Chinese consumers have been pulling back their spending on products like PCs and handsets since severe acute respiratory syndrome (SARS) broke out on the mainland a few months ago. With many Chinese citizens trying to protect themselves from the disease by shutting themselves in and not going out, there isn't much need for cell phones, and little interest in going shopping for a new PC.

"We expect SARS to bring down our sales in the Greater China region, with a decline of about 5% to 6% for our sales in the second quarter," according to a statement from BenQ Corp., a Taipei-based handset ODM that is a major supplier of Motorola Inc.

Acer Inc., one of the world's top 10 PC OEMs, also sees its business on the mainland slowing down as a result of SARS. "After SARS began to spread rapidly in late April, our shipments to China only grew 30% to 40%, compared with a 60% growth right before the outbreak," company president J. T. Wang said recently.

With the epidemic continuing to threaten China and Taiwan, BenQ and Acer, both of Taipei, Taiwan, are not alone in feeling the effects. Taiwan's handset ODMs and motherboard makers, along with OEMs on both sides of the strait, are all seeing a drop in demand.

"Motherboard shipments to the Chinese market in the June quarter would drop around 15% sequentially," said Yang Yahui, an analyst at Prudential Securities Investment Trust & Co., Taipei.

Those companies affected include Taiwan's Asustek Computer Inc., Elitegroup Computer Systems Inc., and Compal Communications Inc. Legend Group Ltd. and Founder Electronics Co., Ltd. - the two largest PC OEMs in China - and Ningbo Bird, the mainland's largest domestic handset vendor, will also feel an impact, as will U.S. OEMs such as Hewlett Packard Co., IBM Corp. and Dell Computer Corp., analysts said.

In China, the world's second largest market for both PCs and handsets, the impact can readily be seen in increasing inventories, as the SARS epidemic takes more wind out of the sails of demand, which had already been slowing.

"We are well-aware of inventory build. The question is how they are going to offload this finished product." UBS Warburg said in a research note. "It looks like substantial price cuts in China may be the order of the day to solve this issue."

Overall PC inventories in China have risen to between four and five weeks, the note said.

In the longer term, there will be a slowdown in growth of the PC market in China from the previous 20% growth each year to a more "modest" 16%, the research firm said.

By: DocMemory
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