Omicron threat: Handset companies wary of plant, border closures

A critical two to three weeks loom for India‘s handset industry amid fears of a setback in case China, Vietnam, South Korea and Taiwan decide to shut borders due to growing concerns around the Omicron variant of coronavirus.

Industry watchers say Diwali had brought in some recovery, and while component shortages continue, more border closures will push back whatever recovery was made in the October-December quarter.

“The next two-three weeks will be critical to see if the shipment of components will get impacted,” said IDC India research director Navkender Singh. “China has not closed its borders and the little recovery made in the October-December quarter will be lost if that happens.”

The last three months of 2021 have seen strong shipments despite the component shortages because of massive pent-up consumer demand, mainly for higher priced phones during Diwali.

‘Manufacturing Halt Bigger Worry’

As things stand, annual smartphone shipments in India for 2021 are expected to be 160-168 million units. The second half is expected to help the industry recover due to pent-up demand, especially during the festival season. The October-December quarter is expected to close at 36-37 million compared to 47 million in the July-September quarter, which saw huge shipments as brands built up inventory ahead of the festival season.

But the sector is spooked at the possibility of battling the Omicron variant, which has forced countries like Japan and Israel to shut their borders while others put in restrictions.

“While it’s early to comment, our team is examining the situation and mapping the impact of the Omicron Covid-19 variant on business,” said a Xiaomi spokesperson in an email response to ET’s queries. The handset maker added that it has a “resilient supply chain strengthened over the last two years” and is hopeful that the variant “will not have much of impact on supply, components, or manufacturing.”

Apple, Vivo, Oppo, Samsung, Amazon, Realme didn’t respond to ET’s emailed queries.

A senior executive in the handset sector said a Chinese mobile maker has chalked out a blueprint on how to service the domestic demands in case their country decides to close any of the manufacturing plants or ports. “They have held internal meetings on the supply chain crunch and component shortages,” the senior executive said.

So far, shipping and freight services continue, and right now, mostly passenger flight services are facing restrictions.

Market research firm Counterpoint Research highlighted the concern of any potential halt in manufacturing that will have a domino impact on consumer electronics in India.

“More than shipments, manufacturing is the worrying point if the virus spreads,” said Neil Shah, partner at Counterpoint Research. “When Vietnam shut down its production plants because of Covid, Samsung was impacted globally. A similar closure of plants in China/Vietnam will have a spillover impact on Indian handsets.” Component shortage due to closure of ports and logistical challenges had forced handset brands to airlift their cargo, which in turn upped the prices by 15-20%.

“Right now even if borders close, shipments may still be allowed as much of it is remotely managed with limited manpower. But plants’ closure will have a much larger blow for us,” Shah added.


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