A complication at one point in a supply chain can have significant ramifications for companies downstream. But this effect is amplified during a global pandemic, when containment efforts can slow down production in many countries at once. This is already true of supply chains with links running through Southeast Asia and China.
When examining the types of intermediate products that China produces, “electronics and just electrical equipment in general were the most vulnerable segments of the supply chain,” said Gregory Daco, the chief U.S. economist at Oxford Economics in an interview last month with The Post. “If you look at some of the employment data for the region, you see that essentially, everything that pertains to electronics and I.T. equipment — and semiconductors are in there — are some of the most exposed.”
It is difficult to predict how coronavirus will impact the production of video game consoles, especially the next generation of consoles like Microsoft’s Xbox Series X and Sony’s PlayStation 5, tentatively slated for the 2020 holiday season. But the pandemic is already proving to be a test for the companies involved. Last month, Bloomberg reported that Nintendo would have difficulty supplying Switch consoles to the U.S. and Europe due to coronavirus-related supply chain complications.
“Everyone is panicked,” said Rui Zhang, general manager at Lorom, which makes cords and is listed as a top supplier to Microsoft. “I don’t even know who has the time to forecast or look at the next four or five months.”
Working from a list of Microsoft’s top 100 suppliers, Launcher reached out to 38 companies around the world involved in some part of the video game console or peripheral manufacturing process. Some of these companies also displayed relationships with Sony and Nintendo on their websites, in investor relations presentations and in other publicly available sources.
When asked about anticipated delays, answers ranged from cautious optimism, to boilerplate wait-and-see “we’re monitoring” language, to concerns regarding months-long delays and a possible recession. Spokespeople for both Sony and Microsoft declined to comment when asked by The Post if they anticipated delays or had taken any measures to account for or mitigate the temporary loss of manufacturing time and labor.
“Most suppliers pretty much stopped supplying the whole of February,” said Zhang. “We are missing a whole month. All of the supply chain managers I talked to … It will probably take them two or three months to recover.”
That recovery timeline could be extended further still by delays on the part of other suppliers in the chain. One missing detail or shortage from a supplier — say, copper for a cable — could lead to delays further down the line. Disparities in how supply chains are organized complicates the situation further. Some companies develop parts in-house, or buy up stockpiles. Others don’t. Microsoft and Sony could also opt to seek different suppliers, or attempt to renegotiate contracts with existing suppliers seeking more favorable terms. This makes it difficult to predict the impact of a delay, or even to determine whether a delay will happen at all.
Lack of information is a key challenge. Understandably, no company had a clear sense of how its business would be impacted by the outbreak. That uncertainty alone may hurt companies and workers down the line.
A lack of data “creates a veil of uncertainty, which on its own reduces activity,” said Daco. “Not knowing is usually very, very tough for businesses. We’re likely to see that lingering into the second quarter. … The impact might be longer lasting than initially believed.”
Severity of the impact of coronavirus differs entirely based on location. Lorom’s Hangzhou factory, which has 2,000 to 2,500 people at full capacity, according to Zhang, was operating at 40% capacity back one week ago. On Monday, Nidec, a company which produces cooling fans and motors for controllers, as well as motors for hard disc drives and optical disc drives, told The Post that most of its Chinese factories had returned to above 80% regular production levels. Another company, Alps Alpine, which manufactures switches, motors and sensors for controllers, wrote that operations at its eight factories and 18 sales offices in China resumed the week of Feb. 10, “right after the Chinese new year vacation.”
Others indicated that the situation had not significantly impacted their businesses at all.
But the slow return to pre-coronavirus production levels doesn’t necessarily signal that manufacturers are in the clear. Many questions remain unanswered, and perhaps unanswerable, for now. As work slowly resumes, suppliers will have to determine their priorities, including which clients to move resources to meet delivery dates at the expense of other clients.
These factors form a complicated picture for console manufacturers, even months in advance of orders being placed on new console components.
“I won’t say I’m optimistic about the future of this year,” said Zhang.