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Next two weeks will decide if the new H7N9 flu will undermine phone sales

Updated Apr 10th, 2013 12:43PM EDT
Smartphone Sales Analysis

Asian disease epidemics can be poison for consumer electronics sales. The big SARS scare of 2003 had a major impact on Chinese handset volumes. In April of the year SARS swept the East, Chinese phone sales abruptly declined by nearly 10%, violently reversing the month-on-month sales growth of March. Back then, China was such a small part of worldwide phone sales that the spring swoon did not have much of a global impact. 10 years later, China’s role in global handset market is far greater, and the consumer reaction to a new epidemic could move the needle on worldwide shipment volumes.

It is worth noting that SARS wasn’t exactly a match to the Great Influenza epidemic of 1918 — SARS ended up killing fewer than 800 people globally and the epidemic burned out in a matter of months. The public hysteria probably peaked around the last week of March, when the WHO recommended screening of airline passengers for symptoms. In April, Chinese consumers stayed away from shopping venues in droves.

The novel H7N9 flu is not a corona virus. It is avian influenza virus, which in theory could evolve into something highly contagious. However, at the moment the virus does not seem to be spreading easily or rapidly. As of the morning of April 10th, there are 33 reported cases and nine deaths. Yet there are two factors here that could influence public perception of danger and thus consumer behavior in China and neighboring countries.

First: there are cases in several provinces surrounding Shanghai, including Jiangsu, Zhejiang and Anhui. These provinces are home to nearly 50 million people. There have been no confirmed cases of human-to-human transmission, which is a big relief. But the fact that the cases are already spread so widely could alarm people and shape their willingness to shop.

Second: the apparent mortality level is extremely high, which makes H7N9 seem scary. As Laurie Garret points out, this is very likely the result of mild cases going undiagnosed. So the actual mortality level could well be 0.1% instead of the apparent 30% based on official cases.

But as far as consumer behavior is concerned, the apparent mortality level could create the kind of scare factor that the early SARS mortality numbers did in March 2003.

The timing here is tricky, because two of the biggest smartphone launches of the year are happening over the coming months as Samsung’s (005930) Galaxy S4 rolls out in late April and the next iPhone presumably debuts over the summer. The next two weeks of H7N9 spread in China is likely to determine whether we will witness the kind of consumer behavior shift we did in the spring of 2003.

If new cases do not spread outside the current provinces and the overall count does not suddenly leap into the hundreds, the impact on phone sales is likely to be negligible. If we see a spike in geographic reach and patient count, a sudden plunge in phone sales will probably follow.

Back in 2003, phone sales in Asia were driven by new subscribers — this time around, sales hinge on upgrades, which are very vulnerable to mood swings.

After launching mobile game company SpringToys tragically early in 2000, Tero Kuittinen spent eight years doing equity research at firms including Alliance Capital and Opstock. He is currently an analyst and VP of North American sales at mobile diagnostics and expense management Alekstra, and has contributed to, Forbes and Business 2.0 Magazine in addition to BGR.