, the senior vice president who runs worldwide operations, wrote in one of the emails that no group or team meetings requiring travel should be planned until at least the end of April, “by which time hopefully we have a better sense of the virus, its spread and impact.”

 

Amazon confirmed that Mr. Clark had emailed his organization on the matter. “We are watching this situation closely with a focus on the safety of our teams and ensuring we can meet customer promises,” an Amazon spokeswoman, Kelly Cheeseman, said in a statement.

 

The company had already been scrambling to make sure it doesn’t run out of popular products that are made in China, and has urgently emailed suppliers to see if they expect to have enough of their best sellers for its all-important Prime Day this summer.

 

The article from New York times brings a reflection : What less obvious companies might the coronavirus affect in ways we hadn’t anticipated?

 

Will Netflix, for example, see a drastic uptick in hours of streaming television watched, given people aren’t leaving their homes anymore? Or consider delivery companies like Uber Eats, DoorDash, Instacart, even Amazon. In a world where people are increasingly hesitant to go outside and mingle with others, will consumers start to rely more heavily on others doing the shopping for them?

 

Investors seem to be doing the same: Shares in Zoom, the teleconferencing software company, skyrocketed over the past week as more white-collar workers telecommute from home.

 

As we can see, the best opportunities are born in times of crisis. It has always been so and this time will be no different.
You just need not be intimidated and look in the right direction.

 
Source :
https://www.nytimes.com/2020/02/28/technology/coronavirus-disrupts-industry.html
https://www.nytimes.com/2020/02/27/business/stock-market-coronavirus.html?action=click&module=Top%20Stories&pgtype=Homepage
 
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