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Is SARS sickening tech?
The initial reports have tempered. But SARS is forcing a hard look at companies' outsourcing plans.
April 10, 2003: 11:48 AM EDT
By Eric Hellweg, CNN/Money Contributing Columnist

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SAN FRANCISCO (CNN/Money) - These are great times for panic junkies. Even though the initial phase of the war in Iraq is wrapping up, a new storm sits perched on the horizon: Severe acute respiratory syndrome (SARS) has broken out across Asia. At first blush, there seems to be good reason for tech investors to panic:

Intel (INTC: Research, Estimates) canceled developer conferences in Beijing and Taipei, Taiwan, because attendees were afraid to travel to the region.

For the same reason, Sun (SUNW: Research, Estimates) postponed a conference in Shanghai, China.

Motorola (MOT: Research, Estimates) had to close a factory in Singapore briefly.

Scores of companies have scuttled any non-mission-critical business travel to Asia.

On Monday, SARS made its first appearance in an earnings call, when semiconductor maker Microchip blamed SARS, among other factors, for its earnings warning.

And in perhaps the most drastic move, First Albany analyst Auguste Richard recently cut his 2003 semiconductor revenue growth forecast from 8 percent to zero growth, blaming the free fall on the impact of SARS and saying its effects will be bigger than the war in Iraq.

"Every company I speak with is talking about it," says Rob Enderle, an analyst with Giga Information Group. "The concern level is very high."

But take note and take heart, investors: According to analysts and spokespeople interviewed for this column, the disease and its attendant media hysteria have yet to result in earnings shortfalls or material business disruption for the technology industry.

In fact, anyone wondering how the disease is affecting tech need look no further than Intel, which, in addition to canceling the Taipei and Beijing conferences, had to shut down an entire floor of its Hong Kong sales and marketing office for a week when an employee showed signs of the disease.

The good news is that the ailing employee is responding to treatment and the floor reopened on Monday. And despite the canceled conferences and the temporary office closures, Intel "has seen no impact [from SARS] from a business perspective," says Chuck Mulloy, an Intel spokesman, a feat he attributes to the company's strong supply chains and business-continuity plans.

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To be sure, any time a health crisis of this magnitude hits the Asia-Pacific region -- the dominant source of Wi-Fi equipment and semiconductor production -- concern is understandable and, to some extent, panic is to be expected. "Asia [is] long the fastest-growing region in the world and the one area that essentially had been keeping the global economy afloat," Morgan Stanley (MWD: Research, Estimates) chief global economist Stephen Roach wrote in a note on Friday.

Peter Kastner, coauthor of a SARS report and the chief research officer for the Aberdeen group, a Boston research firm, has tempered his forecast's initial dire predictions. He notes that the medical situation has improved and that the tech execs he's spoken to say they've suffered no disruptions to their supply chains. "Goods are moving freely, and we haven't seen changes in commodity spot prices, which might indicate a decrease in supply," he says.

Still, Kastner says he is hearing a new concern about China's opaqueness with health information. Many companies outsource their manufacturing to China because it meets the three requirements for the tech supply chain: low cost, high quality, and dependability.

But with China's initial closed-mouth approach to the SARS crisis (the country didn't update its official SARS tally between mid-February and last week), many are now questioning whether the dependability factor has suffered an irreparable blow.

"This isn't the first time China has stiff-armed the world on a major global health issue," Kastner says. "Tech companies, which heretofore had rushed to outsource to China because of the quality and low cost, are now rethinking whether they can put all their high-tech eggs in the China basket."


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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.