Covid-19 impacts business – but some positive signs

26 Mar 2020

Global economy headed for recession, smart phone output could drop 30% in H1 2020 – but many photonics companies dig in.

Disruptions to supply chains, demand, international trade flows, and travel, along with lockdowns and collapsing stock prices, resulting from the coronavirus disease 2019 (COVID-19) virus have dealt a heavy blow to the global economy, says analyst IHS Markit. But as optics.org reviews a wide range of industry updates, there are already some grounds for business optimism.

IHS Markit key conclusions

• The United States, Europe, and Japan are headed for recession.
• The IHS Markit forecast for world real GDP growth in 2020 has been revised down to 0.7% in response to the spread of the virus. Growth below 2.0% is classified as a global recession.
• The number of active world cases is assumed to top out by the third quarter.
• Nevertheless, the result will be a U-shaped rather than V-shaped cycle, as a sharp reduction in near-term growth is followed by a slow recovery.
• Forecast risks are overwhelmingly on the downside and depend crucially on how governments respond.
• Central banks have already taken emergency actions, but the fiscal response is more uncertain.
• The recent sharp drop in oil prices will help energy consumers and hurt energy producers. The net effect on global growth is likely to be negative, but small.

The Covid19 outbreak is expected to lead to a huge reduction in the production of smart phones, potentially falling by as much as 30% in the first half of 2020, states global tech market advisory firm, ABI Research.

“The ripples from China will be felt globally,” commented David McQueen, 5G Devices Research Director at ABI Research. With China located at the epicenter of the pandemic, the resultant impact has been disastrous for the global mobile device market, which has subsequently witnessed mass disruption to its production lines and a stalling of related supply chains caused by labor shortages and inactive logistics.

As China is also the world’s manufacturing center for most of these device types, and one of its biggest markets, the sector has been hit hardest by delayed shipments and a weakened development of next-generation products.

'5G device delays'

“Significantly, in the short term, there will be an adverse effect on 5G devices. No sooner had 5G smart phones started to gain some traction and break into the market in significant numbers, than the outbreak will now trigger a suppression of its near-term growth, pushing out the development and introduction of affordable 5G phones,” said McQueen.

The State of Pennsylvania has directed all non-life-sustaining businesses to close in response to the Coronavirus outbreak. However, this directive does not apply to semiconductor and optoelectronics developer IQE, which is classed as a "sustaining business" under the category of semiconductor and electrical component manufacture.

IQE is continuing full operations at its Pennsylvania site, adhering to the US Center for Disease Control guidance. Production at all of IQE’s global facilities remains unaffected thus far. The company stated: “The total impact of these conditions and risks on IQE’s markets remains unquantifiable at this point in time. While we are prepared for the increased risk to revenues it presents, it remains that IQE has not yet experienced any resulting impact on its orders from customers.”

Continuity plans

In the context of the Covid-19 pandemic, laser maker Lumibird is adapting its organization in order to protect staff, while ensuring the continuity of its operations on markets that are resilient to some extent faced with the crisis, particularly in the health and defense sectors.

Lumibird Group has been operating its continuity plan since March 17th. This plan aims to guarantee the protection of its employees in order to enable its sites to continue operating, while respecting the measures introduced by the governments in the various countries where the Group is present. The Group’s efforts have also focused on its suppliers and clients to enable them to ensure continuity for their activities as well.

Mauna Kea Technologies, the multidisciplinary probe and needle-based confocal laser endomicroscopy platform, this week announced a business update. The company stated, “As a result of the disruption from the global crisis caused by Covid19, the company is changing its date for publication of full year 2019 financial results to April 28th. The company intends to provide an update on sales results for the first quarter of 2020 as part of this publication, as well.

“The long-term growth opportunity for Mauna Kea remains compelling,” stated Robert Gershon, CEO. “That said, our near-term outlook has been challenged by the global crisis caused by Covid19, during the first quarter of 2020. We expect these trends to have more significant impact on our second quarter results. Given the rapidly evolving dynamics in our primary commercial markets around the world, we are unable to predict when the procedure and system adoption trends will improve.”

ON Semiconductor has drawn down approximately $1.17 billion from its revolving credit facility. The company has no immediate use of the funds, and it has made the withdrawal out of abundance of caution to have access to sufficient liquidity in an uncertain macroeconomic environment. With this withdrawal, the company has made full use of its $1.97 billion revolving line of credit.

"The withdrawal of approximately $1.17 billion from our revolving line of credit significantly enhances our liquidity position by adding to approximately $894 million of cash on our balance sheet at the end of Q4, 2019," said Bernard Gutmann, CFO and executive VP. "With a history of prudent and aggressive cost management in the wake of challenging conditions, we are very confident that ON Semiconductor should be able to successfully weather the current macroeconomic challenges."

Inrad Optics wants to inform the business that the company is ensuring the health and safety of employees and associates by following all best practice CDC guidelines for prevention in the workplace. New Jersey’s Governor Philip Murphy announced further restrictions on business and personal movement. Manufacturing companies have been deemed essential business under this new order, and as such Inrad Optics will be open with production personnel and limited staff working onsite.

The company stated: “We will continue to monitor the situation and be proactive in supporting our employees and our business during this difficult time. For further information visit the company's website contact page.