CE Industry Keeps A Wary Eye On SARS

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Manufacturers and retailers are keeping a wary eye on SARS, the deadly respiratory disease that has taken its biggest toll in China, the production heartland of consumer electronics.

Although vendors and dealers have reported few problems to date with supplies, shipments or sales stemming from Severe Acute Respiratory Syndrome, most are maintaining travel restrictions and other safeguards for employees, forcing a fundamental change in the way the industry conducts business.

Companies are also stockpiling inventory and lining up alternative suppliers in the event that current sources become affected by the epidemic.

The most visible signs of SARS in CE so far have been the closing of Motorola's Asia Pacific headquarters in Beijing last month after an employee showed symptoms of the disease, and the cancellation of the CeBIT CES Home Electronics Fair, which was slated to run last week. The trade show, co-sponsored by the Consumer Electronics Association (CEA) and Germany's Hannover Faires, was banned by the municipal government of Shanghai — along with all other mass gatherings — in an effort to curb the spread of the disease.

Despite the cancellation, all U.S.-based CEA events remain on schedule, including next month's CEO Summit, the Fall Conference and the Consumer Electronics Show (CES) in January. According to a CEA spokesman, the SARS scare has not affected attendance at any forthcoming events, and the trade group will "continue to evaluate how it will affect the number of visitors at CES." Similarly, no manufacturers have reported any impact from the disease, he said.

"The number of U.S. cases has been very low," CEA's spokesman said. "It hasn't affected anything, and we don't see it affecting anything, but it does merit monitoring."

Manufacturers contacted by TWICE concurred, but are taking precautions nonetheless. Jasco has "increased inventory levels to safeguard against temporary production disruptions," said Kent Shiplet, executive VP/marketing and sales. "We also have alternative factories that could produce our products if a shutdown occurred due to SARS."

Jasco has also curtailed all Far East travel pending reevaluation in June, and has kept close watch on its factories' safety procedures, which include taking employees' temperatures daily and making masks mandatory. To date, all 14 categories of the company's GE-branded accessories lines are shipping without interruption, Shiplet said.

Accessories maker Sanyo Energy (U.S.A.) has cancelled all trips to China and the 22 factories it utilizes there, although production continues unabated. Tellingly, however, president Tony Matsuura cited one customer who requested that Sanyo staffers who'd recently been to China undergo a 10-day quarantine before visiting their facilities.

CenDyne has also put an indefinite hold on all trips to Asia, but the policy change may have come too late for CEO Mo Vahdati and president Ed Meadows, who developed SARS-like symptoms following their return from China in January. (Doctors are still unable to diagnose their condition.)

According to a CenDyne spokeswoman, the co-founders are nonetheless trying to stick to their product development and manufacturing deadlines, although it is "very hard to conduct product planning meetings via phone. They need to talk about colors, button shapes and sizes," and several new products, including a PVR and a VCR/DVD burner, are in jeopardy of being delayed.

Uniden has similarly restricted all but "critical" travel to SARS hot spots, said project management director Rex Holloway, and has taken additional measures to minimize infection at its factories, such as supplying face masks, "discouraging" travel and providing additional medical attention.

"We understand that an outbreak in a factory, or in any portion of our overseas operation, could negatively impact our ability to perform our best for our customers. But we also recognize how important our personnel are to our success," Holloway said.

Maxell executive VP Don Patrican said his company has "experienced no direct interference with our business," although it has curtailed travel to and from China and, to a lesser extent, Toronto. He added, "My understanding, from talking to colleagues in consumer electronics [hardware], is that it has slowed some of their business."

Accessories supplier Kensington has been "closely monitoring WHO, CDC and local news related to SARS from China, Taiwan and Hong Kong … and is now tracking reported cases of SARS on a daily basis," said Brad Turpie, director/supply chain.

Although none of its suppliers have reported any incidence of SARS, those located in affected regions have taken measures to mitigate exposure, such as frequent disinfecting of factories, dorms and common areas, the wearing of masks, and substituting phone, e-mail, fax and video conferencing for in-person visits whenever feasible.

Kensington itself has banned non-essential travel to affected areas, and has "implemented plans to procure and build additional stock of key items and components as a contingency measure in the event of a factory or supply chain interruption," Turpie said.

He added that retail customers/chains have inquired about his company's contingency plans, and have been concerned about ensuring that stocking and inventory levels are adequate to support a supply chain interruption.

For Philips, which has 55,000 employees in Asia, most of whom are in China, "It is too early at the moment to say anything on the impact of SARS on business," apart from travel restrictions, safety precautions and the encouragement of conference calls, a spokeswoman said. No Philips facilities have been closed to date in the area.

Scosche Industries, makers of high-end mobile accessories, is "very concerned with the SARS outbreak, especially with our business partners in the Pacific Rim," said Kasidy Alves, VP/sales and marketing of its SoundKase storage division. "We have taken full precautions to eliminate contact with infected regions, persons and other potential carriers," and, accordingly, have cancelled all trips to China, Hong Kong and Taiwan. In their stead, Pacific Rim business reps have assumed responsibility for all projects, face-to-face communications, factory visits and public relations functions, Alves said.

The fear factor seemed less pronounced at eMachines, whose desktop and notebook computers are all produced in China. According to Gary Elasser, VP/technology and platform development, the company has not experienced any problems due to the disease, nor has he heard that other businesses were having SARS-related difficulties.

Kodak, which took a hit on consumer film sales within China, otherwise doesn't anticipate the disease having "any impact on our [consumer digital imaging] business," a spokesman said.

So far, Pioneer hasn't been impacted by SARS aside from canceled trips to China, a company spokesman said, and based on communications with its Asian offices, Minolta doesn't anticipate any problems either.

Among those suppliers TWICE contacted that sell products sourced from China, and have felt no impact yet, are GPX, Belkin and jWin Electronics. Best Buy and Circuit City have not felt an impact as yet, although both chains are monitoring the situation.

Less sanguine about the possible impact of SARS on dealers is Dan Hodgson, senior VP/merchandising for Crutchfield. "The biggest impact would be if it really affected product availability," he said. "Generally, there's a 60 to 90-day supply of product in the pipeline and we carry a 60-day supply. So we're still in the buffer range. But if factories were to shut down, prices on key items could go up."

William Wang, founder of Princeton Graphics and CEO of startup V Inc., a vendor of DVD players and LCD TV displays, warned that SARS could effect "All types of retailers … Specialists, through chain stores may see some delays in shipments from vendors from Japan, Korea, China and Taiwan."

V Inc. is already feeling the affects of the epidemic, because many of its products' R&D and design functions are performed in various locations in the Far East. With executives reluctant to travel, "some development schedules have slipped somewhat," Wang said. — Reported by Amy Gilroy, Jeff Malester, Doug Olenick, Joseph Palenchar, Greg Scoblete, Greg Tarr and Alan Wolf


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