SARS Morphs New Concerns for Asian IT Industry

By Mark Berniker

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The economic impact of SARS (severe acute respiratory syndrome) on the Asian information technology industry is becoming more acute.

Several technology companies are now citing SARS as a reason for declining financial results, and more are detailing what impact the deadly virus may have on earnings for the rest of the year.

Several announcements in recent days from technology companies point to growing concerns not only in China, but also in Hong Kong, Singapore and other Asian countries where global technology companies have essential corporate operations.

Asian business leaders continually meeting in an effort to share information about coping with the ongoing SARS crisis as well as assessing the economic impact on both local and international companies with interests in China and elsewhere in Asia.

The tourism industry in China has already taken a major hit, and now one Chinese Internet company is delivering more bad news.

Chinadotcom said in its second quarter financial report that it has seen some impact from SARS mainly in China, Hong Kong and Singapore.

The company said business risks associated with SARS include reduction in consulting projects and advertising revenues, as well as reduction of SMS marketing budgets by mobile network operators in China, which could reduce the growth rate of subscribers for its Newpalm mobile software division.

Other businesses such as software and IT outsourcing may be disrupted as well, it said, if its clients, suppliers or partners or the company itself suffer temporarily as a result of public health related measures.

Internally, the company has implemented travel rules and flexible work-at-home practice to safeguard the health of its employees, but its outlook is at best, clouded by the illness. "The situation with SARS could deteriorate or improve in a very short time," the company said in its filing.

chinadotcom is one among many Internet-based companies that are citing the SARS impact in financial results. Singapore-based Creative Technology said it would likely report a significant drop in profits.

The company, which is world's largest sound card maker, has already warned of slumping sales. Analysts now estimate the company will see between 60 and 70 percent drop in year-on-year profits. Asia accounts for 15 percent of Creative's total sales.

On Tuesday, Motorola closed its main office in Beijing after one employee came down with SARS. But now, it reportedly plans to reopen the 18-story building next Monday.

The building houses 1,000 Motorola staff, which are currently working from home or commuting to Motorola's other offices in west Beijing.

Meanwhile, an analyst is noting that SARS will impact global sales of personal computers. Goldman Sachs computer hardware analyst Laura Conigliaro has lowered her her 2003 worldwide growth expectations for PC units from 6 percent to 5 percent.

IDC is out with its numbers for IT spending in the Asia Pacific saying it expects a pick up in 2004 with projected 11.7 percent growth to $86 billion. IDC says for the full year 2002 the Asia-Pacific, excluding Japan, the IT market grew by 2.6 percent in 2002 over the prior year, and was worth $72 billion.

IDC said it forecasts the Asian IT market to grow by 7.6 percent in 2003 to $77 billion. IDC also recognizes it is difficult to assess the full economic impact of SARS on the Asia-Pacific IT spending market for the second half of 2003, and into 2004.

While SARS first surfaced in China back in November, several ASEAN (Association of Southeast Asian Nations) have been critical of the Chinese government's slow reaction to the spread of the virus.

What is disturbing for Asian leaders is the potentially catastrophic economic impact if the SARS epidemic isn't controlled in the near future. The World Health Organization reports 6,700 confirmed cases of SARS since November, including more than 480 deaths. China and Hong Kong account for more than 6,050 of the infections and more than 400 of the deaths, according to the WHO.

While the focus of the SARS crisis has been in China, the Philippines reported seven more cases in recent days, bringing its total to 10.

The tourism board said a damaging drop in visitor arrivals due to SARS had probably bottomed out after a record plunge of 67 per cent in April from a year earlier. Officials in Thailand said health ministers from the Asia Pacific Economic Cooperation (APEC) forum, which includes China and the United States, would meet in Bangkok on June 28 to assess the impact of the SARS virus on the regional economy.

The Bangkok Post reported on Wednesday that the Thai Chamber of Commerce University believes Thai exports could be affected if the virus continued to spread in June. But if the virus spreads further after June, he predicted that Thailand's exports and overall economy would suffer in the third quarter.

Analysts say the duration of the SARS crisis is a key issue when forecasting the impact it will have on capital IT spending and overall economic activity in the second half of 2003, and into 2004.

It should come as no surprise that some technology companies are trying to figure out ways of profiting from the potential solutions to the SARS virus.

Affymetrix said that only a month after the genetic code of the SARS virus was mapped it has put all that information on a gene chip aimed at helping identify all possible variations in the virus. The chip could analyze mutations of the SARS virus that could help explain why some infected individuals die, while most survive. Each Affymetrix chip contains more than 300,000 different fragments of DNA that become visible when they match up with a corresponding piece of DNA from the virus.

Researchers could also use the chip in the hunt for effective treatments and vaccines. In April, labs in the United States, Canada and Asia announced that they had identified all 29,727 chemical letters or bases in the virus' genetic code.

Several biotechnology and pharmaceutical companies, the federal government and researchers in Canada and Hong Kong have filed SARS-related patent applications in recent weeks, claiming ownership of everything from bits of genetic material to the virus itself.

The US Centers for Disease Control and Prevention, for instance, claims ownership of the virus and its entire genetic content. Rather than trying to profit if such a patent were awarded, the CDC says its application is to prevent others from monopolizing the field.