Coronavirus shuts down Samsung manufacturing site

Having forced the hand of the GSMA to cancel this years’ Barcelona bonanza, the coronavirus is now making itself known in Korea.

While the majority of a Samsung factory is now open, the floor where in infected employee worked will remain closed until the morning of February 25, according to Reuters. The impact should not be too significant to the Samsung business as this site only accounts for a small proportion of the total manufacturing output, it is another example of how the coronavirus outbreak could dent global supply chains.

“The company has placed colleagues who came in contact with the infected employee in self-quarantine and taken steps to have them tested for possible infection,” a spokesperson said.

Samsung might play down the impact of the closure on its business today, though it is also worth bearing in mind the coronavirus outbreak seems to be accelerating in Korea. The South Korean government has put the country on the highest threat level, after the number of cases just to 763 over the weekend.

As it stands, there has seemingly been little material impact to the industry, aside from limitations to travel and cancellations of conferences. Minimised facetime with partners and customers will of course impact business, though should manufacturing sites start to shut down, the consequences could be very expensive.

The telecoms and technology industries are under particular risk, considering the majority of manufacturing activities are concentrated in China.

“In line with recommendations from the Chinese authorities related to the Corona virus, Ericsson’s production and offices in China were closed until 9 February and this will result in limited to no impact on our customers,” an Ericsson spokesperson said.

“We continue to follow the situation and recommendation from the Chinese authorities and WHO [World Health Organisation], as we assess our supply chain.”

Ericsson is one company which is seemingly in a more comfortable position. Some products are manufactured in China, though the company also has sites in Estonia, the US and Brazil. Each of these sites can see production ramped up to compensate for any short-falling elsewhere.

As it stands there are more than 70,000 coronavirus cases in China, though the Hubei province has felt the greatest impact. Xiaomi is one company in the TMT space which has been impacted in a material way, its second headquarters is located in Wuhan, though as much of the telco industry is located in the Guangdong province, supply chain impact has been minimised for the moment.

Huawei is another company which was forced to close its doors in early February, though the company has suggested this was an extended holiday period for employees, and it is now back to 100% manufacturing capability.

“In short, we are doing an industry assessment,” said Ryan Ding, President of Huawei’s carrier business unit. “But we can say, for the next 3-6 months there will not be an impact on our global supply chain.”

Right now, the company has stockpiles of product and components which will ensure there is no complications to supply, both in terms of smartphones and telecoms network infrastructure equipment. As the sites are now functional again, it does look like the most serious consequences can be avoided, though this is based on the presumption the coronavirus outbreak will not continue to escalate.

The immediate risk to the closure of manufacturing sites is an inability to meet demands of customers with products, but also sourcing materials and components. Scarcity of components would only increase the price of products, meaning companies would have to either accept lower profit margins or pass the increased cost onto customers.

While the Chinese companies are the most obvious risk to the global supply chain, let’s not forget China is the manufacturing hub of much of the TMT industry. Ericsson, Nokia and Apple can also trace their supply chain back to Shenzhen. Currently, the delicately balanced supply chains are remaining intact, though this should be viewed as a significant risk to the telecoms industry.

Apple considering a Chinese exit amid international tensions

It seems Apple does not consider itself immune from collateral damage, as whispers about a China exit are becoming louder and more plentiful.

For China, and those Chinese citizens who are dependent on Apple for their livelihood, the news will come as a shock, but this is a development which some have been expected for a while. According to the Nikkei Asian Review, Apple is considering moving 15-30% of its production capacity out of China.

This is a trend which we are starting to see pretty much everywhere. Supply chain management is a very difficult aspect of an international business, and while it might have looked attractive to take advantage of cheap labour in developing markets during yesteryear, it seems a concentration of operations is getting Apple executives twitchy today.

The quoted sources are suggesting diversification of the supply chain is a sensible way to manage some tensions floating back and forth across the Pacific Ocean.

In terms of the clues this development was on the horizon, it is worth looking back a couple of weeks. Foxconn executives have already said 25% of production is already located outside of China, and there is enough capacity to meet the demands of Apple as a customer should tensions have a negative impact on the Apple business. This appeared to be a largely unprompted statement, but perhaps the conversations were already happening behind closed doors.

What is also worth noting is that Foxconn certainly has some incentive to bend to the will of Apple executives; if it doesn’t have the capacity, a smart idea might be to spend some cash buying a company outside of China sharpish. Although not confirmed, Apple supposedly accounts for roughly half of Foxconn total revenues. If Apple wants to move production capacity out of China, Foxconn should quickly learn the moves to the new dance.

For the Chinese employees in the supply chain, this will be a very worrying time. Five million workers rely on Apple’s presence in the country, with Apple only employing 10,000 directly. Interestingly enough, there are now more named suppliers in China than in the US (41 Chinese firms vs. 37 US suppliers). What is worth noting is that China will remain the centre of Apple’s supply chain for the foreseeable future; shifting such a complex and monstrous operation would take a considerable amount of time, investment and planning.

Other countries would of course want to woo Apple, but China is a very attractive base for the iLeader. Not only does it have the necessary infrastructure, it has the skilled workers in place. 90% of Apple’s products are currently manufactured in China and replicating this successful operation will not easily be done elsewhere.

Although this would be a precautionary move from Apple, the threat is genuine. Huawei and ZTE have already shown there are heavy consequences if supply chains are too concentrated in a single market, and due to the aggressive actions of the White House it would surprise few to see retaliation from the Chinese Government.

On the supply chain side of things, Apple has been making other efforts to shift around operations. The firm has been working to move the production of some premium handsets to India in an effort to avoid the 20% import duties in the country. Apple has continued to struggle in India, partly due to the price conscious nature of consumers. Anything which can be done to reduce the price of handsets will be explored to improve market share.

Whatever your thoughts of President Donald Trump, you cannot argue the Oval Office is having a much more profound impact on the technology industry than previous administrations. Perhaps his actions will lead the Chinese semiconductor market grow, while the manufacturing and assembly operations will be spread into other Asian markets. Another couple of years and the segment could almost look unrecognisable.

Microsoft and BMW pair up for IoT Open Manufacturing Platform

Microsoft has partnered up with the BMW Group to launch a new initiative aimed at stimulating growth for IoT in the smart factory segment.

The Open Manufacturing Platform (OMP) will be built on the Microsoft Azure cloud platform, aiming to have four to six partners by the end of the year, to help grow an ecosystem and build future Industry 4.0 solutions. The smart factory segment is promising much with the emergence of 5G, but with every new concept there is scepticism; someone always needs to drag it towards the finish line.

“Microsoft is joining forces with the BMW Group to transform digital production efficiency across the industry,” said Scott Guthrie, EVP of the Microsoft Cloud and AI Group. “Our commitment to building an open community will create new opportunities for collaboration across the entire manufacturing value chain.”

“We have been relying on the cloud since 2016 and are consistently developing new approaches,” said Oliver Zipse, a board member at BMW. “With the Open Manufacturing Platform as the next step, we want to make our solutions available to other companies and jointly leverage potential in order to secure our strong position in the market in the long term.”

BMW is already a significant customer of Microsoft Azure, with over 3,000 machines, robots and autonomous transport systems connected with through the BMW Group IoT platform, which is built on Microsoft Azure cloud.

Openness is one of the key messages here as the pair bemoan data silos and slow productivity created by complex, proprietary systems. The OMP aims to break down these barriers through the creation of an open technology framework and cross-industry community.

For both, the objective of this group is relatively simple. At BMW, the team wants to improve operational efficiencies and reduce costs, partly by taking back control of the supply chain, while Microsoft just wants more people, processes and data on Azure. The more accessible the smart factory is, more companies will become cloud-first, and the more successful the OMP becomes, the more customers Azure gains.

The OMP will provide community members with a reference architecture with open source components based on open industrial standards and an open data model. Through openness, the pair claim data models will be standardised to enable more data analytics and machine learning scenarios and usecases. For Microsoft and the manufacturers, its great news, for the suppliers not so much.

Openness sounds like a great idea, but with any fundamental change comes consequence. There will be numerous companies who benefit considerably from proprietary technologies and processes, especially in traditional industries like manufacturing, though those who resist change will be the losers in the long-run. The world is evolving to a new dynamic, where openness rules the roost, resistance only means future redundancy.