Photonics Market Feels Impacts of COVID-19 at Many Levels

JOEL WILLIAMS, ASSOCIATE EDITOR
joel.williams@photonics.com

With COVID-19 now declared a pandemic by the World Health Organization, and states of emergency declared around the globe, the photonics market is starting to feel the impacts of the virus — global supply chains are beginning to slow, and prominent trade shows are beginning to see widespread cancellations and dropouts amid concern about the viral disease.

The impact on the economy, according to Wayde Dazelle, a health economist and M.D. candidate at George Washington University, is varied but ultimately quite disruptive.

An illustration showing the ultrastructural morphology exhibited by coronaviruses. Courtesy of the Centers for Disease Control and Prevention.

“There was some concern about whether or not the recessions resulting from COVID-19 and the impacts on the global supply chain, if that would complicate the global supply of LEDs, for example,” Dazelle told Photonics Media. “There’s actually a surplus of LEDs that has been driving down the value of LEDs, so in the long run this may actually help in the economic productivity of the LED market as a whole.”

But in the medical context, that might not be the case. UV-C LEDs, which are often used for decontamination, are seeing a spike in demand due to their effectiveness in the context of the pandemic. According to Dazelle, approximately 90% of the pathogenicity of the virus can be eradicated through exposure to UV-C light.

“What complicates that a little bit, of course, is that ... South Korea manufactures a great deal of the UV-C LEDs, and they’ve been getting hit pretty hard with the epidemic as of late,” Dazelle said. “So while a lot of orders are going into South Korean firms, it has yet to be seen whether they can fill those orders, especially considering the portion of the workforce that might be inactive at the moment.”

Stockpiles of supplies, according to economist and writer David Griscom, are not the norm.

“With the prevalence of the just-in-time supply chain, a global pandemic like coronavirus is certain to interrupt supply chains,” Griscom told Photonics Media. “This system avoids stockpiling and warehousing of goods in the pursuit of higher profits by avoiding those added costs.”

Consumer technology especially, Griscom said, is susceptible to that risk due to the amount of necessary raw materials and specialized components that go into the final product.

“Many Chinese factories are closed or working in a reduced capacity, and even those that are still producing are finding it difficult to ship to the U.S.A.,” Griscom said.

The lack of stockpiles and the inability, or unwillingness, to produce those goods domestically will likely lead to higher prices in the future, he continued.

That effect, Dazelle pointed out, will likely manifest itself within the fiber optics market.

Wayde Dazelle, a health economist and M.D. candidate at George Washington University. Courtesy of George Washington University.

“The largest concentration of manufacturers of fiber optic cables and wiring is actually found in the Wuhan region of China — about 25% of the global supply of fiber optics is produced in that region of China, which is the epicenter of the pandemic,” he said.

Production in Wuhan has resumed in a somewhat limited capacity, and it remains to be seen whether that will be sustainable.

“Production of at least 25% of the global supply of fiber optics has essentially dropped to zero or near zero, and that will have a big impact on the market, especially as people are beginning to roll out 5G where they’re having to build and wire networks, and if there’s an inadequate supply of these cables, then establishing these networks is going to become far more costly, even as we’re beginning to enact anti-cost-gouging rules and guidelines, it has yet to be seen how that’s going to affect manufacturing,” Dazelle said.

From a U.S. perspective, Dazelle said, that may be a good thing, at least in the short term.

Domestically, one of the largest suppliers of fiber optic components is Corning, which has a manufacturing operation in North Carolina.

“So this is a situation where the supply is going down, but demand might stay where it is or pick up a little bit, at least for the American context, because it’s going to be a bunch of new actors within the market looking to buy,” Dazelle said. “One of the biggest manufacturers is going to be an American company, so they might have some pretty good prospects, but the global supply at the same time is going to be in trouble pretty seriously.”

China, Dazelle pointed out, will be feeling the brunt of that impact as 5G rollouts are slowed due to the reduced supply.

“I think a lot of the impact on photonics is really going to require that we turn our attention to China, that we turn our attention to South Korea, we turn our attention to Italy, and we really have to hope that the stockpiles of these supplies will last, and if they don’t, then we can identify alternative suppliers and producers of this tech,” Dazelle said.

“You would think that would be a lesson we would have learned in 2011 with the Fukushima disaster. Similarly there was a pretty serious impact on car manufacturing and tech manufacturing within Japan, and it lasted for quite some time,” Dazelle continued. “And it exposed issues with having a single link within the supply chain for provision of tech for provision of materials, and a lot of companies were really negatively affected. We had companies swearing up and down that they would begin reevaluating their business practices, that they would diversify their supply chain, but to date very, very few have done that and I think we’re going to start to see that within the tech field. I think companies, producers, and consumers are all going to end up paying the price.”

Economic impact in the short term, Dazelle said, will be fairly significant, but long-term impacts can still be managed with appropriate response. Responses in China, South Korea, and Italy have focused on crisis mitigation, quarantining large swathes of their populations, and limiting further spread of the virus.

“Top-down responses, although they are the most effective for addressing a developing pandemic situation with a respiratory infection, they do have pretty adverse impacts in the short term, on economic health, on manufacturing, but in the long run, they will pay off, because they will preserve a significant portion of the workforce and we’ll avoid potentially crippling it for years to come. By contrast, in the U.S., not quite so top-down,” Dazelle said.

According to projections, Dazelle said, the United States will begin to see many more cases.

“Projections show that we’re right on the cusp of that critical junction point where if we don’t address it now, it will grow out of control,” he said.

With hotspots beginning to pop up, concern is growing within the medical community about the country’s capacity to handle the pandemic.

“If we don’t begin intervening in a serious way, this will have a profound impact on the health of the nation, but also on the economic productivity and the manufacturing capability of the United States,” Dazelle said.

“Coronavirus will affect us all but it will affect the poor and working class the most,” Griscom said. “The average American does not have enough savings to cover a financial emergency, let alone an event that prevents them from earning an income during a quarantine. Additionally, with such high rates of Americans with no insurance, and among those who do have insurance and still suffer from high deductibles and restrictive plans, the financial strain will be immense. This pressure makes people more likely to show up to work when they should be under self-quarantine. Even more frightening is the reality that people will forgo medical treatment, when they certainly need it, out of fear of the cost.”

“At the end of the day, the most economically productive units of the economy are the workers, the individuals, and if we’re not taking care of the workers, we’re not adequately taking care of the population; we’re sentencing ourselves to economic catastrophe,” Dazelle said.

In order to mitigate long-term economic harm, both economists advocated for swift decisive action, and for governments and companies to think about the long term.

“I think it’s very easy for us to get caught up in the short course. In behavioral economics, which is a specialization of mine, we often study individuals’ responsiveness to changes to money and finance over time. Individuals undoubtedly value present money, current money, much more than they value future money,” Dazelle said.

Responses to the pandemic, he said, should focus on the long term, rather than ensuring profits in the short term.