For today's video, I won't be directly commenting
on the recent health related news
because, A, I'm not a medical professional
and B, I don't need my video demonetized.
Instead I'm gonna be laser focused on you,
the potential electronics shopper.
World events affecting manufacturing capacity
and logistics occur every day,
and that's why your local computer store
has a buffer of inventory
rather than just keeping one of every motherboard on the shelf.
Nobody likes carrying inventory because
it ties up cash flow, but it's a necessary part
of doing business when your supplier
isn't right down the street.
Now, so far these buffers,
which exist at every stage of the chain,
be it raw materials, components, and finished goods
have mostly absorbed the production capacity
that's been lost mostly in China over the last few weeks,
but the cracks are starting to show.
So here's my argument.
If you're planning an upgrade,
I would pull the trigger today
rather than do it tomorrow.
Let me explain why.
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Part of what's made this year's production interruptions
so impactful is the terrible timing.
The Chinese New Year Festival is already a period
of low productivity in China
because most factories shut down for about two weeks
while their workers travel home to enjoy some time off
with their friends and families.
Now, experienced product managers will plan around this,
building up some extra inventory to compensate for it,
but even for experienced people, two weeks is a long time,
and human error or other small roadblocks
can already lead to fewer promotions
around this time of year,
while retailers conserve stock
until the factories can kick back up
and start shipping product again.
Except that this year, they didn't kick back up
and start shipping product.
February 8th was supposed to be the end of the festival
but instead it marked the 16th day of the Wuhan quarantine
and Hong Kong's forced quarantine policy
for travelers from China.
Now I'm recording this video on February 25th,
and according to my conversations
with industry sources who preferred
to stay off the record,
as of last week,
production capacity at major manufacturers--
so we're talking like
the Foxconns and Compals of the world--
had finally ramped up to about 15 percent,
with this week expected to be closer to 30 or 40,
which sounds like pretty good news.
But I still stand behind the title of this video.
Apple has already issued an update a week ago
citing global supply constraints as part of the reason
that they were not expecting to hit
their second quarter revenue forecast,
and from an unrelated conversation with
a major SSD manufacturer,
I learned that all of their SSDs are currently on allocation.
Allocation means that customers are welcome to place orders
for however many units they want,
but current supply is not enough to fulfill them all
and the company is working to strategically distribute
what they have.
Here's the thing:
The major players are beginning to return to work,
but there are a lot of other moving parts in the machine
that puts a shiny new iPhone on your doorstep every year.
Right now, the big factories don't have a supply issue,
because much like a retailer,
they buffer the supplies that they need
in order to produce products.
But those familiar with the concept of just-in-time delivery
will know that they try to keep as little on hand as possible
under normal conditions.
So the subcontractor factories who turn raw materials
like copper into finished printed circuit boards
for those major manufacturers,
well, so far they haven't been able to ramp back up as fast
and they might not be able to apply
the same amount of pressure on regulators
to get back up to full capacity.
So we can make an educated guess that if someone like Pegatron
doesn't have enough PCBs,
their customers aren't going to be receiving
enough completed graphics cards anytime soon.
The other issue is logistics.
Chinese officials are apparently smoothing out the process
of clearing drivers and dock workers to return to work
and it is getting better,
but a lot of the transportation workers
still haven't returned to work
or they're in precincts
where they're not allowed to travel to other regions.
Now to protect my source,
I won't say what kind of product I'm talking about,
but I did hear an anecdote
about a couple thousand finished units of a large device
sitting there ready to ship out
with just two drivers to move them out.
So we could be in a position where
even if people are at the factory
working and building things,
there could be no way for us to get them.
And while I've been focused mostly on China so far,
this is not just a Chinese problem.
Even with all the outsourcing last year
due to tariff concerns,
a lot of what was outsourced was sub assembly
or final assembly to Mexico, India, Vietnam,
or what have you.
But the thing is, all the sub components
still need to come out of China for assembly,
so it's gonna hit everyone, even if it's indirectly.
Where we really run into trouble
is if it starts to affect others directly as well.
Samsung just closed one of their phone factories
in Korea last weekend
due to a confirmed infection of one of the workers there.
Anon Tech has the most recent hard numbers I could find,
and as of the midpoint of last year,
South Korea, including Samsung,
who holds the lion's share of the market,
was still producing about 70 percent of the world's DRAM,
so that's the memory for your PC, phone, and game console,
and about half of the world's 3D NAND,
so those are the storage chips in your SSDs, your phones,
and, yes, game consoles.
Nothing has happened on the game console front yet,
but because of that last point,
SSDs in particular could be in a very vulnerable position.
NAND was already expected to jump this year
after enjoying a period of never-before-seen affordability,
and there are multiple factors that speculators
could have expected to contribute to this.
Client devices have almost entirely abandoned
mechanical drives except on the very low end,
data centers are using more SSDs than ever before
to improve performance in highly virtualized deployments
or I/O intensive workloads,
and both Sony and Microsoft are going to be shipping
their next generation game consoles
in holiday 2020
with SSDs rather than hard drives
for the first time.
By the way, total aside,
console gamers, welcome to 2010.
It's awesome, you're gonna like it.
Back on topic, though.
The best case scenario for all of this
is that the candidate vaccine
that's scheduled to begin human trials at the end of April
will be fast and cheap to manufacture
and 100 percent safe and effective,
or even that it won't be necessary
because hotter weather will stop the spread,
and maybe in a few years' time,
we'll be looking back at this as a disproportionate amount
of media coverage
over a particularly nasty strain of the flu.
But if it does not play out like that,
there's no clear end in sight.
This example of inventory hoarding and price increases
is actually not from the tech industry
but rather from speaking with a buddy of mine
who runs a local gym.
Pricing for bulk purchases of badminton shuttles
or birdies of all things
is skyrocketing right now,
and that assumes that you can even find any to buy.
Even lttstore.com has been affected, by the way.
Many of our China sourced items are out of stock.
Now, back when the Thailand floods knocked out
an estimated 30 percent of the hard drive industry's
manufacturing capacity in 2011,
I actually still remember the same kind of hoarding behavior
that I saw from my buddy at the badminton facility
who's just buying every shuttle he can find.
I remember getting this memo
from the president of the company
telling everyone to go and buy--
like literally, go get in their cars and buy
as many cheap external hard drives,
which sometimes trail the bare drives
in terms of pricing fluctuations,
as we were allowed to from local big-box stores
so that we could strip the enclosures off of them
and then sell them in our systems
or to bare drive customers.
Like, if it stretches on for too long, guys,
even the used market will be affected.
When the pricing of brand new hard drives
went up 50 percent from the manufacturer,
retailers added an additional markup
because they couldn't get enough supply,
and the thing is,
the pricing of used hardware tends to follow the trend
set by new hardware,
minus some expected discount
for the uncertainty of not having a warranty.
So in summary, if you're waiting
for some new or upcoming product
like Intel's 10th Gen desktop chips
or NVIDIA's upcoming 3000 series GPUs,
there is nothing that you can do for now
other than hope that they don't get delayed too much.
But if you were holding off on pulling the trigger
on something that's already available today,
I would do it today rather than tomorrow.
I'm not here to debate the measures
that are being put in place
or the validity of the ongoing health concerns.
I'm just here to point at the events
that arise from these concerns
and how they could affect tech enthusiasts.
If you're looking for a recommendation
for a good system, by the way,
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So thanks for watching, guys.
Hope you enjoyed this video,
it's a little different from our usual style,
but hey, leave a comment,
let me know what you think, all right?