April 2, 2020

LightCounting assesses COVID-19 impact after the first three months.

The first quarter of 2020 has come to a close with the world gripped by the global COVID-19 pandemic, and many countries have now put ‘hard stops’ on their economies in order to slow its spread. While there is still a great deal of uncertainty about the severity and length of the pandemic and its economic aftermath, the human and economic toll will be undeniably great.

Against this dire backdrop, telecommunications and data centers are being designated essential businesses that are allowed to remain open. But beyond that, how can we expect the telecom/optics ecosystem to fare?

LightCounting has published a Research Note today offering our observations and assessment based on the first three months. We reached four fact-based conclusions:

  1. China is getting back to business, more or less
  2. Bandwidth demand is getting a boost from social distancing measures
  3. Infrastructure capex is showing signs of strength
  4. Equipment and component company sales will be impacted but not catastrophically

Supporting evidence and analysis for the above are presented in the Research Note.

The note ends with our consensus opinion that the longer term impacts of COVID-19 will benefit the digital economy and by extension optical communications. Our belief in that statement is based on the following.

The concept of “punctuated equilibrium”, originated by evolutionary biologist Stephen J. Gould, holds that species evolve not at a slow and constant rate of change, but rather endure long periods of stability, punctuated by short bursts of rapid evolution in response to drastic perturbations in the environment. The same concept applies to societies and economies as well. We believe it likely that the coronavirus pandemic of 2020-2021 will result in an acceleration of trends favoring the ‘digital economy’.

In the United States for example, tens of millions of students are now attending college and secondary schools remotely, and more tens of millions of adult workers, and their employers, are getting their first experience with working from home. Once that genie is out of the bottle it may prove difficult to put it back in. Businesses may realize productivity does not suffer and there are benefits such as reduced office costs and reduced greenhouse gas emissions.

Heightened awareness of social hygiene and new habits like touch-free shopping will linger long after the coronavirus is finally under control. This should boost the use of digital wallets, online shopping, food and grocery delivery services, and is already expanding those concepts to new segments like retail pharmacies.

Similarly there may be a lingering aversion to mass transit solutions requiring dense packing of people in large containers, like subways, trains, buses and airplanes. Substitutes offering more isolation and protection like bicycling, small robot taxis, and telecommuting may find increased use and acceptance than they did before the virus.

The virus and its wrenching impact will also expose and highlight current weaknesses and inequalities in broadband access and healthcare access, resulting in greater access to fixed and mobile internet in poor and rural areas, and more widespread use of telemedicine.

Finally, the companies underpinning this shift to digital – Alphabet, Amazon, Apple, Facebook, and Microsoft – are well positioned to weather the inevitable but temporary reductions in smartphone, tablet, and laptop sales, and online ad revenues – having little or no debt and hundreds of billions of cash on hand. In contrast, malls and other brick and mortar retail chains which were already hurting may be dealt a final blow by this pandemic.

Of course this future scenario is speculation at this point, and it assumes we manage to somehow overcome the massive economic and societal challenges posed by the pandemic without sinking into a global depression. On the whole, though, it is difficult to think of another industry we would rather be in, as we ride through this storm.

LightCounting subscribers can access the full Research Note here: http://lightcounting.com/auth/login


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