Tech companies feel growing impact of coronavirus outbreak

Major American tech companies are facing a new challenge as they take steps to grapple with the outbreak of the coronavirus in China.

In recent days, tech companies have closed stores and offices, restricted executives and workers from traveling to the country and warned about the potential effects on their supply chains.

The pneumonia-like disease has infected at least 17,000 people and has led to more than 300 deaths, all but one of which have been in China. The rapid spread of the disease has already had economic repercussions in China, where stocks dropped 8 percent Monday after markets reopened for the first trading session since Jan. 23. 

Experts have warned that the outbreak in the world’s most populous country and an economic superpower could threaten global growth this year.

But the effects could be particularly felt by the U.S. tech industry, which has depended on China both as a major market for its goods and as a critical supplier of components for a number of consumer products.

Financial analysts at Goldman Sachs on Monday predicted Chinese gross domestic product growth would drop 1.6 percentage points compared to first quarter last year, which they estimate would slow growth 1 percentage point globally over the same period.

Producers of smartphones and other consumer electronics could face steeper hits from the loss of revenue and productivity, according to the firm’s equity research team. Beyond the factories in Wuhan, where the disease originated, manufacturing throughout China could be affected. The outbreak coincided with the Chinese Lunar New Year, which sees millions traveling throughout the country.

“I would guess that just about every factory in the great coastal manufacturing hubs of Guangdong Province and Shenzhen, the Shanghai — Suzhou — Nanjing corridor, or around Chongqing in Sichuan Province has some workers who went home to Wuhan or another contagion area for the holiday,” Willy Shih, a Harvard business school professor, wrote in Forbes.

Several tech companies quickly limited travel by their own employees, following a recommendation by the Centers for Disease Control and Prevention (CDC).

Facebook was the first major U.S.-based employer to halt travel. The company, which does not operate in China, suspended nonessential travel by workers to the mainland in accordance with the CDC guidance, a spokesperson for the platform told The Hill.

The company has also asked workers who have recently traveled to China to work from home.

Amazon followed suit, implementing some travel restrictions for employees going to and from the country.

Tech companies that have actual operations in China have had to take more stringent steps.

Microsoft issued a travel restriction and instructed its employees based in China to stay home as a safety precaution.

“The health and safety of our employees and their families is a top priority,” a spokesperson for the company, which has operated in China since 1992, told The Hill in a statement.

“Based on the evaluation of risk communicated by global health authorities we have advised employees in China to work from home and cancel all non-essential business travel until February 9, 2020.”

Google has also placed travel restrictions on flying to mainland China and Hong Kong and temporarily shut down its four offices in the country, a spokesperson confirmed to The Hill.

Travel restrictions to China are a significant burden for the companies, given the country’s role as the largest manufacturing hub in the world and a place where employees travel to frequently. 

Apple went even further, shuttering its Chinese offices and all of its 42 stores.

“Out of an abundance of caution and based on the latest advice from leading health experts, we’re closing all our corporate offices, stores and contact centers in mainland China through February 9. Apple’s online store in China remains open,” the company said in a statement. “We will continue to closely monitor the situation and we look forward to reopening our stores as soon as possible.” 

Tesla is closing its new plant in Shanghai until at least Feb. 9 at the recommendation of the Chinese government, the company said in an earnings call last week.

The coronavirus comes at a critical time for the tech industry, which ended 2019 on a positive note as President Trump saw his trade deal with Mexico and Canada approved by Congress, signed off on a “phase one” trade deal with China and struck a deal with France to delay an online tax that would have hit Silicon Valley’s biggest companies.

But the virus has brought new challenges to the industry. Social media companies in recent days have been struggling to crack down on a wave of misinformation on their platforms, including conspiracy theories about the origin of the virus and misleading health information.

And the longer the outbreak persists, the greater the damage to the industry’s supply chain and bottom line.

The coronavirus may impact the ability of China to meet its end of the phase one trade deal with the U.S. by boosting consumer demand, according to a S&P Global analysis published Monday. That could make it harder for tech companies to recover from the damages they suffered in the tariff war between Washington and Beijing.

Apple CEO Tim Cook on an earnings call last week spoke of the “uncertainty” over the virus and said the company was taking steps to address that.

“We do have some suppliers in the Wuhan area. All of the suppliers there are alternate sources and we’re obviously working on mitigation plans to make up any expected production loss,” Cook said, according to reports.

“We factored our best thinking in the guidance that we provided you. With respect to supply sources that are outside the Wuhan area, the impact is less clear at this time.”