How is the COVID-19 Affecting the Fiber Optic Communication Industry?
At the beginning of 2020, a huge black swan event, regarded as a once-in-a-century disaster, swept the globe, profoundly affecting our lives and work, and even threatening our lives. But the catastrophe will pass, the virus will be eradicated, the human race will be victorious, and we will still live and work in a positive way. And as fiber optic communications industry practitioners, how do we think of the impact of this epidemic on the communications industry?
We will analyze the impacts from two aspects: demand and supply.
Supply side: It has to be said that the coronavirus is very creepy. It started in China, the world’s largest supplier of fiber optic communications. The outbreak began in China’s central city, Wuhan, Hubei, during the Chinese New Year. And then the country, Wuhan, started lockdown, provinces across the country quickly adjusting to the highest level of response. Industries stopped working and production stopped, people stopped moving, logistics began to break down, and China was forced to hit the pause button, as if time had stood still.
But for the fiber optic communication industry, due to the rapid development of 5G communication technology in China in 2019 and the global rollout, domestic suppliers were full of orders. And the sudden stoppage of production made companies of all sizes face enormous delivery pressure.
After the domestic epidemic was under control in early March, the situation suppliers face was that they have difficulties in hiring a worker. As workers returning to their hometowns were slow to return to the city to work, in order to cope with the pressure of delivery, many factories had to recruit workers with high salaries and ask agents to help them recruit workers by paying high commissions. Its agency fees was up to several times than before.
Then just as China controlled the outbreak, the virus quietly took root in other countries around the world. By late March, due to the rapid outbreak in European and American countries, unable to control, every country introduced hard nuclear prevention and control measures. Overseas market hard landing, some export-oriented production suppliers faced the termination of production orders, new orders indefinitely postponed. Those workers recruited at a high salary became a huge burden among producers. Business operations facing enormous pressure, if the capital chain risk resistance was insufficient, enterprises were expected to be difficult to survive the current round of winter.
Fiber-optic equipment manufacturers are expected to face a major reshuffle in the epidemic, and a wave of closures will arise among some small and medium-sized factories. The supply capacity will be squeezed to a certain extent, and the production capacity squeezed off is small and medium-sized enterprises with processing-oriented, low technical threshold, weak capital strength. Such suppliers are mostly low-priced competitors and will have a positive impact on the price of the product.
Demand side: The demand side is analyzed from two markets, the Chinese market and the overseas market.
China is an enabler and leader in 5G communications technology, and 2020 is the first year of 5G development in China. Due to the huge impact of the epidemic on the economy, China will dramatically increase infrastructure investment to stimulate the Chinese economy, but for now, this demand will be forcibly delayed, but not lost, and this demand will be quickly released after the epidemic is fully controlled.
For overseas markets, their demand will be somewhat subdued. Because fiber optic communication belongs to the scope of infrastructure construction, in China, this investment is mainly led by government state-owned capital, while most countries overseas are mainly private capital-led investment. State-owned capital investment is counter-market behavior, while private capital is the market investment, its ultimate goal is profit. As the current epidemic is serious, all investment behavior should be more cautious and product market demand will be severely suppressed. When the epidemic is over, this demand is also slow released. So the short-term impact of the overseas market will be shock type, but in the long term, human reliance on the network will only increase unabatedly. Its demand is still apparently rigid, and the optical communication industry will still usher in the spring after bearing through this round of winter.
Overall, the epidemic will have a huge short-term impact on the fiber optic communications industry. Many companies in the market will be eliminated in this winter, while those who survive will share the cake that has not disappeared.